<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VISIONEER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3577 94-3156479
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
34800 CAMPUS DRIVE, FREMONT, CALIFORNIA 94555 (510) 608-0300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICERS)
J. LARRY SMART
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VISIONEER, INC.
34800 CAMPUS DRIVE
FREMONT, CALIFORNIA 94555
(510) 608-0300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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JOHN V. BAUTISTA KATHARINE A. MARTIN
FRANCES JOHNSTON GABRIELLA A. LOMBARDI
C. HOWARD KORRELL DAVINA K. KAILE
VENTURE LAW GROUP PILLSBURY MADISON & SUTRO LLP
2800 SAND HILL ROAD 2550 HANOVER STREET
MENLO PARK, CALIFORNIA 94025 PALO ALTO, CALIFORNIA 94304
(650) 854-4488 (650) 233-4500
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: Upon consummation of the merger described herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE(2)
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Common Stock, par value $.001(1) 37,516,898(2)
Series B Preferred Stock, par value $0.001 7,179,495(2)H (3) $17,604,370(3) $4,894(4)
Warrants to purchase Common Stock (2)
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</TABLE>
(1) Associated with the Common Stock are preferred stock purchase rights that
will not be exercisable or be evidenced separately from the Common Stock
prior to the occurrence of certain events.
(2) The number of shares of Common Stock and Series B Preferred Stock of the
Registrant to be registered is based on the number of outstanding shares of
the Registrant that the Registrant estimates will be issued and outstanding
as of the closing date of the merger to which this Registration Statement
relates. The number of shares of Common Stock to be registered also includes
shares of Common Stock issuable upon conversion of the shares of Series B
Preferred Stock of the Registrant and upon the exercise of the Warrants to
purchase Common Stock (the "Warrants") to be issued in the merger. This
Registration Statement also covers such indeterminate number of shares, if
any, as shall be issuable from time to time as required pursuant to
adjustments pursuant to the terms of the Series B Preferred Stock and the
Warrants.
(3) Pursuant to Rule 457(f) under the Securities Act of 1933, the registration
fee was computed on the basis of (i) the market value of the outstanding
shares of the Registrant to be exchanged in the merger, computed in
accordance with Rule 457(g) on the basis of the average of the high and low
prices per share of such stock on January 11, 1999, as reported by The
Nasdaq Stock Market, less the product of 5,097,000 and $2.06, representing
cash to be paid by Xerox Corporation for shares of the Registrant in the
merger, plus (ii) in accordance with Rule 457(f)(2), the book value of the
securities of ScanSoft, Inc. to be received in the merger, which was
$3,288,000 as of September 30, 1998, the most recent practicable date.
(4) A filing fee of $658 was previously paid by the Registrant pursuant to Rule
14a-6 under the Securities Exchange Act of 1934 in connection with the
filing of the preliminary proxy statement/prospectus on December 24, 1998.
Pursuant to Rule 457(b) under the Securities Act of 1933, such fee is being
credited against the registration fee and, accordingly, $4,236 is being paid
in connection with the Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
The information in this proxy statement/prospectus is not complete and may be
changed. Visioneer may not issue its common stock in the merger until the
registration statement containing this proxy statement/prospectus is declared
effective by the Securities and Exchange Commission. This proxy
statement/prospectus is not an offer to sell these securities and it is not a
solicitation of an offer to buy these securities in any state where the offer or
sale is not permitted.
VISIONEER LOGO
PROXY STATEMENT/PROSPECTUS
OF
VISIONEER, INC.
To the Stockholders of Visioneer, Inc.:
The board of directors of Visioneer, Inc. has approved the merger of
ScanSoft, Inc., an indirect wholly owned subsidiary of Xerox Corporation, and
Visioneer. Visioneer will be the Surviving Corporation. In the proposed merger,
you can choose to receive, for each of your shares, $2.06 in cash or one share
of Surviving Corporation common stock. The Surviving Corporation common stock
will be the same as your current shares, except that the name of the Surviving
Corporation will be changed to ScanSoft, Inc. The amount of cash that you may
receive in the merger will be subject to certain limitations and adjustments, as
described in this document. At least 5,097,000 shares of Visioneer common stock
will be exchanged for cash in the merger.
Xerox Imaging Systems, Inc., a subsidiary of Xerox, is currently the sole
stockholder of ScanSoft. If the merger is completed, Xerox Imaging Systems will
own 45% of the outstanding common stock and all of the convertible Series B
preferred stock of the Surviving Corporation. The Series B preferred stock is
non-voting and will be convertible into Surviving Corporation common stock in
certain circumstances. All outstanding options to purchase ScanSoft stock will
become options to purchase Surviving Corporation common stock. Xerox will
receive a common stock warrant exercisable for that number of shares equal to
the number of assumed ScanSoft option shares that are forfeited from time to
time after the merger. On a fully-diluted basis, Xerox and the former ScanSoft
optionholders will own approximately 53.8% of the Surviving Corporation's
capital stock after the merger, subject to adjustment.
The merger cannot be completed unless the holders of a majority of the
outstanding shares of Visioneer common stock on the record date vote to approve
the merger agreement and the merger, including an amendment to Visioneer's
certificate of incorporation. Visioneer's board of directors has called a
special meeting of stockholders to vote on the merger agreement and the merger
on:
February 23, 1999 at 10:00 a.m., local time
at the principal executive offices of Visioneer, Inc.
34800 Campus Drive
Fremont, California 94555
Whether or not you plan to attend the special meeting, please complete,
sign and mail the attached proxy card in the enclosed envelope. Only
stockholders who held their shares of Visioneer common stock at the close of
business on January 12, 1999 will be entitled to vote on the merger agreement
and the merger.
This document gives you detailed information about the proposed merger. We
encourage you to read the entire document carefully. Please see "Where You Can
Find More Information" on page 1 for additional information about Visioneer on
file with the Securities and Exchange Commission.
THE "RISK FACTORS" SECTION BEGINNING ON PAGE 16 DESCRIBES CERTAIN RISKS
THAT YOU SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR APPROVAL OF THE MERGER
AGREEMENT AND THE MERGER.
In accordance with Delaware law, holders of Visioneer common stock may be
entitled to exercise dissenters' rights in connection with the merger. Please
review "Stockholders' Appraisal Rights" section beginning on page 93.
This proxy statement/prospectus, a proxy card and the Form 10-K and 10-Q
for Visioneer are being mailed to stockholders on or about January , 1999.
Very truly yours,
J. Larry Smart
President and Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THE SURVIVING CORPORATION COMMON STOCK TO
BE ISSUED IN THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this proxy statement/prospectus is January , 1999.
<PAGE> 3
VISIONEER LOGO
VISIONEER, INC.
34800 CAMPUS DRIVE
FREMONT, CALIFORNIA 94555
(510) 608-0300
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
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Date: February 23, 1999
Time: 10:00 a.m.
Place: 34800 Campus Drive
Fremont, California 94555
</TABLE>
At the special meeting, the stockholders of Visioneer, Inc. will vote upon
a proposal to approve and adopt the merger of Visioneer, Inc. and ScanSoft,
Inc., an indirect wholly owned subsidiary of Xerox Corporation, the related
Agreement and Plan of Merger, dated as of December 2, 1998, between Visioneer
and ScanSoft, and an amendment to Visioneer's certificate of incorporation.
Your vote is very important. Please vote as soon as possible by completing
the proxy card and returning it in the enclosed envelope. If you decide to
attend the meeting in person, you can withdraw your proxy and vote at that time.
PLEASE DO NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY CARD. INSTEAD,
PLEASE SEND YOUR STOCK CERTIFICATES, ALONG WITH THE ENCLOSED CASH ELECTION FORM,
TO VISIONEER'S EXCHANGE AGENT IN THE ENCLOSED ENVELOPE FOR DELIVERY NO LATER
THAN THE DATE OF THE SPECIAL MEETING.
Only stockholders of record at the close of business (5:00 p.m. California
time) on January 12, 1999 are entitled to one vote for each share held. A list
of these stockholders will be available for inspection for ten days preceding
the meeting at the office of the President of Visioneer at 34800 Campus Drive,
Fremont, California 94555, and will be available for inspection at the meeting
itself.
THE BOARD OF DIRECTORS OF VISIONEER HAS DETERMINED THAT THE MERGER IS IN
THE BEST INTERESTS OF VISIONEER STOCKHOLDERS. THE BOARD HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE TO ADOPT AND APPROVE THE MERGER AGREEMENT AND THE MERGER AT THE SPECIAL
MEETING.
By order of the Board of Directors,
/s/ JOSHUA L. GREEN
Joshua L. Green
Secretary
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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WHERE YOU CAN FIND MORE INFORMATION......................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 1
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 3
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE............. 6
SUMMARY..................................................... 7
Selected Historical Condensed Financial Information and
Comparative Per Share Data............................. 12
Selected Historical Financial Data........................ 12
Unaudited Selected Pro Forma Condensed Combined Financial
Data................................................... 14
Comparative Per Share Data................................ 15
RISK FACTORS................................................ 16
Merger-Related Risk Factors............................... 16
Risk Factors Related to the Companies' Business and
Operations............................................. 17
THE SPECIAL MEETING......................................... 25
Date, Time and Place of Meeting........................... 25
Matters to be Considered.................................. 25
Required Vote............................................. 26
Voting and Revocation of Proxies.......................... 26
Record Date; Stock Entitled to Vote; Quorum............... 26
Stockholders' Appraisal Rights............................ 26
Solicitation of Proxies................................... 27
THE MERGER.................................................. 28
Background of the Merger.................................. 28
Recommendation of Visioneer's Board of Directors; Reasons
for the Merger......................................... 30
Xerox's Reasons for the Merger............................ 31
ScanSoft's Reasons for the Merger......................... 31
Opinion of Visioneer's Financial Advisor.................. 32
Merger Consideration...................................... 37
Effective Time of the Merger.............................. 40
Federal Income Tax Consequences........................... 41
Accounting Treatment...................................... 44
Effect on Visioneer and ScanSoft Options.................. 44
INTERESTS OF CERTAIN PERSONS IN THE MERGER AND RELATED
MATTERS................................................... 45
Agreements with Visioneer's Executive Officers............ 45
Directors' and Officers' Indemnification and Insurance.... 46
Board of Directors of the Surviving Corporation........... 46
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION............................................... 47
COMPARATIVE STOCK PRICE DATA AND DIVIDEND HISTORY........... 54
INFORMATION ABOUT VISIONEER................................. 55
Business of Visioneer..................................... 55
Year 2000 Compliance...................................... 55
</TABLE>
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INFORMATION ABOUT SCANSOFT.................................. 57
Business of ScanSoft...................................... 57
ScanSoft Products......................................... 58
Enabling Technology....................................... 58
Competition............................................... 59
Marketing, Sales and Distribution......................... 60
Research and Development.................................. 61
Intellectual Property And Other Proprietary Rights........ 62
Employees................................................. 63
Properties................................................ 63
Legal Proceedings......................................... 63
SCANSOFT MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 64
Results of Operations..................................... 64
Revenue................................................... 64
Cost of Revenues.......................................... 65
Operating Expenses........................................ 65
Certain Trends............................................ 66
Year 2000 Compliance...................................... 66
Liquidity and Capital Resources........................... 68
COMPARISON OF STOCKHOLDER RIGHTS............................ 69
General................................................... 69
Comparison of Current ScanSoft Stockholder Rights and
Rights of Stockholders Following the Merger............ 69
DESCRIPTION OF CAPITAL STOCK................................ 72
Existing Capital Stock.................................... 72
Antitakeover Effects of Provisions of the Existing
Certificate of Incorporation and Delaware Law.......... 72
Capital Stock Following the Merger........................ 73
THE MERGER AGREEMENT AND RELATED AGREEMENTS................. 75
The Merger................................................ 75
Representations and Warranties............................ 75
Certain Pre-Closing Covenants and Agreements.............. 77
Additional Agreements..................................... 79
Conditions to the Consummation of the Merger.............. 81
Termination............................................... 83
Amendment................................................. 84
Extension; Waiver......................................... 84
Related Agreements........................................ 84
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF PRINCIPAL
VISIONEER STOCKHOLDERS AND MANAGEMENT..................... 89
INFORMATION REGARDING SOLE STOCKHOLDER OF SCANSOFT.......... 91
Relationship With Xerox................................... 91
License Agreement......................................... 91
Other Transactions with Xerox............................. 91
REGULATORY APPROVALS........................................ 92
Antitrust................................................. 92
Other..................................................... 92
</TABLE>
ii
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STOCKHOLDERS' APPRAISAL RIGHTS.............................. 93
LEGAL MATTERS............................................... 95
EXPERTS..................................................... 96
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING............... 96
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........... 96
INDEX TO SCANSOFT, INC. AND SUBSIDIARIES CONSOLIDATED
FINANCIAL STATEMENTS...................................... F-1
</TABLE>
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ANNEX A AGREEMENT AND PLAN OF MERGER
ANNEX B IRREVOCABLE PROXY/VOTING AGREEMENT
ANNEX C OPINION OF BROADVIEW INTERNATIONAL LLC
ANNEX D SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
ANNEX E FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF THE SURVIVING CORPORATION
</TABLE>
iii
<PAGE> 7
WHERE YOU CAN FIND MORE INFORMATION
Visioneer files annual, quarterly and current reports, proxy solicitation
statements and other information with the Securities and Exchange Commission
(the "Commission" or "SEC"). You may read and copy any reports, statements or
other information filed by Visioneer at the Commission's public reference rooms
in Washington, D.C., New York City and Chicago. Please call the Commission at
1-800-SEC-0330 for further information on the public reference rooms.
Visioneer's filings are also available to the public from commercial document
retrieval services and at the Internet website maintained by the Commission at
http://www.sec.gov.
Visioneer filed a Registration Statement on Form S-4 (the "Registration
Statement") to register with the Commission the Visioneer common stock to be
issued to ScanSoft stockholders in the merger. This proxy statement/prospectus
is a part of that Registration Statement. As allowed by the Commission's rules,
this proxy statement/prospectus does not contain all of the information you can
find in the Registration Statement or the exhibits to the Registration
Statement. This proxy statement/prospectus summarizes some of the documents that
are exhibits to the Registration Statement, and you should refer to the exhibits
for a more complete description of the matters covered by those documents.
Visioneer has supplied all information contained in this proxy
statement/prospectus relating to Visioneer, and ScanSoft has supplied all such
information relating to ScanSoft.
Neither Visioneer nor ScanSoft has authorized anyone to give any
information regarding the solicitation of consents or the offering of shares of
Visioneer common stock that is different from what is contained in this proxy
statement/prospectus. This is not an offer to sell or a solicitation of anyone
to whom it would be unlawful to make an offer or solicitation. You should not
assume that the information contained in this proxy statement/prospectus is
accurate as of any time after the date of this proxy statement/prospectus, and
neither the mailing of this proxy statement/prospectus to stockholders nor the
issuance of Visioneer common stock in the merger should create any implication
to the contrary.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means we can disclose important information to you by referring
you to those documents. The information included in the following documents is
incorporated by reference and is considered to be a part of this proxy
statement/ prospectus. The most recent information that we file with the SEC
automatically updates and supersedes more dated information. We have previously
filed the following documents with the SEC and incorporate them by reference
into this proxy statement/prospectus:
1. Our Annual Report on Form 10-K for the year ended December 28, 1997;
2. Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998, June 28, 1998 and September 27, 1998; and
3. Our Current Report on Form 8-K filed on December 8, 1998.
We also incorporate by reference all documents subsequently filed by
Visioneer pursuant to section 13(a), 13(c), 14 or 15(d) of the Exchange Act
until the date of the special meeting.
This proxy statement/prospectus is accompanied by our Annual Report on Form
10-K for the year ended December 28, 1997 and our Quarterly Report on Form 10-Q
for the quarter ended September 27, 1998. We will provide without charge to each
person to whom a proxy statement/prospectus is delivered, including any
beneficial owner, a copy of any or all of the information that has been
incorporated by reference in this proxy statement/prospectus. If you would like
to obtain this information from us, please direct your request, either in
writing or by telephone, to J. Larry Smart, President and Chief Executive
Officer, Visioneer, Inc., 34800 Campus Drive, Fremont, California 94555,
telephone (510) 608-0300.
You should rely only on the information contained or incorporated by
reference in this proxy statement/ prospectus to vote on the approval of the
merger agreement and the merger. Neither Visioneer nor ScanSoft has authorized
anyone to provide you with information that is different from what is contained
in this proxy
<PAGE> 8
statement/prospectus. This proxy statement/prospectus is dated January , 1999.
You should not assume that the information contained in the proxy
statement/prospectus is accurate as of any other date, and neither the mailing
of this proxy statement/prospectus to stockholders nor the issuance of Visioneer
common stock in the merger should create any implication to the contrary.
Anyport, Autolaunch, Paper-Drive, PaperPort, PaperPort Links, PaperPort IX,
PaperPort VX, PaperPort XX, SharpPage and Visioneer are trademarks of Visioneer,
Inc. ScanSoft, TextBridge Classic, TextBridge API, PerfectScan API, TextBridge
Plus, TextBridge Pro, Pagis SE, Pagis Pro, Pagis API, ScanWorks, ScanWorX and
ScanWorX-API are trademarks of ScanSoft. Trademarks of other corporations and
organizations are also referenced in this proxy statement/prospectus.
2
<PAGE> 9
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY IS VISIONEER PROPOSING THE MERGER? HOW WILL I BENEFIT?
A: We believe that the proposed merger will create a company well positioned to
build upon Visioneer and ScanSoft's heritage of leadership in the digital
imaging software market. We believe the combined company will have an
effective cost structure, a strong development team and well-branded
products, which we believe can create value for stockholders.
To review the background and reasons for the merger in greater detail, see
pages 28-32.
Q: WHEN IS THE SPECIAL MEETING?
A: The special meeting will take place on February 23, 1999. At the special
meeting, Visioneer stockholders will be asked to approve the merger and the
related merger agreement signed by Visioneer and ScanSoft on December 2,
1998. As part of the merger, Visioneer will also amend its certificate of
incorporation. Xerox Imaging Systems, Inc., a subsidiary of Xerox Corporation
and ScanSoft's sole stockholder, has already approved the merger agreement
and the merger.
For additional information regarding the special meeting, see page 25.
Q: WHAT DO I NEED TO DO NOW?
A: Please mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the special meeting. We
prefer that you sign and return your completed proxy card whether or not you
attend the special meeting in person. You must also fill out the enclosed
cash election form to indicate whether you want to receive cash for your
shares or if you want your shares to be converted into shares of Surviving
Corporation common stock. You must send the following to U.S. Stock Transfer
Corporation, Visioneer's exchange agent, at the address shown on the cash
election form:
- a completed cash election form and
- all of your stock certificates, endorsed according to the instructions
on the cash election form.
If you do not return the cash election form and your endorsed stock
certificates in the enclosed envelope to U.S. Stock Transfer Corporation by
5:00 p.m. New York time (2:00 p.m. California time) on the date of the
special meeting, your shares will be treated in the same manner as the shares
that elect to be converted into shares of Surviving Corporation common stock,
subject to the proration discussed below.
Q: WHAT IS THE DIFFERENCE BETWEEN SHARES OF SURVIVING CORPORATION COMMON STOCK
AND VISIONEER COMMON STOCK?
A: They are the same. Visioneer will be the Surviving Corporation, although its
name will be changed to "ScanSoft, Inc." Therefore, you should return any
stock certificates with the "Visioneer, Inc." name so they can be replaced
with new stock certificates with the name "ScanSoft, Inc."
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: Just complete, date and sign a new proxy card and mail it to Visioneer. The
new proxy card must arrive before the date of the special meeting. You can
also attend the meeting in person and vote.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should instruct your broker to vote your shares, following the
directions provided by your broker. Without instructions, your shares will
not be voted. Shares which are not voted will have the same effect as votes
against the merger.
Q: PLEASE EXPLAIN WHAT I WILL RECEIVE IN THE MERGER.
A: If the merger is completed, and subject to certain proration and book value
adjustments discussed below, Visioneer stockholders who chose to convert
their shares into cash will receive $2.06 per share. At least 5,097,000
shares of Visioneer common stock will be exchanged for cash. Visioneer
stockholders who chose
3
<PAGE> 10
not to receive cash but to receive shares of Surviving Corporation common
stock will receive new stock certificates for shares of Surviving Corporation
common stock.
However, if holders of more than 5,097,000 shares of Visioneer common stock
choose to receive cash, there will be a proration or pro rata cutback. Under
this cutback, stockholders who elected to receive cash will only receive
cash for a portion of their shares. Conversely, if holders of less than
5,097,000 shares chose to receive cash, there will be a pro rata increase
such that stockholders who elected to receive Surviving Corporation common
stock will only be able to receive Surviving Corporation shares for some of
their Visioneer shares and the remainder of their Visioneer shares will be
converted into cash.
In addition, the number of shares that will be converted into cash may be
increased based on a provision in the merger agreement called the net book
value adjustment. The actual number of shares converted into cash will
depend upon the amount of the net book value adjustment.
To review the consideration to be received by Visioneer and ScanSoft
stockholders in the merger, along with the proration and book value
adjustment calculations, see pages 37-40.
Examples:
- The exchange agent receives requests to convert exactly 5,097,000
shares into cash.
(A) You elected to convert all 100 of your shares into cash. You will
receive $206.00 in exchange for your 100 shares at $2.06 per
share.
(B) You elected to receive shares of Surviving Corporation common
stock and no cash for your 100 shares. You will receive 100
shares of Surviving Corporation common stock in exchange for your
100 shares of Visioneer common stock.
- The exchange agent receives requests to convert 10,194,000 shares into
cash.
(A) You elected to convert all 100 of your shares into cash. Since
the cash election is "oversubscribed" by twice the number of
shares to be converted into cash, you will receive cash for 50 of
your 100 shares, or $103.00, and 50 shares of Surviving
Corporation common stock for the 50 shares that could not be
converted into cash.
(B) You elected to receive shares of Surviving Corporation common
stock and no cash for your 100 shares. Because the cash election
was oversubscribed, you will receive shares of Surviving
Corporation common stock for all 100 of your shares.
- The exchange agent receives requests to convert 4,000,000 shares into
cash. The cash election is undersubscribed by 1,097,000 shares
(5,097,000 - 4,000,000). For purposes of this example, we assume there
are 19,852,952 shares of Visioneer common stock outstanding (the
number of outstanding shares as of December 31, 1998).
(A) You elected to convert all 100 of your shares into cash. Because
the cash election is "undersubscribed," you will receive cash for
all of your 100 shares, or $206.00.
(B) You elected to receive 100 shares of Surviving Corporation common
stock and no cash in exchange for your 100 shares. Because the
cash election is undersubscribed by 1,097,000 shares,
approximately 7% of the shares that were not requested to be
exchanged for cash [1,097,000 / (19,852,952 - 4,000,000)] will be
exchanged for cash. Thus, you will only be able to exchange 93 of
your 100 shares into shares of Surviving Corporation common stock
and the remaining 7 shares will be exchanged for cash at $2.06
per share, or $14.42.
Visioneer will not issue fractional shares. Instead, you will receive cash
for any fractional share of Surviving Corporation common stock owed to you
equal to such fraction multiplied by $2.06.
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<PAGE> 11
Q: WILL I OWE ANY FEDERAL INCOME TAX AS A RESULT OF THE MERGER?
A: Visioneer stockholders will be subject to federal income tax on any cash
received for Visioneer shares, including fractional shares. No federal income
tax will be due on the exchange of Visioneer shares for Surviving Corporation
common stock.
To review federal income tax consequences in greater detail, see page 41.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. In
addition to Visioneer stockholder approval, Visioneer and ScanSoft must also
obtain U.S. antitrust approvals. We hope to complete the merger in the first
quarter of 1999.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: If you have any questions about the merger, please call J. Larry Smart,
President and Chief Executive Officer of Visioneer, at (510) 608-0300.
5
<PAGE> 12
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This proxy statement/prospectus and the documents incorporated by reference
herein contain "forward-looking statements" within the meaning of section 27A of
the Securities Act of 1933, as amended, and section 21E of the Securities
Exchange Act of 1934, as amended. These statements, which include statements
regarding expected advantages and other effects of the merger described in "The
Merger -- Recommendation of the Visioneer Board of Directors; Reasons for the
Merger," and "-- ScanSoft's Reasons for the Merger" "-- Xerox's Reasons for the
Merger," and elsewhere in this proxy statement/prospectus and expectations
concerning Year 2000 compliance relate to expectations concerning matters that
are not historical facts. Words such as "projects," "believes," "anticipates,"
"plans," "expects," "intends," "estimates" and similar words and expressions are
intended to identify forward-looking statements. Important factors that could
cause actual results to differ materially from such expectations ("Cautionary
Statements") include:
- a highly competitive environment in the software imaging market;
- difficulties in achieving gross margin and operating expense targets
based on competitive and market factors;
- gauging the rate of product transitions accurately and introducing new
products in the face of rapid technology cycles;
- differentiating products from those of competitors;
- competing successfully in the markets for new products;
- anticipating customer demand accurately and estimating the production
supplies needed to meet such demand; and
- successfully implementing the merger.
These Cautionary Statements are disclosed in this document, including in
the "Risk Factors" beginning on page 16. All forward-looking statements
attributable to Visioneer are expressly qualified in their entirety by the
Cautionary Statements described herein. All forward-looking statements
attributable to ScanSoft are expressly qualified in their entirety by the
Cautionary Statements described herein. Neither Visioneer nor ScanSoft
undertakes any obligation to update any forward-looking statements.
6
<PAGE> 13
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the proposed merger fully and for a more
complete description of the terms of the proposed merger, you should carefully
read the entire proxy statement/prospectus and the documents we have referred
you to. See "Where You Can Find More Information" on page 1. The merger
agreement is attached as Annex A to this proxy statement/prospectus. We
encourage you to read the merger agreement. It is the legal document that
governs the proposed merger.
THE COMPANIES (PAGES 55-63)
VISIONEER, INC.
34800 Campus Drive
Fremont, California 94555
Telephone: (510) 608-0300
Visioneer designs, develops and markets intelligent paper and image
management software products which facilitate the imaging, manipulation,
distribution and storage of information on personal computers, multi-function
peripherals and from digital cameras. Visioneer's PaperPort software products
provide an easy-to-use, fast and cost-effective solution for document and image
input and management at the desktop. Visioneer's software products leverage
peripherals and applications resident on the computer and help transform
personal computers into multi-function, paper-to-digital information systems for
the electronic faxing, filing, editing, printing and sending of paper-based
documents and images via e-mail, on-line information services and the Internet.
In January 1999, Visioneer sold its desktop and sheetfed scanner business
to a newly formed wholly-owned subsidiary of Primax Electronics, Ltd. Primax is
a leading worldwide manufacturer of scanners and is headquartered in Taiwan.
Primax also acquired the "Visioneer" brand name. Visioneer will have rights to
use the name until the effective time of the merger with ScanSoft. Visioneer and
Primax also entered into a software license agreement granting Primax certain
rights to "bundle," market and sell Visioneer PaperPort software with Primax
hardware products, including those purchased from Visioneer.
SCANSOFT, INC.
9 Centennial Drive
Peabody, Massachusetts 01960
Telephone: (978) 977-2000
ScanSoft is a leading provider of digital imaging software products for
retail, OEM and corporate markets. ScanSoft's 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. ScanSoft's products are based on patented optical
character recognition (OCR) and image processing technologies. They are designed
to address the needs of consumers and businesses ranging from home office and
small businesses to medium enterprises and large corporations. All of the
outstanding shares of ScanSoft are owned by Xerox Imaging Systems, Inc., which
is owned by Xerox Corporation. ScanSoft also has outstanding options that are
held by its employees.
THE PROPOSED MERGER (PAGE 28)
Visioneer and ScanSoft have entered into a merger agreement dated December
2, 1998. The merger agreement provides that ScanSoft will merge with and into
Visioneer, with Visioneer continuing as the surviving corporation but operating
under the name "ScanSoft, Inc." As part of the Merger, Visioneer will be
amending its certificate of incorporation in the form attached as Annex E to
this proxy statement/prospectus to increase the authorized shares of common and
preferred stock, and to authorize shares of Series B preferred stock to be
issued to Xerox Imaging Systems. The amended certificate of incorporation will
be the certificate of incorporation of the Surviving Corporation. If the merger
is completed, Xerox Imaging Systems, Inc. will acquire a substantial interest in
Visioneer.
The merger agreement provides that the merger will take place only if,
among other things, (1) stockholders holding at least a majority of the
outstanding shares of Visioneer common stock approve the merger and merger
agreement at the special meeting of stockholders, and (2) federal antitrust
clearance is received.
7
<PAGE> 14
WHAT VISIONEER AND SCANSOFT STOCKHOLDERS WILL RECEIVE IN THE MERGER (PAGE 37)
If the merger is completed:
Visioneer stockholders who choose to exchange their shares for cash will
receive $2.06 per share, and Visioneer stockholders who choose to receive shares
of Surviving Corporation common stock will receive new stock certificates for
shares of Surviving Corporation common stock, subject to proration discussed
below and on page 38. Visioneer stockholders may also elect to receive a
combination of cash and stock. The new stock certificates will have the name
"ScanSoft, Inc." but will otherwise represent the same shares of Visioneer
common stock that the stockholder held before, with the same rights as before.
See "Description of Capital Stock -- Capital Stock Following the Merger."
As described below, the terms of the merger agreement require that the
total number of shares of Visioneer common stock to be exchanged for cash will
be 5,097,000, subject to the book value adjustment discussed on page 39. This
number represents approximately 25% of the outstanding shares of Visioneer.
ScanSoft's shares will be converted into newly issued shares of the
Surviving Corporation's common stock and non-voting convertible Series B
preferred stock. All of ScanSoft's stock options will be converted into
Surviving Corporation stock options. After the merger, Xerox Imaging Systems
will own 45% of the outstanding Surviving Corporation common stock and, together
with the former ScanSoft optionholders, will own 53.8% of the total capital
stock of the Surviving Corporation, after taking into account outstanding
options. In addition, Xerox Imaging Systems will receive a warrant to purchase
approximately 1,836,000 shares of Surviving Corporation common stock. The
warrant will be exercisable only to the extent that any ScanSoft stock option to
be assumed by the Surviving Corporation in the merger is later forfeited.
CASH ELECTION AND PRORATION (PAGE 38)
Visioneer stockholders can elect, on or before the date of the special
meeting, to receive cash in exchange for their shares of Visioneer common stock.
Stockholders who do not elect to receive cash will receive shares of Surviving
Corporation common stock in exchange for their shares of Visioneer common stock.
The two companies have designated 5,097,000 as the number of shares of
Visioneer common stock that will be exchanged for cash. This "cash election
number" may be adjusted in certain circumstances to maintain the relative
ownership percentage of the former stockholders of Visioneer and ScanSoft in the
Surviving Corporation.
If the number of shares electing to receive cash exceeds the cash election
number, then the amount of cash distributed to stockholders electing cash will
be proportionately reduced, and those stockholders will receive some shares of
Surviving Corporation common stock in exchange for some of their shares.
If the number of shares electing to receive cash is less than the cash
election number, then the number of shares distributed to stockholders who elect
to receive shares of Surviving Corporation common stock will be proportionately
reduced, and those stockholders will receive cash in exchange for some of their
shares. For a more complete discussion of the proration formulas, see "The
Merger -- Merger Consideration -- Cash Election and Proration for Visioneer
Stockholders." Stockholders who receive cash in the case of a proration may owe
federal income tax on gain realized from shares exchanged for cash. See "Risk
Factors -- Merger-Related Risk Factors -- Federal Income Tax Consequences of
Certain Prorations." See also "The Merger -- Federal Income Tax Consequences."
CASH ELECTION PROCEDURE (PAGE 38)
Visioneer stockholders must properly complete and sign the cash election
form, which is being mailed along with this proxy statement/prospectus. The cash
election form, together with all Visioneer Stock certificates duly endorsed in
blank or otherwise in form acceptable for transfer on the books of Visioneer (or
by appropriate guarantee of delivery, as described in stock the cash election
form), must be received by U.S. Stock Transfer Corporation (the "exchange
agent") at one of the addresses listed on the cash election form by 5:00 p.m.
New York time (2:00 p.m. California time) on the date of the special meeting,
February 23, 1999. Visioneer stockholders may change their cash election by
written notice received by the exchange agent prior to 5:00 p.m., New York time,
(2:00 p.m. California time) on February 23, 1999. See "The Merger -- Merger
Consideration-Cash Election Procedure."
8
<PAGE> 15
FRACTIONAL SHARES (PAGE 40)
Fractional shares of common stock will not be issued in the merger.
Stockholders otherwise entitled to receive a fractional share of common stock
following the merger will be paid cash in lieu of such fractional share, as
described in "The Merger -- Merger Consideration -- No Fractional Shares."
CONDITIONS TO THE CONSUMMATION OF THE MERGER (PAGE 81)
The merger will be completed if certain conditions, including the
following, are met:
- the approval of Visioneer stockholders;
- the absence of legal restraints or prohibitions that prevent the
completion of the merger, including federal antitrust laws; and
- the absence of any inaccuracies made by Visioneer or ScanSoft in their
representations and warranties in the merger agreement that would result
in a material adverse effect on such company.
TERMINATION OF THE MERGER AGREEMENT (PAGE 83)
The merger agreement may be terminated prior to the effective time of the
merger by mutual written consent or by either ScanSoft or Visioneer if:
- the merger is not consummated by April 30, 1999;
- the merger is prohibited or permanently enjoined by a governmental
entity; or
- the required number of votes from Visioneer's stockholders is not
obtained at the special meeting.
Subject to certain conditions, ScanSoft may terminate the merger agreement
if:
- any of Visioneer's representations and warranties are not true and
correct and cannot be cured within a specified period;
- Visioneer fails to perform a material obligation under the merger
agreement and such failure cannot be cured within a specified period; or
- the Visioneer board fails to recommend, withdraws, modifies or publicly
announces in a manner adverse to ScanSoft its approval or recommendation
of the merger or merger agreement.
Subject to certain conditions, Visioneer may terminate the merger agreement
if:
- any of ScanSoft's representations and warranties are not true and correct
and cannot be cured within a specified period; or
- ScanSoft fails to perform a material obligation under the merger
agreement, and such failure cannot be cured within a specified period.
TERMINATION FEES AND EXPENSES (PAGE 80)
Visioneer must pay ScanSoft a termination fee of $1.7 million in cash if
the merger agreement is terminated in the following circumstances:
- Visioneer stockholders do not approve the merger and Visioneer's board of
directors withdrew or modified its recommendation in favor of the merger
in a manner adverse to ScanSoft prior to the special meeting; or
- Visioneer's board withdraws or modifies its recommendation in favor of
the merger in a manner adverse to ScanSoft.
REGULATORY APPROVALS (PAGE 92)
Visioneer and Xerox, as the parent of ScanSoft, are both required to make
filings with or obtain approvals from certain domestic and international
regulatory authorities in connection with the merger, including U.S. antitrust
authorities. We expect that Visioneer and Xerox will obtain all required
regulatory approvals prior to the special meeting. However, we cannot predict
whether Visioneer and Xerox will obtain all required regulatory approvals on
that timetable, or whether any approvals will include conditions that would be
detrimental to Visioneer or Xerox or the merger as negotiated by the parties.
STOCKHOLDERS MEETING (PAGE 25)
Visioneer's board of directors has called a special meeting of its
stockholders to vote on the merger agreement and the merger. The meeting is
scheduled for February 23, 1999 at 10:00 a.m., local time, at Visioneer's
principal executive offices at 34800 Campus Drive, Fremont, California, 94555.
Visioneer is soliciting proxies from its stockholders prior to the stockholders
meeting.
9
<PAGE> 16
RECORD DATE FOR VOTING ON THE MERGER AGREEMENT (PAGE 26)
You may vote at the special meeting or sign a proxy card if you owned
shares of Visioneer common stock as of the close of business on January 12,
1999, the record date. On the record date 19,852,952 shares of Visioneer common
stock were outstanding. Visioneer stockholders will have one vote for each share
of Visioneer common stock they owned on the record date for purposes of voting
on the merger and merger agreement.
STOCKHOLDER VOTE REQUIRED TO APPROVE THE MERGER AND MERGER AGREEMENT (PAGE 26)
The vote of Visioneer stockholders holding at least a majority of the
outstanding shares of Visioneer common stock is required to approve the merger
agreement and the merger. Xerox Imaging Systems, ScanSoft's sole stockholder,
has already approved the merger agreement and the merger.
STOCKHOLDERS VOTING AGREEMENT (PAGE 85)
Under a voting agreement certain stockholders of Visioneer who, together,
hold approximately 29% of Visioneer's outstanding common stock, have agreed with
ScanSoft:
- to vote their shares in favor of the merger agreement, the merger, and
the amendment to Visioneer's certificate of incorporation;
- to irrevocably grant to ScanSoft their proxies to vote their shares of
common stock in favor of the merger agreement and the merger; and
- to refrain, generally until the earlier of completion of the merger or
termination of the merger agreement, from transferring their shares
unless the transferee agrees to be bound by the terms of the voting
agreement.
REVOCABILITY OF PROXIES (PAGE 26)
You may revoke your proxy at any time prior to the special meeting by
executing a new proxy card prior to the stockholders meeting or by attending the
special meeting in person and voting. Merely attending the meeting will not
revoke your proxy.
COMPLETION OF MERGER (PAGE 40)
Visioneer and ScanSoft expect to complete the merger as soon as practicable
after Visioneer stockholders approve the merger and the other conditions to the
merger have been met.
FAIRNESS OPINION OF FINANCIAL ADVISOR (PAGE 32)
In deciding to approve the merger, Visioneer's board of directors
considered an opinion from its financial advisor, Broadview International LLC,
as to the fairness of the merger to its stockholders from a financial point of
view. This opinion is attached as Annex C to this proxy statement/prospectus. We
encourage you to read this opinion.
VISIONEER REASONS FOR THE MERGER;
RECOMMENDATION TO VISIONEER STOCKHOLDERS (PAGE 30)
Visioneer's board of directors has determined that the terms of the merger
agreement and the merger are in the best interests of Visioneer and its
stockholders. In reaching its decision, Visioneer's board identified several
potential benefits of the merger. These benefits include:
- accelerated expansion of Visioneer's software business;
- greater market presence of the combined entities;
- economies of scale; and
- transition from low margin hardware business.
However, Visioneer's board of directors also recognized that the potential
benefits of the merger may not be realized and that there are a number of other
risks and uncertainties related to the merger. VISIONEER'S BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
RISKS OF THE MERGER (PAGE 16)
In considering whether to approve the merger and merger agreement, you
should consider all of the risks of the merger, including the risks that the
potential benefits of the merger may not be realized, that the Surviving
Corporation's business may not be successful, and that the market price of
Visioneer's common stock may fluctuate and could decline in the future.
Stockholders who elect to receive cash for their common stock will lose the
opportunity to participate in future increases, if any, in the value of the
common stock.
10
<PAGE> 17
WE ENCOURAGE YOU TO READ THE RISK FACTORS SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS BEGINNING ON PAGE 16.
- to refrain from directly or indirectly soliciting, initiating or
encouraging third party proposals to acquire Visioneer.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (PAGE 54)
Visioneer's common stock is quoted on the Nasdaq National Market. On
December 2, 1998, the last trading day before the signing of the merger
agreement, Visioneer common stock closed at $1.50 per share. On January ,
1999, the last trading day prior to the date of this proxy statement/prospectus,
Visioneer common stock closed at $ per share.
LISTING OF SURVIVING CORPORATION COMMON STOCK (PAGE 54)
The shares of Surviving Corporation common stock will be listed on the
Nasdaq National Market under the symbol "SSFT."
OTHER INTERESTS OF VISIONEER OFFICERS AND DIRECTORS IN THE MERGER (PAGE 45)
In considering the recommendation of Visioneer's board of directors that
you approve the merger agreement and the merger, you should note that the
officers and directors of Visioneer have interests in the merger that are
different from, or in addition to, your interests. Specifically, as a result of
or in connection with the merger, (1) Visioneer will make certain payments upon
consummation of the merger to certain executive officers totaling approximately
$310,000, (2) Visioneer will also accelerate certain options held by executive
officers and make payments to cash out all vested options of employees who will
not continue employment with Visioneer totaling approximately $200,000 and (3)
Visioneer's officers and directors who will cease to continue in that capacity
after the merger will receive continuing indemnification against certain
liabilities. As a result, Visioneer's directors and officers could be more
likely to vote to approve the merger agreement and the merger than Visioneer
stockholders generally.
NO SOLICITATION (PAGE 78)
Visioneer has agreed, subject to some exceptions contained in the merger
agreement, not to initiate or engage in discussions regarding a business
combination with another party other than ScanSoft until the earlier of the
termination of the merger agreement or the date the merger closes.
DISSENTERS' RIGHTS (PAGE 26)
If you do not vote for the merger agreement and the merger, you will have
the right under Delaware law to dissent to the merger and request an appraisal
of the value of your Visioneer common stock in connection with the merger.
In order to preserve this right, you must follow the procedures discussed
in Annex D.
ACCOUNTING TREATMENT (PAGE 44)
Visioneer and ScanSoft intend the merger to be accounted for as a purchase.
IMPORTANT FEDERAL INCOME TAX CONSEQUENCES (PAGE 41)
Visioneer and ScanSoft expect that the exchange of Visioneer stock for
shares of Surviving Corporation common stock and the exchange of ScanSoft stock
for shares of Surviving Corporation common stock and preferred stock will be
tax-free for federal income tax purposes to the stockholders of Visioneer and
ScanSoft.
However, Visioneer stockholders will be subject to federal income tax with
respect to cash received in exchange for Visioneer stock (including cash
received in lieu of fractional shares of Surviving Corporation common stock). In
certain circumstances, that cash may be taxable as ordinary income. Neither
Visioneer nor ScanSoft should become subject to federal income taxes solely as a
result of the merger.
Tax matters are very complicated and the tax consequences to you from the
merger will depend on your own circumstances. You should consult your tax
advisors for a full understanding of all of the tax consequences to you from the
merger.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have questions about the merger you should contact:
J. Larry Smart
President and Chief Executive Officer
Visioneer, Inc.
34800 Campus Drive
Fremont, California 94555
(510) 608-0300
11
<PAGE> 18
SELECTED HISTORICAL CONDENSED FINANCIAL INFORMATION
AND COMPARATIVE PER SHARE DATA
The following tables present selected historical condensed financial
information and comparative per share data for Visioneer and ScanSoft. This
information has been derived from their respective financial statements and
notes, certain of which are included or incorporated by reference in this proxy
statement/prospectus.
SELECTED HISTORICAL FINANCIAL DATA
The following data of Visioneer, insofar as it relates to each of the years
1993 to 1997, have been derived from the annual financial statements of
Visioneer and should be read in conjunction with the financial statements and
notes thereto for 1995 to 1997, incorporated by reference herein and the
financial statements and notes thereto for 1993 and 1994, previously filed with
the Commission. The data for the nine months ended September 30, 1998 and 1997
have been derived from the unaudited financial statements of Visioneer
incorporated by reference herein. In the opinion of Visioneer's management, the
data for the nine months ended September 30, 1998 and 1997 include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the interim periods.
The following data of ScanSoft, insofar as it relates to the years ended
December 31, 1996 and 1997 and the nine months ended September 30, 1998, have
been derived from audited financial statements of ScanSoft, including the
balance sheets at December 31, 1997 and September 30, 1998 and the related
statements of operations, changes in stockholder's equity and cash flows for the
two years ended December 31, 1997 and the nine months ended September 30, 1998,
and notes thereto appearing elsewhere herein. The historical statement of
operations data for the years ended December 31, 1994 and 1995 and balance sheet
data as of December 31, 1994, 1995 and 1996 have been derived from the unaudited
financial statements of ScanSoft not included herein. In the opinion of
ScanSoft's management, the data for the unaudited periods include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of ScanSoft's financial position and results from operations
at those times.
No cash dividends have been declared or paid on Visioneer or ScanSoft
common stock.
VISIONEER
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31,(2) SEPTEMBER 30,(2)
--------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total net revenues................................ $ -- $ 3,903 $ 37,339 $ 56,081 $ 57,623 $ 37,958 $59,479
Net loss(1)....................................... (5,433) (11,455) (11,553) (24,392) (23,380) (23,503) (2,111)
Net loss per share: basic and diluted............. $ (3.35) $ (6.76) $ (4.28) $ (1.34) $ (1.20) $ (1.21) $ (0.11)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,(2)
------------------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1998
------ ------ ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).......................... $ (441) $3,376 $46,677 $28,807 $ 8,389 $ 8,053
Total assets....................................... 3,589 7,378 65,793 51,785 33,550 32,910
Long-term obligations, less current portion........ -- 248 -- -- 125 91
Total stockholders' equity (deficit)............... (8) 4,053 49,860 33,193 10,930 9,218
</TABLE>
- ---------------
(1) Non recurring pre-tax charges of $1.6 million and $0.7 million are included
in the net loss in fiscal 1995 and 1997, respectively. The fiscal 1995
non-recurring charge relates to the settlement of a patent matter. The
fiscal 1997 non-recurring charge relates to severance paid to terminated
employees in a restructuring.
(2) Visioneer's fiscal year ends on the Sunday closest to December 31. For
clarity of presentation, annual and quarterly fiscal periods are reported as
ending on a calendar month end.
12
<PAGE> 19
SCANSOFT
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues.......................... $ 3,328 $ 7,206 $12,041 $17,790 $15,448
Gross profit.......................... 1,569 4,776 8,575 13,360 10,982
Research and development.............. 3,345 3,447 4,028 5,129 4,499
Selling, general, administrative and
other expenses, net................. 4,338 6,023 8,281 10,060 8,305
Net loss.............................. (6,114) (4,694) (3,734) (1,829) (1,822)
Net loss per share.................... $(6,114) $(4,694) $(3,734) $(1,829) $(1,822)
Number of shares used in per share
calculation......................... 1,000 1,000 1,000 1,000 1,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998
------ ----- ----- ------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).............. $ (156) $(273) $ 803 $2,593 $1,775
Trade account receivables, net......... 1,051 1,374 2,558 5,125 2,797
Inventories, net....................... 243 339 486 429 592
Total assets........................... 2,043 2,414 5,790 8,052 6,457
Stockholder's equity................... 373 363 2,029 4,372 3,288
</TABLE>
13
<PAGE> 20
UNAUDITED SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following unaudited Selected Pro Forma Condensed Combined Financial
Data are derived from the unaudited Pro Forma Condensed Combined Financial
Statements, appearing elsewhere in this proxy statement/prospectus, which give
effect to the sale of the hardware business of Visioneer to Primax and the
acquisition by Visioneer of ScanSoft on a purchase accounting basis, and should
be read in conjunction with such pro forma financial statements and notes
thereto. In preparing the Pro Forma Condensed Combined Statement of Operations
Data, the operations of the hardware component of Visioneer's business have been
excluded and the ScanSoft operations have been included as if these transactions
had occurred at the beginning of the earliest period presented. In preparing the
Pro Forma Condensed Combined Balance Sheet Data, the hardware assets have been
excluded and the ScanSoft assets have been included as if these transactions had
occurred on September 30, 1998. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the sale of the
hardware business of Visioneer or the acquisition of ScanSoft had been
consummated as of the beginning of the earliest period presented, nor is it
necessarily indicative of the future operating results or financial position of
the combined companies.
VISIONEER AND SCANSOFT
SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS DATA:
Total net revenues.......................................... $33,924 $25,777
Net loss(1)................................................. (3,617) (1,388)
Net loss per share, basic and diluted(1).................... $ (0.14) $ (0.05)
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C> <C>
PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA:
Working capital(2).......................................... $11,508
Total assets(2)............................................. 30,126
Long-term obligations, less current portion................. --
Total stockholders' equity.................................. $24,296
</TABLE>
- ---------------
(1) The one time charge to expense for the fair value of the in-process research
and development of ScanSoft has been excluded since it is a non-recurring
charge.
(2) Visioneer anticipates that it will incur costs associated with the merger of
approximately $1.5 million. Such expenses include investment advisory fees,
legal and accounting fees, financial printing costs and other merger related
costs. These costs are preliminary and therefore subject to change. These
costs will be included as part of the purchase price of the acquisition and
increase total assets.
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<PAGE> 21
COMPARATIVE PER SHARE DATA
Set forth below are historical net loss per share and book value per share
data of Visioneer and ScanSoft, unaudited pro forma combined per share data of
Visioneer and pro forma equivalent per share data of ScanSoft. The data set
forth below should be read in conjunction with the Visioneer audited
consolidated financial statements and the unaudited interim consolidated
financial statements incorporated into this proxy statement/prospectus by
reference, the ScanSoft audited financial statements and the unaudited interim
financial statements including the notes thereto, and the Unaudited Pro Forma
Condensed Combined Financial Statements, including the notes thereto, which are
included in this proxy statement/prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
Historical -- Visioneer
Basic and diluted net loss per share..................... $ (1.20) $ (0.11)
Book value per share(1).................................. $ 0.56 $ 0.47
Historical -- ScanSoft
Basic and diluted net loss per share..................... $(1,829) $(1,822)
Book value per share(1).................................. $ 4,372 $ 0.21
Pro forma combined net loss per share
Pro forma combined net loss per Visioneer share.......... $ (0.14) $ (0.05)
Equivalent pro forma net loss per ScanSoft share(3)...... $ (0.09) $ (0.03)
Pro forma combined book value per share
Pro forma book value per Visioneer share(2).............. $ 0.86 $ 0.80
Equivalent pro forma book value per ScanSoft share(3).... $ 0.58 $ 0.54
</TABLE>
- ---------------
(1) The historical book value per share is computed by dividing total
stockholders' equity by the number of shares of common and preferred stock
outstanding at the end of the period.
(2) The pro forma combined book value per Visioneer share is computed by
dividing total pro forma stockholders' equity by the number of shares of
common and preferred stock outstanding at the end the period.
(3) Equivalent pro forma share amounts are calculated by multiplying the pro
forma combined net loss per share and the pro forma book value per share of
Visioneer by the exchange ratio as of December 31, 1998 of 0.67.
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<PAGE> 22
RISK FACTORS
This proxy statement/prospectus contains certain forward-looking statements
that involve risks and uncertainties. These statements relate to future plans,
objectives, expectations and intentions. These statements may be identified by
the use of words such as "expects," "believes," "anticipates," "intends" and
"plans" and similar expressions. Actual results could differ materially from
those discussed in these statements. Factors that could contribute to such
differences include, but are not limited to, those discussed below and elsewhere
in this proxy statement/prospectus.
MERGER-RELATED RISK FACTORS
Difficulties of Integrating Two Companies
The anticipated benefits of the proposed merger will depend in part on
whether the companies' operations and products can be integrated 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 announcement of the merger could 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
Visioneer and ScanSoft estimate that they will incur aggregate pre-tax
costs of approximately $2.5 million associated with the merger and the sale of
Visioneer's hardware business, as well as severance costs related to employees
of Visioneer of approximately $410,000, including approximately $310,000 to
certain executive officers. In addition, the Surviving Corporation expects to
incur certain costs in connection with the integration of the two companies.
Such costs cannot now be reasonably estimated, because they depend on future
decisions to be made by management of the Surviving Corporation, 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 quarter in which the merger is
consummated.
The merger will be accounted for as a purchase and, accordingly, the
acquired assets and liabilities of ScanSoft will be recorded at estimated fair
values. Under the purchase method of accounting, intangibles in the amount of
approximately $11.3 million will be capitalized and non-recurring charges of
approximately $4.2 million relating to in-process research and development will
be recorded in the quarter the merger is consummated. These amounts are
estimates that reflect the most recently available information but will be
affected by the completion of a valuation study that is currently in process.
The completion of the valuation study may result in significant differences from
the preliminary allocation. The amortization of other intangibles after the
merger will have an adverse effect on the results of operations of the Surviving
Corporation.
Failure to Achieve Synergies Could Lead to Decline in Stock Price
The market price of the common stock of the Surviving Corporation may
decline significantly if:
- the integration of the combined companies is not successful;
- the Surviving Corporation does not experience business synergies as
quickly or to the extent expected by financial analysts; or
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<PAGE> 23
- the effect of the merger on earnings per share and operating results is
not in line with the expectations of financial analysts.
Business Could Suffer Due to Announcement or Consummation of Merger
The announcement or the consummation of the merger may increase the
likelihood of a number of changes to each of our businesses, any of which could
have a material adverse effect. These risks include the following:
- We could lose key management, development or other personnel. Many of
Visioneer's senior management have already or will join Primax in
connection with the sale of Visioneer's hardware business. The senior
management of the Surviving Corporation will be from ScanSoft.
- Our relationships with our OEM distributors and resellers could
deteriorate.
- Product returns from customers could increase.
- Product orders could decline.
- Development of new products could be delayed.
If the merger is not completed, each company could be materially and
adversely affected by these changes. Restoring our businesses to their
pre-announcement value could take a long time and be costly. As a result of the
risks outlined above, the failure to consummate the merger could have a material
adverse effect on our business, operating results, financial condition and stock
price.
Potential Dilution of Visioneer Stockholders
Following the merger, we intend to grant options to purchase (and could
grant or sell) additional shares of common stock to members of our management
and to employees. Any such grant or sale, or exercise of any stock option, will
dilute your holdings. See "The Merger--Effect on Visioneer and ScanSoft
Options."
Federal Income Tax Consequences of Receipt of Cash Deemed Provided by
Visioneer
In some circumstances, application of the so-called "constructive
ownership" rules of the federal income tax laws may cause cash, if any, received
by Visioneer stockholders from Visioneer as a result of the Book Value
Adjustment or in lieu of fractional shares to be taxed as ordinary income
(rather than capital gain), even where all of the Visioneer stock actually held
by a particular stockholder is converted into cash in the merger. In addition,
because of the possibility of proration, Visioneer stockholders may not be able
to assure themselves of receiving only cash by making a cash election for all
their shares of Visioneer common stock, nor of receiving only stock by making a
non-cash election for all of their shares of Visioneer common stock. See "The
Merger -- Federal Income Tax Consequences" for a more detailed discussion of the
tax consequences of the merger.
RISK FACTORS RELATED TO THE COMPANIES' BUSINESS AND OPERATIONS
Dependence on Developing Market; Rapid Technological Change
The market for digital imaging software and, in particular, for Visioneer's
and ScanSoft's 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. Visioneer's PaperPort software
products and ScanSoft's Pagis and TextBridge products account for most of
Visioneer's and ScanSoft's respective revenues. The companies expect that these
products will continue to account for most of the Surviving Corporation's
revenues for the foreseeable future. Broad market acceptance
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<PAGE> 24
of these products is therefore critical to the Surviving Corporation's future
success and will depend in part on the following:
- 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.
- Our ability to educate end users about the benefits of digital imaging
products generally and the specific benefits of our products.
- Our ability to adapt to emerging industry standards and respond to our
competitors' product announcements.
- Our ability to develop, introduce, upgrade and support competitive new
products and product enhancements that meet changing customer
requirements and emerging industry standards.
- 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 and
TextBridge products, in particular, could occur as a result of competitive
technological change or other factors and would have a material adverse effect
on the Surviving Corporation's 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 the companies' 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 the companies' 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.
Disposition of Hardware Business: Need for Rebranding of Products; Need for
Services Agreement with Primax
In January 1999, Visioneer sold its hardware business to a wholly owned
subsidiary of Primax Electronics Ltd., which was a principal manufacturer of
Visioneer's flatbed and sheetfed scanners and other hardware products. In this
transaction, Primax purchased substantially all of Visioneer's hardware business
(including the "Visioneer" brand and company name), and it assumed all known
liabilities associated with the hardware business. Upon consummation of the
proposed merger, the Surviving Corporation intends to take steps to rebrand all
Visioneer's 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. The Surviving Corporation will change its corporate name
to "ScanSoft, Inc." 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 the
Surviving Corporation's customers, including OEM
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<PAGE> 25
distributors and end-users, and there will necessarily be an adjustment period
following the sale of the hardware business during which time new brands will
need to be established. Additionally, in connection with the sale of Visioneer's
hardware business to Primax, since many of Visioneer's administrative employees
were hired by Primax, Visioneer intends to enter into an agreement with Primax
that requires Primax to provide the Surviving Corporation with certain ongoing
administrative services (such as office space at Visioneer's current location,
use of telephones, computer systems, payroll and accounting services and
customer and technical support services) for a period of time after the sale of
Visioneer's hardware business. If Primax is unwilling to fulfill its obligations
to provide the Surviving Corporation with interim administrative services, our
ability to conduct business immediately prior to and following the merger could
be adversely impacted.
Dependence on Relationships with Primax and Other OEMs
In connection with the sale of Visioneer's 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 the Surviving Corporation
certain minimum annual royalties during the license term. Primax, however, is
not obligated to bundle or sell Visioneer's software products with its hardware
products. Other risks include whether Primax will give sufficient priority to
marketing Visioneer's products, whether Primax will continue to offer
Visioneer's 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 the Surviving Corporation's 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:
- 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 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 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
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<PAGE> 26
lower our prices, experience decreased gross margins or lose market acceptance.
We face the following challenges from our competitors:
- Certain of our competitors offer products comparable to ours at retail
prices that are lower than ours.
- Many of our current and potential competitors have longer operating
histories and significantly greater financial, technical, support, sales,
marketing, recruiting and other resources.
- Certain of our competitors have greater name recognition and larger
customer bases than we do.
- 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.
- 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:
- Our success in introducing new products to the market and easing out old
ones.
- Our competitors' prices, products and market share.
- The amount of royalties we receive under our OEM arrangements.
- General economic conditions.
If we are not successful in meeting these challenges, our business,
operating results and financial condition may suffer.
Management of Growth
ScanSoft's business has grown rapidly in the last three years. Total net
revenues increased from $12.0 million in 1996 to $17.8 million in 1997 and $15.5
million in the nine months ended September 30, 1998. The growth of ScanSoft's
business and expansion of its customer base has placed a significant strain on
ScanSoft's management and operations. ScanSoft's expansion has resulted in
substantial growth in the number of its employees, the scope of its operating
and financial systems and the geographic area of its
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<PAGE> 27
operations, resulting in increased responsibility for both existing and new
management personnel. ScanSoft's ability to support the growth of its business
will be substantially dependent upon having in place sufficient resources to
conduct sales activity, product development, and customer support services.
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 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 and support our products in international markets. In
conducting business outside of the United States, we are exposed to the risks
listed below:
- Unexpected changes in regulatory requirements.
- Import and export duties and restrictions.
- Tariffs and other trade barriers.
- Difficulties in staffing and managing foreign operations.
- Longer payment cycles.
- Uncertainties in connection with collecting accounts receivable.
- Political instability.
- Fluctuations in currency exchange rates.
- Logistical difficulties in managing multinational operations.
- Seasonal reductions in business activity during summer months in Europe
and certain other parts of the world.
- 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
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<PAGE> 28
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.
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.
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
The companies' rely to a significant extent upon their senior management
teams 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. The Surviving Corporation's operations could be materially and adversely
affected if it were unable to retain such key employees, or attract new ones.
From time to time, the Surviving Corporation will need to hire additional or
replacement employees. We may not be successful in hiring,
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<PAGE> 29
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 has net losses for 1996 and 1997 and for the nine months ended
September 30, 1998. Visioneer also had net losses for its fiscal 1996 and 1997
and for the nine months ended September 30, 1998, although a substantial portion
of those losses were attributable to the hardware business that was sold to
Primax in January 1999. On a pro forma basis, the combined companies had a net
loss for 1997 and for the nine months ended September 30, 1998. The Surviving
Corporation may never become or remain profitable.
The companies' revenues frequently fluctuate from quarter to quarter due,
to a large extent, on the following:
- volume, timing and filling of customer orders;
- reduction in prices in response to competition;
- increased expenditures to pursue new product or market opportunities;
- 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;
- inability to adjust operating expenses to compensate for shortfall in
sales orders against forecast;
- price protection charges in excess of recorded allowances;
- demand for products;
- seasonality;
- customer deferrals in anticipation of new versions of products;
- introduction of new products by the Surviving Corporation or its
competitors;
- timing of new product acquisitions; and
- 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, ScanSoft's and Visioneer's
revenues are difficult to forecast and, likewise, the Surviving Corporation's
revenues will be difficult to forecast. The Surviving Corporation intends to
base its expense levels in significant part on its expectations of future
revenue. As a result, the Surviving Corporation expects its expense levels to be
relatively fixed in the short term. The Surviving Corporation's failure to meet
revenue expectations would have a material adverse affect on its business,
operating results and financial condition. Further, an unanticipated decline in
revenue for a particular quarter may disproportionately affect the Surviving
Corporation's net income because a relatively small amount of the Surviving
Corporation's expenses are intended to vary with its revenue in the short term.
As a result, we believe that period-to-period comparisons of ScanSoft's,
Visioneer's or the Surviving Corporation's results of operations are not and
will not necessarily be meaningful, and you should not rely upon them as an
indication of future performance.
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Xerox As a Significant Stockholder
ScanSoft is a wholly owned subsidiary of Xerox Imaging Systems, Inc., which
is a wholly owned subsidiary of Xerox Corporation. After the merger, Xerox will
own approximately 45% of the outstanding common stock of the Surviving
Corporation and all of the outstanding Series B preferred stock of the Surviving
Corporation. In addition, Xerox has the opportunity to acquire additional shares
of Surviving Corporation common stock pursuant to the warrant discussed below.
See "The Merger Agreement and Related Agreements -- Related
Agreements -- Warrant." Immediately after the merger, Xerox will be the largest
stockholder of the Surviving Corporation. Although Xerox will not control the
Surviving Corporation and is restricted for at least two years after the merger
from holding more than 50% of the voting power of the capital stock of the
Surviving Corporation, Xerox will have a strong influence over matters requiring
approval by the Surviving Corporation's stockholders. In addition, Xerox will
have representation on the board of directors which will make important
decisions with respect to the business and affairs of the Surviving Corporation.
Xerox has advised the Surviving Corporation that its current intent is to
hold all of its shares of common stock to be acquired in the merger. However,
there can be no assurance concerning the periods of time during which time Xerox
will maintain its ownership of common stock and the Surviving Corporation.
Year 2000 Risks
Visioneer and ScanSoft both 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 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. Visioneer and
ScanSoft are currently in the process of establishing procedures for evaluating
and managing the risks and costs associated with this problem. See "Information
About Visioneer," and "ScanSoft Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Trends." 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 the
Surviving Corporation's business, operating results and financial condition.
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THE SPECIAL MEETING
DATE, TIME AND PLACE OF MEETING
The special meeting of the stockholders of Visioneer will be held at the
principal executive offices of Visioneer at 34800 Campus Drive, Fremont,
California 94555, on February 23, 1999 at 10:00 a.m., local time.
MATTERS TO BE CONSIDERED
At the special meeting, the stockholders of Visioneer will be asked to
consider and vote upon a proposal to approve and adopt the merger agreement and
the merger, pursuant to which ScanSoft will merge with and into Visioneer, with
Visioneer as the Surviving Corporation. If the merger is approved, all
outstanding shares of capital stock of ScanSoft will be converted into newly
issued shares of Surviving Corporation common stock and Series B preferred
stock. As of the date of this proxy statement/prospectus, all shares of capital
stock of ScanSoft are owned by Xerox Imaging Systems, Inc. ("XIS"), a wholly
owned subsidiary of Xerox. Outstanding ScanSoft options which are held by
ScanSoft employees will be assumed by the Surviving Corporation and replaced
with options to purchase Surviving Corporation common stock. In addition, XIS
will receive a common stock warrant exercisable for the number of shares equal
to the number of ScanSoft options assumed by the Surviving Corporation which are
forfeited by the holders of those options from time to time after the merger.
XIS will own 45% of the Surviving Corporation common stock and all of the
Surviving Corporation Series B preferred stock outstanding immediately after the
merger. The Surviving Corporation common stock and convertible Series B
preferred stock held by XIS, along with Surviving Corporation common stock
options held by former ScanSoft option holders (and the related common stock
warrant held by XIS), will represent approximately 53.8% of the total equity
capital of the Surviving Corporation on a fully-diluted basis immediately after
the merger, including outstanding options, subject to adjustment as discussed
below under "The Merger -- Merger Consideration -- Book Value Adjustment."
In addition, under the merger agreement, a minimum of 5,097,000 shares of
common stock currently held by the stockholders of Visioneer (representing
approximately 25% of the presently outstanding shares of Visioneer common stock)
will be converted into the right to receive $2.06 per share in cash. Xerox will
provide approximately $10.5 million to be used to acquire such shares. The
remaining 14,755,952 outstanding shares of Visioneer common stock (based on the
number of shares issued and outstanding as of December 31, 1998) will be
exchanged for an equivalent number of shares of Surviving Corporation common
stock upon consummation of the merger. The shares held by Visioneer stockholders
will represent 55% of the Surviving Corporation common stock outstanding
immediately after the merger and approximately 46.2% of the total equity capital
of the Surviving Corporation on a fully-diluted basis immediately after the
merger, including outstanding options, subject to adjustment as discussed below
under "The Merger -- Merger Consideration -- Book Value Adjustment."
Immediately after the merger, based on 19,852,952 shares of Visioneer
common stock outstanding on December 31, 1998 and assuming no book value
adjustment and no transfers of outstanding ScanSoft shares or exercise of vested
ScanSoft options, the Surviving Corporation will have outstanding: (i)
approximately 26,830,000 shares of common stock (of which approximately
12,074,000 shares will be held by XIS and approximately 14,756,000 shares will
be held by Visioneer stockholders); (ii) approximately 3,759,000 shares of
Series B preferred stock (all of which will be held by XIS); (iii) options to
purchase approximately 1,836,000 shares of common stock held by former ScanSoft
optionholders; and (iv) options held by existing Visioneer employees which are
outstanding as of the merger. In addition, XIS will hold a warrant to purchase
approximately 1,836,000 shares of Surviving Corporation common stock
(representing any shares forfeited by ScanSoft optionholders). The merger
agreement is attached as Annex A to this proxy statement/prospectus. See "The
Merger" and "The Merger Agreement and Related Agreements."
VISIONEER'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE
MERGER.
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REQUIRED VOTE
The affirmative vote of at least a majority of the shares of Visioneer
common stock entitled to vote at the special meeting is required to approve the
merger agreement and the merger. Pursuant to a stockholders voting agreement,
certain investors, which beneficially owned, as of December 31, 1998, an
aggregate of approximately 29% of outstanding Visioneer common stock, have
agreed to vote all shares held by them in favor of the merger agreement and the
merger. A copy of the stockholders voting agreement is attached as Annex B to
this proxy statement/prospectus. See "The Merger Agreement and Related
Agreements -- Related Agreements-Stockholders Voting Agreement."
VOTING AND REVOCATION OF PROXIES
Shares that are entitled to vote and are represented by a proxy properly
signed and received at or prior to the special meeting, unless subsequently
properly revoked, will be voted in accordance with the instructions indicated on
the proxy. If a proxy is signed and returned without indicating any voting
instructions, shares represented by such proxy will be voted FOR the proposal to
approve and adopt the merger agreement and the merger.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the shares represented by such proxy are voted at
the special meeting by (i) attending and voting in person at the special
meeting, (ii) giving notice of revocation of the proxy at the special meeting,
or (iii) delivering to the Secretary of Visioneer (A) a written notice of
revocation or (B) a duly executed proxy relating to the same shares and matters
to be considered at the special meeting, bearing a date later than the proxy
previously executed. Attendance at the special meeting will not in and of itself
constitute a revocation of a proxy. All written notices of revocation and other
communications with respect to revocation of proxies should be addressed as
follows: Visioneer, Inc., 34800 Campus Drive, Fremont, California 94555,
Attention: President and Chief Executive Officer, and must be received before
the taking of the votes at the special meeting.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of common stock at the close of business on January 12, 1999
will be entitled to receive notice of and to vote at the special meeting. At the
close of business on the record date, Visioneer had outstanding 19,852,952
shares of common stock. The presence, in person or by proxy, at the special
meeting of the holders of at least a majority of the votes entitled to be cast
at the special meeting is necessary to constitute a quorum for the transaction
of business. Abstentions will be counted as present for the purposes of
determining whether a quorum is present but will not be counted as votes cast in
favor of the merger. Because the vote on the merger requires the approval of a
majority of the votes entitled to be cast by the holders of the outstanding
shares of common stock, abstentions will have the same effect as a negative vote
on the merger. Proxies relating to "street name" shares that are voted by
brokers will be counted as shares present for purposes of determining the
presence of a quorum on all matters, but will not be treated as shares having
voted at the special meeting as to any proposal as to which authority to vote is
withheld by the broker. Brokers will vote shares based upon instructions given
to them. Without instructions, shares held in "street name" will not be voted.
Shares which are not voted will have the same effect as votes against the
merger.
STOCKHOLDERS' APPRAISAL RIGHTS
Each stockholder has a right to dissent from the merger, and, if the merger
is consummated, to receive "fair value" for his or her shares in cash by
complying with the provisions of Delaware law, including section 262 of the
Delaware General Corporation Law. A stockholder who wishes to exercise such
rights must deliver to Visioneer, prior to the vote being taken on the merger at
the special meeting, written notice of his or her intent to demand payment for
his or her shares if the merger is effected and dissenting stockholders must not
vote in favor of the merger. The full text of section 262 is attached as Annex D
to this proxy statement/prospectus. See "Stockholders' Appraisal Rights" for a
further discussion of such rights and the legal consequences of voting shares of
common stock in favor of the merger.
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SOLICITATION OF PROXIES
Visioneer will bear the cost of the solicitation of proxies and the cost of
printing and mailing this proxy statement/prospectus. In addition to
solicitation by mail, the directors, officers and employees of Visioneer may
solicit proxies from stockholders by telephone, telegram or by personal
interview. Such directors, officers and employees will not receive additional
compensation for any such solicitation but may be reimbursed for reasonable
out-of-pocket expenses. Arrangements will also be made with brokerage houses and
other custodians, nominees and fiduciaries for the forwarding of solicitation
material to the beneficial owners of shares held of record by such persons.
Visioneer will reimburse such custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses. Corporate Investor Communications, Inc. will
assist in the solicitation of proxies by Visioneer for an estimated fee of
$5,500 plus reasonable out-of-pocket expenses.
Representatives of PricewaterhouseCoopers LLP be present at the special
meeting and available to answer questions about the proposed merger as
appropriate.
If you have any questions or require additional material, please call J.
Larry Smart, Visioneer's President and Chief Executive Officer, at (510)
608-0300, or Corporate Investor Communications, Inc., Visioneer's proxy
solicitor, at ( ) .
IT IS IMPORTANT THAT YOU SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY
CARD IN THE ENCLOSED ENVELOPE SO THAT YOUR SHARES WILL BE REPRESENTED WHETHER OR
NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. YOU SHOULD NOT SEND ANY STOCK
CERTIFICATES WITH YOUR PROXY CARD. INSTEAD, YOU SHOULD SEND YOUR STOCK
CERTIFICATES, ALONG WITH THE CASH ELECTION FORM, TO VISIONEER'S EXCHANGE AGENT
IN THE ENCLOSED ENVELOPE FOR SUCH PURPOSE FOR DELIVERY NO LATER THAN THE DATE OF
THE SPECIAL MEETING. SEE "THE MERGER -- MERGER CONSIDERATION -- CASH ELECTION
AND PRORATION FOR VISIONEER STOCKHOLDERS," AND "-- CASH ELECTION PROCEDURE."
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THE MERGER
BACKGROUND OF THE MERGER
In June 1997, representatives of Visioneer and Xerox had the first of a
series of discussions regarding a possible business combination of the two
companies. In June 1997, Visioneer and Xerox entered into a confidentiality
agreement. These discussions continued through January 1998.
On January 19, 1998, Visioneer retained Broadview International LLC
("Broadview") to investigate potential business combination transactions that
would complement Visioneer's existing business, increase stockholder value and
provide liquidity to Visioneer stockholders. Visioneer and Broadview
subsequently contacted a number of companies, including Xerox, that they
believed could be interested in a business combination with Visioneer.
On January 28, 1998, representatives of Visioneer, Xerox and ScanSoft met
to discuss a possible business combination of Visioneer and ScanSoft. During the
period from January 30, 1998 through late February, Visioneer, through
Broadview, and Xerox, through its financial advisor, Merrill Lynch, exchanged
information regarding the current and past financial performance and business of
Visioneer and ScanSoft.
At a March 3, 1998 board meeting, Visioneer's board of directors discussed
various alternatives to expand Visioneer's software business and exit from its
hardware business, and ScanSoft was discussed as a potential merger candidate.
On March 16, 1998, Xerox proposed the terms on which Xerox was interested
in merging ScanSoft with Visioneer, which assumed Visioneer's disposition of its
hardware business. On April 16, 1998, Visioneer submitted a counter proposal,
which Xerox rejected on April 20, 1998. On June 3, 1998, Visioneer and ScanSoft
met to further discuss merger terms but were unable to reach agreement on price,
structure and other terms.
At a meeting of Visioneer's board of directors on July 2, 1998, Broadview
summarized the status of recent discussions with Xerox and Visioneer's board
resolved to continue discussions with Xerox. On July 7, 1998, Broadview, on
behalf of Visioneer, submitted a new merger proposal to Merrill Lynch. From July
21, 1998 until early August 1998, Visioneer and Xerox, as well as Broadview and
Merrill Lynch, had various discussions regarding the terms of the proposed
merger and the valuation of ScanSoft. On August 5, 1998, Xerox and Visioneer
executed a mutual nondisclosure agreement.
On August 5, 1998, Visioneer entered into a mutual nondisclosure agreement
with a third party interested in a business combination with Visioneer. On
August 11, 1998, Broadview held a telephone conference call with senior
management of such party to explore reasons for a possible business combination
with Visioneer.
In mid-August 1998, Visioneer and ScanSoft discussed Visioneer's plans to
sell its hardware business and Visioneer requested that Broadview assist it in
such sale. On August 21, 1998, Xerox sent Visioneer a letter indicating that it
would consider two alternative structures resulting in a combination of
Visioneer and ScanSoft.
On August 25, 1998, senior management of the third party met with senior
management of Visioneer to discuss the terms of a possible business combination
and to conduct preliminary due diligence on each business.
On September 2, 1998, representatives of Xerox, ScanSoft and Merrill Lynch
met with representatives of Visioneer and Broadview to exchange management
presentations and to conduct business due diligence.
On September 3, 1998, Broadview received a term sheet from the third party
proposing a business combination and on September 5, 1998, Broadview received a
new term sheet from such party modifying the prior term sheet.
On September 8, 1998, Xerox submitted a revised proposal to Visioneer which
included as a condition the disposition of Visioneer's hardware business. On
September 10, 1998, Visioneer informed Xerox that it
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would not accept the September 8, 1998 proposal. On September 17, 1998, Xerox
again submitted a revised proposal to Visioneer.
On September 18, 1998, Visioneer held a meeting of its board of directors
at which Broadview reviewed the terms of the September 17, 1998 Xerox proposal
and the proposal from the interested third party and presented pro forma
comparisons of both proposed transactions. Visioneer's board discussed both
proposals and resolved to proceed with exclusive due diligence and negotiations
with the third party. On September 18, 1998, Visioneer informed Xerox and
Merrill Lynch that it would not be able to continue discussions with Xerox and
entered into an exclusivity agreement with the third party. Visioneer and the
third party subsequently met to further negotiate the terms of the proposed
business combination and commence the due diligence process.
On October 8, 1998, Xerox submitted an unsolicited revised merger proposal
and Visioneer, in accordance with the terms of its exclusivity agreement with
the third party, informed Xerox on October 9, 1998 that it was not in a position
to respond. On October 9, 1998, Visioneer sent a letter to the third party at
their request outlining the terms of Xerox's offer.
At an October 14, 1998 meeting of Visioneer's board of directors, Broadview
presented a comparative analysis of the revised Xerox proposal of October 8,
1998 and the proposal of the third party. The board received an update on the
status of negotiations and due diligence between Visioneer and the third party
and discussed various factors in evaluating such offers, including comparative
analyses of the current and future value of such offers and comparative risk
analysis regarding the possibility of consummating each offer. Visioneer's board
of directors also discussed the possibility of extending the exclusivity
agreement between Visioneer and the third party. On October 15, 1998, the
financial advisors of the third party informed Broadview of the third party's
unwillingness to negotiate certain terms, agreement on which was essential to
the third party in order to consummate the proposed combination with Visioneer.
On October 16, 1998 Visioneer held a meeting of its board of directors, at
which Broadview was present, and discussed the revised terms of the third party
offer in comparison with the Xerox proposal of October 8, 1998. Visioneer's
board resolved not to extend the exclusivity agreement with the third party if
an agreement could not be reached. After the meeting, Visioneer and the third
party were unable to reach agreement on terms.
On October 17, 1998, Visioneer reinitiated discussions with Xerox and
discussed modifications to the terms of the October 8, 1998 Xerox proposal that
were requested by Visioneer. On October 18, 1998, Xerox submitted a revised
proposal.
At an October 19, 1998 meeting, Visioneer's board was informed that
discussions with the third party had been terminated. Visioneer's board then
discussed the terms of the revised Xerox proposal and a proposed exclusivity
agreement between Visioneer and Xerox. The board resolved to continue
discussions with Xerox and to execute an exclusivity agreement which was entered
into on October 19, 1998.
On October 21, 1998, members of Xerox, ScanSoft and Visioneer management,
their respective legal advisors and accountants, and Merrill Lynch and Broadview
met to discuss the structure of the proposed transaction, the due diligence
process and the timing of the transaction. Later that day, representatives of
Xerox, ScanSoft and Visioneer commenced their due diligence investigations at
Visioneer's headquarters in Fremont, California.
During the week of November 2, 1998, representatives of Visioneer, Xerox
and ScanSoft met at ScanSoft's facilities in Peabody, Massachusetts to conduct
due diligence. In addition, representatives of Visioneer, Xerox and ScanSoft, as
well as their legal, financial and accounting advisors, held various telephone
conferences to discuss various elements of the proposed transaction and agreed
on certain modifications to the structure of the transaction.
The exclusivity agreement was subsequently extended several times, during
which Visioneer, Xerox, ScanSoft and their respective legal, financial and
accounting advisors continued to negotiate the terms and structure of the
proposed transaction. On November 25, 1998, Visioneer's board of directors held
a meeting at
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which Broadview presented its financial analysis of the transaction and
delivered its written opinion that, as of November 25, 1998, the terms of the
proposed merger between Visioneer and ScanSoft were fair, from a financial point
of view, to Visioneer's stockholders. After considering Broadview's presentation
and the factors described in "The Merger -- Recommendation of Visioneer's Board
of Directors; Reasons for the Merger," Visioneer's board unanimously approved
the merger agreement and the merger.
On December 2, 1998, Visioneer and ScanSoft executed the definitive merger
agreement and related agreements.
RECOMMENDATION OF VISIONEER'S BOARD OF DIRECTORS; REASONS FOR THE MERGER
Visioneer's board of directors has determined that the merger is in the
best interests of Visioneer and its stockholders. Accordingly, Visioneer's board
has unanimously approved the merger agreement, and unanimously recommends that
Visioneer stockholders vote "FOR" the approval and adoption of the merger
agreement and the merger. In reaching its determination to approve the merger
agreement and the merger, Visioneer's board of directors considered a number of
factors, including:
Expand Software Business
The merger helps Visioneer accelerate the expansion of its software
business through ScanSoft's large number of registered users, established
distribution channels in the retail and OEM markets, and comprehensive product
family. Visioneer believes that ScanSoft's business is complementary to its own
and will enable it to expand its position in the growing digital imaging
software market.
Increase Market Presence
The strategic opportunities for Visioneer's software business are limited
in the market due to Visioneer's size and capital resources. Visioneer should
benefit from a merger with ScanSoft as the combined company will represent a
greater presence and should achieve greater visibility in the market.
Achieve Greater Economies of Scale
The digital imaging software market is becoming increasingly competitive
and price sensitive. By combining each company's engineering, marketing and
operational personnel, the combined company can more efficiently service its
products and customers.
Transition from Hardware Business
At the same time that Visioneer entered into the merger agreement with
ScanSoft, it entered into an agreement with Primax to sell its hardware business
to a new subsidiary of Primax. The sale of Visioneer's hardware assets to Primax
occurred on January 6, 1999. Visioneer's board of directors believes that the
merger enables Visioneer to transition from the hardware scanner business to the
software business. Visioneer's hardware business experienced significantly lower
margins than its software business, although it represented a substantial
portion of Visioneer's revenues. By combining Visioneer's transition from its
hardware business with the expansion of its software business through the
merger, Visioneer believes that it will be able to increase margins and increase
software revenues.
Visioneer's board of directors views the merger as a means to increase the
value of the combined companies to Visioneer's stockholders. In evaluating the
proposed merger, the board considered and discussed a wide variety of factors,
including the details of the merger agreement, Visioneer's and ScanSoft's
respective products and the potential synergies between those products and
markets, the recent trading activity of Visioneer's stock and the financial
terms of the merger agreement. Visioneer's board also discussed each component
of the merger agreement in light of its fairness to Visioneer's stockholders,
projected dilution to existing Visioneer stockholders resulting from the
issuance of additional shares, and the impact of the merger on current employees
of Visioneer. In addition, Visioneer's board considered the advantages and
disadvantages that the merger would present to Visioneer's achievement of its
strategic objectives. As part of the evaluation
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process, Visioneer's board reviewed information about the business, operations
and future prospects of both Visioneer and ScanSoft, including Visioneer's
recent operating results, the relative assets, revenues and results of
operations of Visioneer and ScanSoft, and the opinion of Visioneer's financial
advisor, Broadview.
Visioneer's board of directors also considered the following potentially
negative factors:
- the potential disruption of Visioneer's business that might result from
both employee uncertainty and customer uncertainty as a result of the
merger and during the combination of the operations of Visioneer and
ScanSoft;
- the risk that, despite the intentions and the efforts of the parties to
reassure Visioneer's customers and distributors regarding the combined
company's intention to support their future sales efforts, the
announcement of the merger could result in decisions by such customers or
distributors to delay or cancel purchases of Visioneer products;
- the possibility that the merger might not be consummated, and the effects
of the public announcement of the merger on Visioneer's revenues and
operating results, and Visioneer's ability to attract and retain key
management, marketing and technical personnel;
- the risk that the anticipated benefits of the merger may not be realized;
and
- the other risks described above under "Risk Factors."
After considering the foregoing factors, Visioneer's board of directors
unanimously approved the merger agreement and the merger, and recommended that
the stockholders of Visioneer approve and adopt the merger agreement and the
merger. In view of the wide variety of factors considered, both positive and
negative, Visioneer's board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors
considered.
XEROX'S REASONS FOR THE MERGER
Xerox believes that the merger of Visioneer with ScanSoft represents a
means to both enhance Visioneer stockholder value and to realize the objectives
of Xerox's investment in ScanSoft. Xerox believes that the merger between
Visioneer and ScanSoft has the potential to produce benefits to the combined
company that would not be obtainable by either company on an independent basis.
These potential benefits include significant technology and cost synergies, the
rationalization and expansion of a number of key OEM relationships and an
expansion of retail channel opportunities. Xerox believes the merger will result
in a company better positioned to become a leader in software products for
document capture, recognition and communications. Xerox also believes that the
merger will produce significant benefits for ScanSoft's customers, as the
combined company will be better positioned to respond to customer demands for
products that are both powerful and easy to use.
SCANSOFT'S REASONS FOR THE MERGER
ScanSoft expects the merger to benefit the newly formed company in a
variety of ways. The combined company may be able to offer products targeted to
a range of customers, including those in home and small office environments, and
enterprise customers who are just now being offered network scanning devices.
The combined company may also be able to introduce its products and technology
to millions of customers annually through relationships with a number of the
other party's OEMs not available to either company on an independent basis.
These OEM relationships include Brother, Agfa, Epson, Mustek, Xerox, Primax,
Canon, IBM, Apple, Symantec, and others. ScanSoft also expects the combination
will enhance international sales through ScanSoft's existing channels in the
United Kingdom, Germany and France, as well as Visioneer's channels in Asia. The
merger should also result in the optimization of North American product
distribution, as the combined company can leverage both companies' existing
retail channels of computer and office superstores.
The merger will afford the newly combined company the additional advantage
of greater size and market presence. ScanSoft believes that this is necessary to
achieve market share goals as it competes for customers
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against larger and better-funded competitors. Furthermore, ScanSoft believes the
increased size and the publicly traded equity of the combined company will
better enable the combined company to attract and retain qualified employees.
Additionally, ScanSoft believes that the increased size and visibility of the
newly combined company will provide additional distribution opportunities,
including Internet marketing.
OPINION OF VISIONEER'S FINANCIAL ADVISOR
Visioneer engaged Broadview to act as its financial advisor and requested
that Broadview render an opinion regarding the fairness, from a financial point
of view, to Visioneer's stockholders, of the consideration to be received in the
merger by Visioneer stockholders. At the meeting of Visioneer's board of
directors held on November 25, 1998, Broadview rendered its written opinion
that, as of November 25, 1998, based upon and subject to the various factors and
assumptions set forth in its opinion, the consideration was fair, from a
financial point of view, to the Visioneer stockholders.
The text of Broadview's opinion, which sets forth assumptions made, matters
considered, and limitations on the review undertaken, is attached as Annex C to
this proxy statement/prospectus. This summary of the opinion is qualified in its
entirety by reference to the full text of the opinion.
In rendering its opinion, Broadview, among other actions:
- reviewed the terms of the draft of the merger agreement dated November
23, 1998 and the associated exhibits which contained the terms set forth
in the definitive merger agreement relevant to Broadview's opinion;
- reviewed the terms of the draft of the asset purchase agreement dated
November 11, 1998 related to the sale of the hardware business and the
associated exhibits which contained the terms set forth in the definitive
asset purchase agreement relevant to Broadview's opinion;
- reviewed Visioneer's annual report and Form 10-K for the fiscal year
ended December 31, 1997, including the audited financial statements, and
Visioneer's Form 10-Q for its quarterly period ended September 27, 1998,
including the unaudited financial statements;
- reviewed certain internal financial and operating information, including
quarterly projections through December 31, 1999, relating to Visioneer
and prepared and furnished by Visioneer management;
- participated in discussions with Visioneer management concerning the
operations, business strategy, current financial performance and
prospects for Visioneer;
- discussed with Visioneer management its view of the strategic rationale
for the merger;
- reviewed the recent reported closing prices and trading activity for
Visioneer common stock;
- compared certain aspects of the financial performance of Visioneer with
public companies Broadview deemed comparable;
- reviewed Xerox's annual report and Form 10-K for the fiscal year ended
December 31, 1997, including the audited financial statements, and
Xerox's Forms 10-Q and 10-QA for its quarterly period ended September 30,
1998, including the unaudited financial statements;
- reviewed ScanSoft's unaudited quarterly income statements for the fiscal
year ended December 31, 1997 and ScanSoft's unaudited quarterly income
statements for the nine months ended September 30, 1998, prepared by
ScanSoft management;
- reviewed certain internal financial and operating information, including
projections through December 31, 1999, relating to ScanSoft prepared by
ScanSoft management;
- reviewed Visioneer management due diligence findings regarding ScanSoft's
business;
- participated in discussions with ScanSoft management concerning the
operations, business strategy, financial performance and prospects for
ScanSoft;
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- discussed with ScanSoft management its view of the strategic rationale
for the merger;
- compared certain aspects of the projected financial performance of the
surviving corporation with public companies Broadview deemed comparable;
- analyzed available information, both public and private, concerning other
mergers and acquisitions Broadview believed to be comparable in whole or
in part to the merger;
- reviewed recent equity analyst reports covering Visioneer and Xerox;
- reviewed projections through December 31, 2003 for the surviving
corporation prepared by ScanSoft management and provided by Xerox's
financial advisors;
- reviewed preliminary correspondence with the Commission and discussed
issues with Visioneer management and Visioneer's tax and accounting
advisors regarding the accounting treatment of the transaction;
- participated in negotiations and discussions related to the merger among
Visioneer, Xerox, ScanSoft and their financial and legal advisors; and
- conducted other financial studies, analyses and investigations as
Broadview deemed appropriate for purposes of its opinion.
In rendering the opinion, Broadview relied, without independent
verification, on the accuracy and completeness of all the financial and other
information that was publicly available or furnished by Visioneer, ScanSoft, or
Merrill Lynch, including without limitation, the representations and warranties
contained in the merger agreement and the unaudited financials of ScanSoft.
Broadview assumed that the financial projections were reasonably prepared and
reflected the best available estimates and good faith judgments of the
management of Visioneer and ScanSoft as to the future performance of Visioneer,
ScanSoft, and the surviving corporation, as applicable. Broadview did not make
or obtain an independent appraisal or valuation of any of Visioneer's or
ScanSoft's assets. Broadview assumed that the hardware sale would be consummated
in accordance with its terms prior to or contemporaneously with the consummation
of the merger. Broadview also assumed that the merger would be accounted for as
a purchase transaction under generally accepted accounting principles, whereby
Visioneer is to be considered the buyer. With regard to any analyses relating to
valuations of comparable public companies, the share prices used were for the
close of trading on November 24, 1998, the last trading day before Visioneer's
board of directors met to give final consideration to the proposed merger.
The following is a summary explanation of the various sources of
information and valuation methodologies employed by Broadview in conjunction
with rendering its opinion regarding the proposed merger. Note that as the sale
of Visioneer's hardware business to a third party is a condition to the merger,
Broadview's analysis was based on actual and projected results of Visioneer's
software business only and reflects the anticipated effects of the proposed sale
of Visioneer's hardware business. Accordingly, all references to Visioneer refer
only to the software business of Visioneer, Inc. as affected by the assumed sale
of the hardware business, unless otherwise noted. Historical operating results
were adjusted to reflect only the software business' operating history and were
prepared and provided to Broadview by Visioneer management. For analyses that
examine the historical prices and performance of Visioneer's publicly traded
common stock, Broadview used market prices, which necessarily included
considerations the public market made for Visioneer's hardware business.
Present Value of Projected Share Price Analysis
Based on results of the public company comparables analysis described
below, Broadview calculated the per share present value of Visioneer shares,
assuming pro rata conversion of Visioneer shares into shares in the surviving
corporation and that all holders of Visioneer shares elected to receive cash.
This analysis was performed based on projected 1999 financial results prepared
by ScanSoft management, with implied pro rata share prices discounted from
January 30, 2000 (assuming 1999 financial results are publicly announced thirty
days subsequent to year end) to November 24, 1998 at discount rates ranging from
25% to 40% assuming the
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consummation of the merger. Based on this analysis, Broadview calculated
potential pro rata per share present values of shares to be received by holders
of Visioneer shares ranging from $0.68 to $1.14. In addition to performing this
analysis, Broadview calculated the pro rata cash merger consideration as $0.52
per Visioneer share, assuming all Visioneer stockholders elect to participate in
the cash election.
Stock Performance Analysis
For comparative purposes, Broadview examined the trading history of: (i)
Visioneer common stock from November 28, 1997 to November 24, 1998; and (ii) an
index of the aggregate set of public company comparables versus Visioneer and
the S&P 500 from November 28, 1997 to November 24, 1998.
Public Company Comparables Analysis
Total Market Capitalization/Revenue ("TMC/R"), Total Market
Capitalization/Gross Profit ("TMC/ GP"), Total Market Capitalization/EBIT
("TMC/EBIT"), and Price/Earnings ("P/E") multiples indicate the value public
markets place on companies in a particular market segment. Several public
companies are comparable to both Visioneer and the surviving corporation based
on products offered, business model and market focus. Broadview reviewed twelve
public company comparables in the personal productivity and systems management
software segments of the Information Technology ("IT") market providing data
exchange and image management/ processing products, with Trailing Twelve Month
("TTM") revenue between $10 million and $100 million, from a financial point of
view, including each company's TTM Revenue; TTM Revenue Growth; TTM Gross
Margin; TTM EBIT Margin; TTM Net Margin; Equity Market Capitalization; TTM TMC/R
ratio; TTM TMC/GP ratio; TTM TMC/EBIT ratio; and TTM P/E ratio. The public
company comparables were selected from the Broadview Barometer, a proprietary
database of publicly-traded IT companies maintained by Broadview and categorized
by industry segment. In order of descending TTM TMC/R, the public company
comparables for Visioneer and the surviving corporation consist of: (i)
MySoftware Company Inc.; (ii) Caere Corporation; (iii) Micrografx Inc.; (iv)
Puma Technology Inc.; (v) International Microcomputer Software Inc.; (vi) Smith
Micro Software Inc.; (vii) MetaCreations Corporation; (viii) MapInfo
Corporation; (ix) Jetfax Inc.; (x) Expert Software Inc.; (xi) Datawatch
Corporation; and (xii) Interleaf Inc. The aggregate set of comparables has:
- a TTM TMC/R ratio range of 0.2 to 1.9 with a median of 0.9;
- a TTM TMC/GP ratio range of 0.2 to 2.9 with a median of 1.2;
- a TTM TMC/EBIT ratio range of 12.7 to 46.8 with a median of 15.8; and
- a TTM P/E ratio range of 19.4 to 68.7 with a median of 26.1.
To value Visioneer's ownership in the surviving corporation, Broadview
calculated a range of values for the surviving corporation based on projected
1999 financial results prepared by ScanSoft management. Carefully considering
factors affecting the values of Visioneer, ScanSoft, and the surviving
corporation, Broadview found it appropriate to apply the median values of the
aggregate set of the public company comparables, whose ranges and medians are
described above. Based on ScanSoft management's projected 1999 financial results
for the surviving corporation:
- the range of future equity values for the surviving corporation implied
by the TTM TMC/R multiples is $17.3 million to $93.5 million with a
median implied value of $46.6 million;
- the range of future equity values implied by the TTM TMC/GP multiples is
$16.3 million to $98.2 million with a median implied value of $46.8
million;
- the range of future equity values implied by the TTM TMC/EBIT multiples
is $56.2 million to $184.9 million with a median implied value of $68.1
million; and
- the range of future equity values implied by the TTM P/E multiples is
$45.5 million to $160.9 million with a median implied value of $61.1
million.
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Based on Visioneer's size, decreasing revenues over the last four quarters
and marginal profitability, as well as carefully weighting considerations both
positively and negatively affecting value, Broadview used multiples derived from
the lower half of the public company comparables for valuing Visioneer. The
lower half of the set of comparables has:
- a TTM TMC/R ratio range of 0.2 to 0.9 with a median of 0.7;
- a TTM TMC/GP ratio range of 0.2 to 1.2 with a median of 1.0;
- a TTM TMC/EBIT ratio range of 12.7 to 15.7 with a median of 14.2; and
- a TTM P/E ratio range of 19.4 to 25.7 with a median of 22.5.
The per share valuation range of Visioneer implied by the TTM TMC/R
multiples is $0.65 to $1.15 with a median implied value of $1.00. The per share
valuation range implied by the TTM TMC/GP multiples is $0.64 to $1.17 with a
median implied value of $1.08. The per share valuation ranges of Visioneer
implied by the TTM TMC/EBIT and TTM P/E multiples are not considered meaningful
due to the fact that, as a division of a larger company, the cost structure of
Visioneer's software division is not comparable to the public company
comparables.
Transaction Comparables Analysis
Valuation statistics from transaction comparables indicate the Adjusted
Price/Revenue ("P/R") acquirers have paid for comparable companies in a
particular market segment. Broadview reviewed seven comparable public and
private company merger and acquisition transactions from January 1, 1996 through
November 24, 1998 that involved companies similar to Visioneer in products
offered, business model and market focus. Transactions were selected from
Broadview's proprietary database of published and confidential M&A transactions
in the IT industry. These transactions represent seven companies in the personal
productivity and enterprise applications software segments of the IT market
providing graphics and document management utility and application products,
with TTM revenues less than $50 million on the date the transaction was
announced. In order of descending P/R, the transactions used are the acquisition
of: (i) Imagemark Software Labs by Inso Corporation; (ii) Adobe Systems Inc.
(Mastersoft product line) by Inso Corporation; (iii) Southern Computer Systems
Inc. by Scan-Optics Inc.; (iv) Proactive Systems by Jetform Corporation; (v)
Software Publishing Corporation by Allegro New Media Inc.; (vi) Intrafed Inc.
(PowerScan and StageWorks product lines) by Star Technologies Inc.; and (vii)
IMI plc (IMI Computing business) by a management buyout group funded by Lloyd's
Development Capital. The P/R multiples of the seven public and private
transactions range from 0.3 to 2.2 with a median of 1.0. The Visioneer equity
value per share range implied by the P/R multiples of the seven public and
private transaction comparables is $0.76 to $2.14 with a median implied value of
$1.26.
Transaction Premiums Paid Analysis
Premiums paid in comparable public transactions indicate the amount of
consideration paid above a company's equity market capitalization. In this
analysis, the value of consideration paid in transactions involving stock is
computed using the closing stock price on the trading day immediately prior to
announcement. The equity market capitalization of the company receiving
consideration is measured one trading day prior and 20 trading days prior to
announcement. Broadview reviewed 24 comparable M&A transactions from Broadview's
proprietary database involving North American software vendors from January 1,
1997 to November 24, 1998 with total consideration between $20 million and $100
million. In order of descending premium paid 20 trading days prior to the date
of announcement, the software transactions used were the acquisition of: (i)
FullTime Software Inc. by Legato Systems Inc.; (ii) Sulcus Hospitality
Technologies Corporation by Eltrax Systems Inc.; (iii) Consilium Inc. by Applied
Materials Inc.; (iv) Concentra Corporation by Oracle Corporation; (v) Accugraph
Corporation by Architel Systems Corporation; (vi) CUSA Technologies by Fiserv
Inc.; (vii) TeleBackup Systems Inc. by VERITAS Software Corporation; (viii)
National Health Enhancement Systems Inc. by HBO & Company; (ix) Interactive
Group by Dataworks Corporation; (x) Prism Solutions Inc. by Ardent Software
Inc.; (xi) Kurzweil Applied Intelligence Inc. by Lernout & Hauspie Speech
Products NV; (xii) Globalink Inc. by Lernout & Hauspie
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Speech Products NV; (xiii) Learmonth & Burchett Management Systems Inc. by
PLATINUM Technology Inc.; (xiv) Medicus Systems by QuadraMed Corporation; (xv)
IQ Software Corporation by Information Advantage Software Inc.; (xvi) Andyne
Computing Ltd. by Hummingbird Communications Ltd.; (xvii) Quarterdeck
Corporation by Symantec Corporation; (xviii) Innovative Tech Systems Inc. by
Peregrine Systems Inc.; (xix) DataWorks Corporation by Platinum Software
Corporation; (xx) Red Brick Systems Inc. by Informix Corporation; (xxi) Compurad
Inc. by Lumisys Inc.; (xxii) Orcad Inc. by Summit Design; (xxiii) Fulcrum
Technologies Inc. by PC DOCS Group International Inc.; and (xxiv) FTP Software
Inc. by NetManage Inc. Based upon Broadview's analysis of premiums paid in
comparable software transactions, Broadview found that:
- Premiums or discounts paid to companies' equity market capitalizations
one trading day prior to announcement date ranged from a 31.7% discount
to a 186.7% premium with a median premium of 20.5%;
- Premiums or discounts paid to companies' equity market capitalizations 20
trading days prior to announcement date ranged from a 26.3% discount to a
326.6% premium with a median premium of 38.5%;
- The per share valuation range implied by the premiums paid to the share
prices one trading day prior to announcement date is $0.68 to $2.87 with
a median implied value of $1.21; and
- The per share valuation range implied by the premiums paid to the share
prices 20 trading days prior to announcement date is $0.67 to $3.87 with
a median implied value of $1.26.
Relative Contribution Analysis
A relative contribution analysis measures each of the merging companies'
contributions to items such as revenue and gross profit on a percentage basis.
Broadview examined Visioneer's and ScanSoft's stand-alone relative projected
contributions for 1998 and 1999, based on projections provided by each company's
respective management for revenue and gross profit. ScanSoft's projected
relative contribution for revenue was 60.0% for 1998 and 59.6% for 1999.
ScanSoft's projected relative contribution for gross profit was 60.0% for 1998
and 59.4% for 1999. To compare the relative contributions attributable to both
Visioneer and ScanSoft to their relative ownership of the surviving corporation,
Broadview calculated Visioneer's ownership in the surviving corporation based on
Visioneer's implied relative ownership excluding transactions pertaining to
shares to be redeemed for cash. Based on this analysis, ScanSoft's implied
ownership in the surviving corporation is 38%.
Consideration of the Discounted Cash Flow Valuation Methodology
While discounted cash flow is a commonly used valuation methodology,
Broadview did not employ such an analysis for the purposes of its opinion.
Discounted cash flow analysis is most appropriate for companies which exhibit
relatively steady or somewhat predictable streams of future cash flow. Given the
uncertainty in estimating both the surviving corporation's and Visioneer's
future cash flows and a sustainable long-term growth rate, Broadview considered
a discounted cash flow analysis inappropriate for valuing either the surviving
corporation or Visioneer.
Summary of Valuation Analyses
Taken together, the information and analyses employed by Broadview lead to
Broadview's overall opinion that the consideration to be paid in the merger is
fair to Visioneer stockholders from a financial point of view.
Visioneer's board of directors selected Broadview as its financial advisor
on the basis of Broadview's reputation and experience in the information
technology sector and the computer software industry in particular. Pursuant to
the terms of an engagement letter between Visioneer and Broadview, the fees
payable by Visioneer to Broadview upon delivery of the opinion are fixed. A
substantial portion of Broadview's fee payable under the engagement letter is
contingent on the consummation of the merger. Broadview will be reimbursed by
Visioneer for certain of its expenses incurred in connection with its
engagement. The terms of
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the fee arrangement with Broadview, which Visioneer and Broadview believe are
customary in transactions of this nature, were negotiated at arms' length
between Visioneer and Broadview, and Visioneer's board of directors was aware of
the nature of the fee arrangement.
This summary of the presentations by Broadview to Visioneer's board of
directors does not purport to be a complete description of such presentations or
of all the advice rendered by Broadview. Broadview believes that its analyses
and the summary set forth above must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, could create an
incomplete view of the process underlying the analyses set forth in Broadview's
presentations to Visioneer's board of directors and in Broadview's opinion.
Broadview's opinion is necessarily based upon market, economic, financial and
other conditions as they existed and could be evaluated as of the date of the
opinion. Broadview does not express an opinion as to the price at which
surviving corporation common stock will trade at any time. In performing its
analyses, Broadview made numerous assumptions with respect to software industry
performance, personal productivity, enterprise applications and systems
management industry performance and general economic conditions, many of which
are beyond the control of Visioneer, ScanSoft, or the surviving corporation. The
analyses performed by Broadview are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable than
suggested by such analyses.
MERGER CONSIDERATION
Conversion of ScanSoft Capital Stock
All outstanding shares of capital stock of ScanSoft outstanding immediately
prior to the merger will be converted into newly issued shares of Surviving
Corporation common stock and Series B preferred stock. As of the date of this
proxy statement/prospectus, all shares of capital stock of ScanSoft are owned by
XIS. Outstanding ScanSoft options, which are held by ScanSoft employees, will be
assumed by the Surviving Corporation and replaced with options to purchase
Surviving Corporation common stock. In addition, XIS will hold a common stock
warrant exercisable for the number of shares equal to the number of ScanSoft
options assumed by the Surviving Corporation which are forfeited by the holders
of those options from time to time after the merger. Subject to the adjustments
described under "-- Book Value Adjustment" and assuming no transfers of
outstanding ScanSoft shares or exercises of vested ScanSoft options, XIS will
own 45% of the Surviving Corporation common stock and all of the Series B
preferred stock outstanding immediately after the merger. In addition, XIS will
hold a warrant to purchase approximately 1,836,0000 shares of the Surviving
Corporation's common stock (representing any shares forfeited by ScanSoft
optionholders). This will represent approximately 53.8% of the total equity of
the Surviving Corporation on a fully diluted basis immediately after the merger,
subject to the book value adjustment.
Immediately after the merger, and based on 19,852,952 shares of Visioneer
common stock outstanding on December 31, 1998, and assuming no book value
adjustment and no transfers of outstanding ScanSoft shares or exercises of
vested ScanSoft options, the Surviving Corporation will have outstanding:
- approximately 26,830,000 shares of common stock, of which 12,074,000
shares will be held by XIS and 14,756,000 shares will be held by
Visioneer stockholders;
- approximately 3,759,000 shares of Series B preferred stock and a warrant
to purchase approximately 1,836,000 shares of the Surviving Corporation
common stock (representing any shares forfeited by ScanSoft
optionholders);
- options to purchase approximately 1,836,000 shares of common stock, which
will be held by former ScanSoft optionholders; and
- options held by existing Visioneer employees, which are still outstanding
as of the merger.
The merger agreement is attached as Annex A to this proxy
statement/prospectus. See "The Merger," and "The Merger Agreement and Related
Agreements."
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Cash Election and Proration for Visioneer Stockholders
Visioneer stockholders as of the record date will be entitled to make an
unconditional election on or prior to the date of the special meeting to receive
$2.06 per share. If the number of shares exceeds the cash election number of
5,097,000 shares, then the number of shares receiving cash will be reduced to a
number determined by multiplying the total number of shares electing cash by a
proration factor determined by dividing 5,097,000 by the total number of shares
electing to receive cash. The balance of the shares electing cash will be
converted into shares of Surviving Corporation common stock.
If the number of shares electing cash is less than 5,097,000, then all
shares electing cash will receive $2.06 per share and a certain number of shares
not electing cash, excluding any dissenting shares, will nevertheless receive
$2.06. That number will be determined by multiplying the total number of shares
of Visioneer common stock outstanding, other than shares electing cash and
dissenting shares, by a proration factor determined by dividing (x) the
difference between 5,097,000 and the number of shares electing cash by (y) the
total number of shares of Visioneer common stock outstanding, other than shares
electing cash and dissenting shares.
If a Visioneer stockholder elects to receive shares of Surviving
Corporation common stock and receives cash as a result of the proration
procedures described above, such stockholder may receive dividend treatment
(rather than capital gain treatment) for any cash treated as received in the
merger from Visioneer as a result of such proration procedures (whether by
virtue of the Book Value Adjustment or cash in lieu of fractional shares). See
"Risk Factors -- Merger-Related Risk Factors -- Federal Income Tax Consequences
of Receipt of Cash Deemed Provided by Visioneer" and "The Merger -- Federal
Income Tax Consequences."
Cash Election Procedure
A cash election form is being mailed along with this proxy
statement/prospectus to Visioneer stockholders as of the record date. For a cash
election to be effective, stockholders must properly complete the form and
return it together with all certificates for shares of common stock held by such
holder, duly endorsed in blank or otherwise in form acceptable for transfer on
the books of Visioneer (or by appropriate guarantee of delivery as set forth in
the cash election form), to the exchange agent at one of the addresses listed on
the cash election form and not revoke the cash election, by 5:00 p.m. New York
time (2:00 p.m. California time) on February 23, 1999. A cash election form may
be changed by written notice received by the exchange agent prior to 5:00 p.m.,
New York time (2:00 p.m. California time) on February 23, 1999. The
determination of the exchange agent as to whether or not a cash election has
been properly made or revoked, and when such election or revocation was
received, will be binding.
Conversion of Visioneer Common Stock
Under the merger agreement, a minimum of 5,097,000 shares of common stock
currently held by the stockholders of Visioneer (representing approximately 25%
of the presently issued and outstanding shares of Visioneer common stock) will
be converted into the right to receive $2.06 per share in cash. Xerox will
provide approximately $10.5 million to be used to acquire such shares. The
remaining 14,755,952 issued and outstanding shares of Visioneer common stock
(based on the number of shares issued and outstanding as of December 31, 1998)
will be exchanged for an equivalent number of shares of Surviving Corporation
common stock upon consummation of the merger. These shares, held by the
Visioneer stockholders immediately prior to the merger, will represent 55% of
the Surviving Corporation common stock outstanding immediately after the merger
and approximately 46.2% of the total equity capital of the Surviving Corporation
on a fully diluted basis subject to the book value adjustment as discussed
below.
In general, subject to certain exclusions and the book value adjustment
discussed below, each share of Visioneer common stock electing to receive cash
will receive $2.06 per share, and each share not electing to receive cash will
receive one share of Surviving Corporation common stock for each share of
Visioneer common stock. In the event that greater than 5,097,000 shares elect to
receive cash, then the approximately $10.5 million will be allocated ratably
among the electing shares, and the remaining shares will be converted into
Surviving Corporation common stock. Similarly, if less than 5,097,000 shares
elect to receive cash, then
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any remaining balance from the approximately $10.5 million will be allocated
ratably among all shareholders electing to receive stock, and such cash payments
will be in lieu of shares. Visioneer stockholders may therefore experience a
range of actual outcomes, based upon their own actions and actions taken by
other stockholders, as well as the effect of the book value adjustment discussed
below.
Stockholder A owns only 100 shares and elects to receive cash for all
shares. If the total number of shares electing to receive cash is less than or
equal to 5,097,000, stockholders making the cash election will receive cash for
all of such shares, and Stockholder A will receive $206 for his or her shares.
If the total number of shares electing to receive cash is more than 5,097,000,
then the cash election will be "oversubscribed," and the amount of cash
distributed to all stockholders making the election will be prorated as
described above. In that case, Stockholder A will receive cash for a portion of
his or her shares, and shares of Surviving Corporation common stock for the
balance.
Stockholder B owns only 100 shares and elects to receive only shares of
Surviving Corporation. If the total number of shares electing to receive cash is
equal to or greater than 5,097,000, Stockholder B will receive shares of
Surviving Corporation common stock for all of his or her shares. If the total
number of shares electing to receive cash is less than 5,097,000, then the cash
election will be "undersubscribed," and the number of shares distributed to
stockholders electing to receive shares will be prorated. In this case,
Stockholder B will receive cash for a portion of his or her shares, and shares
of Surviving Corporation common stock for the balance. For example, if
stockholders in the aggregate elect to receive cash only with respect to
4,000,000 shares, Stockholder B would be able to receive approximately 93 shares
[14,755,952 / (19,852,952 - 4,000,000) x 100], and would receive cash for the
remaining 7 shares [1,097,000 / (19,852,952 - 4,000,000) x 100]. In the case of
maximum proration (i.e., no stockholder elects to receive cash), Stockholder B
would receive only 74 shares of Surviving Corporation common stock, and would
receive cash for the remaining 26 shares.
Stockholder C owns only 100 shares and elects to receive cash for 50 shares
and shares of Surviving Corporation for 50 shares. If the total number of shares
electing to receive cash is exactly 5,097,000, then Stockholder C will receive
cash for 50 shares and shares of Surviving Corporation common stock for 50
shares. If the total number of shares electing to receive cash is
oversubscribed, then Stockholder C will receive proportionately more shares than
cash. If the total number of shares electing to receive cash is undersubscribed,
then Stockholder C will receive proportionately more cash than shares.
Fractional shares of common stock will not be issued in the merger.
Stockholders otherwise entitled to a fractional share of common stock following
the merger will be paid cash in lieu of such fractional shares determined and
paid as described under "-- No Fractional Shares."
Any shares of common stock owned by Visioneer or ScanSoft will
automatically be retired at the effective time and will cease to exist.
Book Value Adjustment
The number of shares of Visioneer common stock to be exchanged for cash and
the number of shares of Series B preferred stock to be received by XIS will be
subject to adjustment based upon the variance from a predetermined relationship
between the Visioneer net book value and the ScanSoft net book value, each
calculated on a date prior to the merger. If the difference between the
Visioneer net book value and the ScanSoft net book value is higher than the
predetermined variance, then the cash election number of 5,097,000 shares will
be increased by a number of shares equal to the excess of such variance divided
by $2.06. Such additional shares are referred to as the "Additional Cash
Election Shares." Alternatively, in the event that the difference between the
Visioneer net book value and the ScanSoft net book value is less than the
predetermined variance, then the cash election number of 5,097,000 will not
increase. Instead, Visioneer will issue to XIS that number of additional shares
of preferred stock equal to such shortfall divided by approximately $2.06.
The purpose of this book value adjustment is to adjust the consideration
amounts to be received and the relative ownership percentages in the Surviving
Corporation that are contemplated by the merger agreement.
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The book value adjustment compensates for changes in the value of either
Visioneer or ScanSoft that occur in the time period (which is expected to exceed
90 days) between the signing of the merger agreement, at which time the deal
terms were set, and the effective time of the merger.
No Fractional Shares
No fractional shares of Surviving Corporation common stock will be issued
in the merger, and the owner of such fractional share interests will not be
entitled to vote or to any rights of a stockholder of the Surviving Corporation
with respect to such fractional interest after the merger. Each stockholder who
would otherwise be entitled to receive a fractional share (after taking into
account all shares of common stock delivered by such holder) will receive, in
lieu thereof, a cash payment (without interest) equal to such fraction
multiplied by $2.06.
EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of the Certificate of
Merger with the Secretary of State of Delaware or such later date as is
specified in such Certificate of Merger. The filing of the Certificate of Merger
will occur as soon as practicable on or after the satisfaction or waiver of the
conditions to the merger specified in the merger agreement unless another date
is agreed to in writing by Visioneer and ScanSoft. Subject to certain
limitations, the merger agreement may be terminated by either Visioneer or
ScanSoft if, among other reasons, the merger has not been consummated on or
before April 30, 1999. See "The Merger Agreement and Related
Agreements -- Conditions to the Consummation of the Merger" and
"-- Termination."
As soon as practicable after the effective time, each holder of an
outstanding certificate which represented shares of Visioneer common stock will,
upon surrender to the exchange agent of such certificate and acceptance of the
certificate by the exchange agent, be entitled to receive either cash, a
certificate representing shares of Surviving Corporation common stock, or both,
as outlined above. The exchange agent will accept such certificates when duly
executed and completed in accordance with the instructions on the cash election
form, together with such other documents as may reasonably be required by the
exchange agent. After the effective time, there will be no further transfer on
the records of Visioneer or its transfer agent of certificates representing
shares of common stock which have been converted, in whole or in part, pursuant
to the merger agreement into the right to receive cash. If such certificates are
presented to Visioneer for transfer, they will be canceled against delivery of
cash and, if appropriate, certificates for Surviving Corporation common stock.
Until surrendered as contemplated by the merger agreement, each certificate for
shares of Visioneer common stock will be deemed at any time after the effective
time to represent only the right to receive upon such surrender the
consideration contemplated by the merger agreement. No interest will be paid or
will accrue on any cash payable as consideration in the merger or in lieu of any
fractional shares of retained common stock.
No dividends or other distributions with respect to retained common stock
with a record date after the effective time will be paid to the holder of any
unsurrendered certificate for shares of common stock with respect to the shares
of retained common stock represented thereby and no cash payment in lieu of
fractional shares will be paid to any such holder pursuant to the merger
agreement until the surrender of such certificate in accordance with the merger
agreement. Subject to the effect of applicable laws, following surrender of any
such certificate, there shall be paid to the holder of the certificate
representing whole shares of retained common stock issued in connection
therewith, without interest, (i) at the time of such surrender or as promptly
thereafter as practicable, the amount of any cash payable in lieu of a
fractional share of retained common stock to which such holder is entitled
pursuant to the merger agreement and the proportionate amount of dividends or
other distributions, if any, with a record date after the effective time
theretofore paid with respect to such whole shares of retained common stock, and
(ii) at the appropriate payment date, the proportionate amount of dividends or
other distributions, if any, with a record date after the effective time but
prior to such surrender and a payment date subsequent to such surrender payable
with respect to such whole shares of retained common stock.
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FEDERAL INCOME TAX CONSEQUENCES
Under currently applicable law, the following are the material U.S. federal
income tax considerations generally applicable to the merger. The tax treatment
described herein may vary depending upon each stockholder's particular
circumstances and tax position. Certain stockholders (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
foreign corporations, persons who are not citizens or residents of the United
States, stockholders who do not hold their shares as capital assets and
stockholders who have acquired their existing stock upon the exercise of options
or otherwise as compensation) may be subject to special rules not discussed
below. No ruling from the IRS nor opinion of counsel will be sought with respect
to the federal income tax consequences discussed herein and, accordingly, there
can be no assurance that the IRS will agree with the conclusions stated herein.
The discussion below is based upon the provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations, rulings and judicial
decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in U.S. federal income tax
consequences different from those discussed below. In addition, this discussion
does not consider the effect of any applicable foreign, state, local or other
tax laws. Each stockholder should consult his or her own tax advisor as to the
particular tax consequences to him or her of the merger, including the
applicability and effect of any foreign, state, local or other tax laws.
Characterization of the Merger for U.S. Federal Income Tax Purposes
The merger is expected to qualify as a reorganization under section 368 of
the Code such that none of Visioneer, ScanSoft or the former ScanSoft
stockholders will recognize gain or loss as a result of the merger for U.S.
federal income tax purposes. In addition, no U.S. federal income tax
consequences will result from the receipt by Visioneer stockholders of shares of
Surviving Corporation common stock in exchange for their Visioneer common stock
(in effect, the retention of such shares of Visioneer common stock). If only
5,097,000 of cash election shares are converted into cash in the merger (i.e.,
there are no Additional Cash Election Shares, as defined in book value
adjustment, above), because that cash will be provided by Xerox, Visioneer
stockholders will be treated as having sold such shares to Xerox for $2.06 per
share. In the event there are Additional Cash Election Shares, then each
Visioneer stockholder receiving cash pursuant to a cash election (whether
pursuant to an actual election or by virtue of proration) will be treated as
having sold a portion of his or her Visioneer stock to Xerox and as having had a
portion of such stock redeemed by Visioneer. The parties intend to take the
position with the IRS that the percentage of a stockholder's Visioneer stock
converted into cash by virtue of a cash election which will be treated as sold
to Xerox will be equal to (i) 5,097,000 divided by (ii) the sum of 5,097,000 and
the number of Additional Cash Election Shares, if any. The remainder of such
stockholder's Visioneer stock converted into cash by virtue of a Cash Election
will be treated as redeemed by Visioneer. The IRS could, however, adopt a
different approach in determining the portion, if any, of a stockholder's
Visioneer stock which is treated as redeemed by Visioneer. See "-- Stockholders
Receiving Cash" below for a discussion of the consequences of cash being deemed
paid in redemption of Visioneer stock.
Stockholders Receiving Cash
As described more fully below, the U.S. federal income tax consequences of
the merger with respect to a particular Visioneer stockholder will depend upon,
among other things, (i) the extent to which a stockholder is deemed to have sold
his or her Visioneer stock to Xerox or is deemed to have had his or her
Visioneer stock redeemed by Visioneer and (ii) whether the redemption of a
holder's Visioneer stock by Visioneer will qualify as a sale or exchange under
section 302 of the Code. First, to the extent that a stockholder is considered
to have sold Visioneer stock to Xerox, such stockholder will recognize either
capital gain or loss (assuming the Visioneer stock is held by such stockholder
as a capital asset) equal to the difference between the amount realized on his
or her deemed sale of Visioneer stock to Xerox (i.e., the cash proceeds properly
allocated to such sale) and the stockholder's adjusted tax basis in such
Visioneer stock. Such gain or loss generally will be long-term capital gain or
loss if the Visioneer stock is held as a capital asset by the stockholder for
more than one year. Second, a stockholder also will recognize either capital
gain or loss equal to the difference between the cash proceeds allocable to the
redemption of such stockholder's Visioneer stock by Visioneer and the
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<PAGE> 48
stockholder's adjusted tax basis in such Visioneer stock, to the extent such
redemption is treated as a sale or exchange under section 302 of the Code with
respect to such stockholder and assuming Visioneer is not a collapsible
corporation. Such gain or loss generally will be long-term capital gain or loss
if the Visioneer stock is held as a capital asset by the stockholder for more
than one year. Under section 302 of the Code, a redemption of Visioneer stock
pursuant to the merger will, as a general rule, be treated as a sale or exchange
if such redemption (a) is "substantially disproportionate" with respect to the
stockholder, (b) results in a "complete redemption" of the stockholder's
interest in Visioneer or (c) is "not essentially equivalent to a dividend" with
respect to the stockholder.
In determining whether any of these section 302 tests is satisfied,
stockholders must take into account not only the Visioneer stock that they
actually own, but also any Visioneer stock they are deemed to own under the
constructive ownership rules set forth in section 318 of the Code. Pursuant to
these constructive ownership rules, a stockholder is deemed to own
constructively any Visioneer stock that is owned by certain related individuals
or entities and any Visioneer stock that the stockholder has the right to
acquire by exercise of an option or by conversion or exchange of a security.
The redemption of a stockholder's Visioneer stock will be "substantially
disproportionate" with respect to such stockholder if, among other things, the
percentage of Visioneer stock actually and constructively owned by such
stockholder immediately following the merger is less than 80% of the percentage
of Visioneer stock actually and constructively owned by such stockholder
immediately prior to the merger. Because of the substantial amount of Visioneer
stock which will be held by XIS following the merger, it is expected that the
conversion of Additional Cash Election Shares into cash in the merger will
result in a "substantially disproportionate" redemption of such shares by
Visioneer. Stockholders are nonetheless strongly urged to consult their own tax
advisors with respect to the application of the "substantially disproportionate"
test to their particular facts and circumstances, particularly in view of the
constructive ownership rules.
The redemption of a stockholder's Visioneer stock will result in a
"complete redemption" of a stockholder's interest in Visioneer if either (i) all
the Visioneer stock actually and constructively owned by the stockholder is
redeemed or sold pursuant to the merger or (ii) all the Visioneer stock actually
owned by the stockholder is redeemed or sold pursuant to the merger and the
stockholder is eligible to waive, and does effectively waive in accordance with
section 302(c) of the Code, attribution of all Visioneer stock which otherwise
would be considered to be constructively owned by such stockholder. Because of
the proration procedures in the merger agreement, Visioneer stockholders may not
be able to assure that all their shares of Visioneer common stock will be
converted into cash in the merger, even if they affirmatively elect to receive
cash for all such shares.
Even if the redemption of a stockholder's Visioneer stock fails to satisfy
the "substantially disproportionate" test or the "complete redemption" test
described above, the redemption of a stockholder's Visioneer stock may
nevertheless satisfy the "not essentially equivalent to a dividend" test if the
stockholder's redemption of Visioneer stock pursuant to the merger results in a
"meaningful reduction" in such stockholder's proportionate stock interest in
Visioneer. Whether the receipt of cash by a stockholder will be considered "not
essentially equivalent to a dividend" will depend upon such stockholder's facts
and circumstances. In certain circumstances, even a small reduction in a
stockholder's proportionate equity interest may satisfy this test. For example,
the IRS has indicated in a published ruling that a 3.3% reduction in the
proportionate equity interest of a small (substantially less than 1%)
stockholder in a publicly held corporation who exercises no control over
corporate affairs constitutes such a "meaningful reduction." Stockholders should
consult with their own tax advisors as to the application of this test in their
particular situations.
A Visioneer stockholder may not be able to satisfy one of the above three
tests because of contemporaneous acquisitions of Visioneer stock by such
stockholder or a related party whose Visioneer stock would be attributed to such
stockholder under section 318 of the Code. Stockholders should consult their own
tax advisors regarding the tax consequences of such acquisitions in their
particular circumstances.
If a stockholder cannot satisfy any of the three tests described above and
to the extent Visioneer has sufficient current or accumulated earnings and
profits, such stockholder will be treated as having received a
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<PAGE> 49
dividend which will be included in gross income (and treated as ordinary income)
in an amount equal to the cash received (without regard to gain or loss, if
any).
In the case of a corporate stockholder, if the cash paid is treated as a
dividend, such dividend income may be eligible for the 70% dividends-received
deduction. The dividends-received deduction is subject to certain limitations,
and may not be available if the corporate stockholder does not satisfy certain
holding period requirements with respect to the Visioneer stock or if the
Visioneer stock is treated as "debt financed portfolio stock" within the meaning
of section 246A(c) of the Code. Additionally, if a dividends-received deduction
is available, the dividend may be treated as an "extraordinary dividend" under
section 1059(a) of the Code, in which case a corporate stockholder's adjusted
tax basis in the Visioneer stock retained by such stockholder would be reduced,
but not below zero, by the amount of the nontaxed portion of such dividend. By
virtue of section 1011 of the Taxpayer Relief Act of 1997, any amount of the
nontaxed portion of the dividend in excess of the corporate stockholder's
adjusted tax basis in the Visioneer stock retained by such stockholder is
immediately subject to tax in the taxable year of the ex dividend date for the
dividend. Corporate stockholders are urged to consult their own tax advisors as
to the effect of section 1059 of the Code on the adjusted tax basis of their
Visioneer stock.
Foreign Stockholders
The following is a general discussion of certain U.S. federal income tax
consequences of the merger to foreign stockholders. For this purpose, a foreign
stockholder is any person who is, for U.S. federal income tax purposes, a
foreign corporation, a nonresident alien individual, a foreign partnership or a
foreign estate or trust.
Withholding. In the case of any foreign stockholder, the exchange agent
will withhold 30% of the amount treated as paid to redeem the Visioneer stock
(i.e., there are Additional Cash Election Shares) of such stockholder in order
to satisfy certain U.S. withholding requirements, unless such foreign
stockholder proves in a manner satisfactory to Visioneer and the exchange agent
that either (i) the redemption of his or her Visioneer stock pursuant to the
merger will qualify as a sale or exchange under section 302 of the Code, rather
than as a dividend for U.S. federal income tax purposes, in which case no
withholding will be required, (ii) the foreign stockholder is eligible for a
reduced tax treaty rate with respect to dividend income, in which case the
exchange agent will withhold at the reduced treaty rate or (iii) no U.S.
withholding is otherwise required. Foreign stockholders should consult their own
tax advisors regarding the application of these withholding rules.
Information Reporting and Backup Withholding. Visioneer must report
annually to the IRS and to each stockholder the amount of dividends paid to such
stockholder and the backup withholding tax, if any, withheld with respect to
such dividends. Copies of these information returns also may be made available
to the tax authorities in the country in which a foreign stockholder resides
under the provisions of an applicable income tax treaty. Backup withholding
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) generally will not apply to dividends
paid to a foreign stockholder at an address outside the United States (unless
the payor has knowledge that the payee is a U.S. person). This so-called "mail
box" rule has been eliminated, but only with respect to dividends paid after
December 31, 1999.
Payment of the proceeds of a sale of Visioneer stock by or through a United
States office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner certifies under penalties of perjury that
it is a foreign stockholder and the payor does not have actual knowledge that
such owner is a U.S. person, or otherwise establishes an exemption. In general,
backup withholding and information reporting will not apply to a payment of the
proceeds of a sale of Visioneer stock by or through a foreign office of a
broker. If, however, such broker is, for United States federal income tax
purposes, a U.S. person, a controlled foreign corporation, or a foreign person
that derives 50% or more of his or her gross income for certain periods from the
conduct of a trade or business in the United States, such payments will not be
subject to backup withholding but will be subject to information reporting,
unless (i) such broker has documentary evidence in its records that the
beneficial owner is a foreign holder and certain other conditions are met or
(ii) the beneficial owner otherwise establishes an exemption.
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<PAGE> 50
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against the holder's U.S. federal income tax liability
provided the required information is furnished to the IRS. The U.S. Treasury
Department has promulgated final regulations regarding the withholding and
information reporting rules discussed above, but the new rules are applicable to
payments made after December 31, 1999. In general, the final regulations do not
significantly alter the substantive withholding and information reporting
requirements but rather unify current certification procedures and forms and
clarify reliance standards. Foreign stockholders should consult their own tax
advisors with respect to the impact, if any, of the new final regulations.
ALTHOUGH THE FOREGOING ARE THE MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS GENERALLY APPLICABLE TO THE MERGER, THE DISCUSSION DOES NOT
ADDRESS EVERY FEDERAL INCOME TAX CONCERN WHICH MAY BE APPLICABLE TO A PARTICULAR
STOCKHOLDER. EACH STOCKHOLDER IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX
ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO SUCH STOCKHOLDER, IN THE LIGHT OF
HIS OR HER PARTICULAR CIRCUMSTANCES, OF THE DISPOSITION OR RETENTION OF
VISIONEER STOCK PURSUANT TO THE MERGER.
ACCOUNTING TREATMENT
The merger will be accounted for as a purchase, and accordingly, the
acquired assets and liabilities of ScanSoft will be recorded at estimated fair
values. Under the purchase method of accounting, intangibles in the amount of
approximately $11.4 million will be capitalized and non-recurring charges of
approximately $4.2 million relating to in-process research and development will
be recorded in the quarter the merger is consummated. These amounts are
estimates that reflect the most recently available information but will be
affected by the completion of a valuation study that is currently in process.
The completion of the valuation study may result in significant differences from
the preliminary allocation. The amortization of goodwill and other intangibles
after the merger will have an adverse effect on the results of operations of
Visioneer.
EFFECT ON VISIONEER AND SCANSOFT OPTIONS
Visioneer plans to offer to employees whose employment is 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 agrees to terminate
all additional outstanding unvested options held by such employee. Options
outstanding at the effective time will remain outstanding after the effective
time in accordance with their terms. Visioneer's option and stock purchase plans
will also remain in effect after the effective time. See "Interests of Certain
Persons in the Merger and Related Matters -- Agreements with Visioneer's
Executive Officers."
At the effective time of the merger, Visioneer will assume each outstanding
option to purchase common stock of ScanSoft issued pursuant to ScanSoft's 1998
Stock Option Plan, whether vested or unvested, and each assumed option will
constitute an option to acquire, on the same terms and conditions (including the
same vesting provisions) as were applicable under such option prior to the
effective time, that number of whole shares of Visioneer common stock equal to
the product of the number of shares of ScanSoft common stock subject to such
option multiplied by the implicit exchange ratio (rounded down to the nearest
whole number). Each assumed option will have an exercise price per share of
Visioneer common stock equal to the quotient obtained by dividing the exercise
price per share of the ScanSoft common stock subject to such option by the
implicit exchange ratio (rounded up to the nearest whole cent). All such
calculations will ignore whether or not such ScanSoft option is exercisable as
of the effective time. At and after the effective time, Visioneer will honor all
obligations under the ScanSoft options and as in effect on the effective date of
the merger agreement.
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<PAGE> 51
INTERESTS OF CERTAIN PERSONS IN THE MERGER AND RELATED MATTERS
In considering the recommendation of Visioneer's board of directors with
respect to the merger agreement and the transactions contemplated thereby,
stockholders should be aware that certain officers and directors of Visioneer
have interests in the merger that are different from, and in addition to, the
interests of stockholders of Visioneer.
AGREEMENTS WITH VISIONEER'S EXECUTIVE OFFICERS
Three officers of Visioneer, J. Larry Smart, President and Chief Executive
Officer and a director, Murray Dennis, Vice President of Sales and Marketing,
and Gregory Elder, Controller, have executed employment and non-compete
agreements with Primax V Acquisition Corp., a wholly-owned subsidiary of Primax
Electronics Ltd. Following the closing of the hardware asset sale to Primax,
which occurred on January 6, 1999, Messrs. Dennis and Elder became employed by
Primax, and each received a signing bonus paid by Primax equal to six months of
their Visioneer salary as part of their new employment compensation package.
Each of these employees released Visioneer from its obligations under existing
employment agreements with Visioneer. Mr. Smart, however, will not commence
full-time employment with Primax until the earliest to occur of (i) the closing
of the merger, (ii) the day on which the merger agreement is terminated by
either Visioneer or ScanSoft, or (iii) March 31, 1999. Until such time, Mr.
Smart will continue to serve as President and Chief Executive Officer of
Visioneer and will render services to Primax on a consulting basis pursuant to a
management services agreement between Visioneer, Primax and Mr. Smart. Mr. Smart
will receive payment of six months additional salary by Visioneer upon his
termination of employment. Jay Hanson, Vice President of Engineering, will
receive a payment of six months additional salary upon termination of employment
by Visioneer. Michael T. Burt, Vice President of Operations, will receive a
payment of four months additional salary upon termination of employment by
Visioneer. Pursuant to an engagement letter dated August 11, 1998 between
Visioneer and The Brenner Group LLC, Richard Brenner serves as Visioneer's Chief
Financial Officer. Visioneer pays The Brenner Group hourly fees for Mr.
Brenner's services and has agreed to pay a success fee for completion of the
hardware sale and the merger. Visioneer anticipates that this success fee will
total approximately $90,000. The total amount of payments to Messrs. Smart,
Hanson 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, Burt, Elder, and
Hanson upon each individual's termination of employment with Visioneer. Under
this plan, vesting of options to purchase a total of 75,530 shares were
accelerated for Messrs. Dennis and Elder, and vesting of options to purchase a
total of 77,618 shares will be accelerated for Messrs. Hanson and Burt, assuming
closing of the Merger on March 1, 1999. Visioneer will also accelerate 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 will be accelerated assuming
closing of the merger on March 1, 1999.
In November 1998, Visioneer's board of directors also approved offering to
employees, including executive officers, whose employment is 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 agrees to terminate
all additional outstanding unvested options held by such employee. Accordingly,
Messrs. Dennis and Elder would receive approximately $30,500 and $3,900,
respectively, 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, Hanson and Burt are expected to receive approximately
$134,000, $16,200, and $17,400 respectively, for options that would be
exercisable as of the closing of the merger (assuming the merger closes on March
1, 1999) and for options accelerated in connection with the closing of the
merger or their termination of employment.
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<PAGE> 52
DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE
All Visioneer directors and officers have entered into indemnification
agreements with Visioneer which provide that Visioneer will maintain directors'
and officers' liability insurance and indemnify directors to the full extent
permitted by applicable law. Further, under the terms of the merger agreement,
for a period of six years after the effective time, Visioneer will cause the
Surviving Corporation to maintain the obligations set forth in the
indemnification agreements and to indemnify the current and former officers and
directors of Visioneer, to the extent provided in Visioneer's certificate of
incorporation and bylaws in effect at the date of execution of the merger
agreement. In addition, the Surviving Corporation shall use its reasonable
efforts to maintain for a period of six years directors' and officers' tail
liability insurance which provides at least the same coverage as would be
provided under Visioneer's current directors and officers' liability insurance;
provided, however, the Surviving Corporation will not be required to pay
aggregate premiums for such tail coverage in excess of $250,000.
BOARD OF DIRECTORS OF THE SURVIVING CORPORATION
Pursuant to the merger agreement, Visioneer has agreed that, immediately
after the effective time, it will increase the size of its board of directors by
two. After the merger, the board of directors will include two directors
nominated by Xerox, two directors nominated by Visioneer, two independent
directors and Michael Tivnan, who will serve as the Chief Executive Officer of
the Surviving Corporation after the merger. See "The Merger Agreement and
Related Agreements -- Board of Directors and Officers of Surviving Corporation
Following the Merger" and "-- Related Agreements-Voting Agreement."
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<PAGE> 53
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial statements
give effect to the sale of the hardware assets of Visioneer and to the merger of
Visioneer and ScanSoft, using the purchase method of accounting in accordance
with generally accepted accounting principles. ScanSoft is a subsidiary of
Xerox; accordingly, the results of ScanSoft's operations on a stand-alone basis
may differ. The unaudited pro forma condensed combined financial statements are
based upon the historical financial statements of the respective companies. The
unaudited pro forma condensed combined balance sheet assumes that the merger
took place on September 30, 1998 and combines ScanSoft's September 30, 1998
audited historical balance sheet with Visioneer's September 30, 1998 unaudited
historical balance sheet. The unaudited pro forma condensed combined statements
of operations for the twelve months ended December 31, 1997 and the nine months
ended September 30, 1998 assume the merger took place as of January 1, 1997 and
combine Visioneer's statement of operations for the twelve months ended December
31, 1997 with ScanSoft's statement of operations for the twelve months ended
December 31, 1997 and Visioneer's unaudited condensed statement of operations
for the nine months ended September 30, 1998 with ScanSoft's condensed statement
of operations for the nine months ended September 30, 1998. The unaudited pro
forma condensed combined financial statements are based on the estimates and
assumptions set forth in the notes to such statements. The pro forma
adjustments, including the purchase price allocations, are based on a
preliminary valuation of ScanSoft that has yet to be finalized. The pro forma
adjustments have been made in connection with the development of the pro forma
information for illustrative purposes to comply with the disclosure requirements
of the Commission. The pro forma adjustments included in the unaudited pro forma
condensed combined financial statements are expected to be revised upon the
finalization of the valuation of the assets of ScanSoft acquired by Visioneer.
The unaudited pro forma condensed combined financial statements do not purport
to be indicative of the results of operations for future periods or the combined
financial position or results that would have been realized had the companies
been a single entity during these periods. These unaudited pro forma condensed
combined financial statements should be read in conjunction with the historical
financial statements and related notes thereto of ScanSoft, which are included
elsewhere herein, and the historical financial statements of Visioneer and
related notes thereto included in Visioneer's December 31, 1997 Annual Report on
Form 10-K and September 30, 1998 Quarterly Report on Form 10-Q previously filed
with the Commission and incorporated by reference herein.
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<PAGE> 54
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
VISIONEER
HARDWARE VISIONEER PRO FORMA PRO FORMA
VISIONEER BUSINESS ADJUSTED SCANSOFT ADJUSTMENTS COMBINED
--------- --------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents......... $12,823 $ 4,170(d) $16,993 $ 986 $(7,372)(e) $10,607
Short-term
investments......... 201 -- 201 -- -- 201
Accounts receivable,
net................. 11,559 (9,545) 2,014 2,797 -- 4,811
Inventory.............. 6,466 (6,217) 249 592 -- 841
Prepaid expenses and
other current
assets.............. 605 (296) 309 569 -- 878
------- -------- ------- ------ ------- -------
31,654 (11,888) 19,766 4,944 (7,372) 17,338
Property and equipment,
net.................... 1,191 (1,191) -- 1,078 (104)(h) 974
Intangible assets........ -- -- -- -- 11,379(a) 11,379
Other noncurrent
assets................. 65 (65) -- 435 435
------- -------- ------- ------ ------- -------
$32,910 $(13,144) $19,766 $6,457 $ 3,903 $30,126
======= ======== ======= ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank
borrowings.......... $ 7,372 $ -- $ 7,372 $ -- $(7,372)(e) $ --
Accounts payable....... 11,869 (11,500) 369 399 -- 768
Other accrued
liabilities......... 4,360 (2,653) 1,707 1,855 1,500(b) 5,062
Deferred revenue....... -- -- -- 915 (915)(i) --
------- -------- ------- ------ ------- -------
23,601 (14,153) 9,448 3,169 (6,787) 5,830
------- -------- ------- ------ ------- -------
Long-term liability...... 91 (91) -- -- -- --
------- -------- ------- ------ ------- -------
18,178(f)
(4,200)(c)
(3,288)(g)
-------
Stockholders' equity..... 9,218 1,100(d) 10,318 3,288 10,690 24,296
------- -------- ------- ------ ------- -------
$32,910 $(13,144) $19,766 $6,457 $ 3,903 $30,126
======= ======== ======= ====== ======= =======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
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<PAGE> 55
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
VISIONEER
HARDWARE VISIONEER PRO FORMA PRO FORMA
VISIONEER BUSINESS ADJUSTED SCANSOFT ADJUSTMENTS COMBINED
--------- ---------- --------- -------- ----------- ---------
(C)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product revenues........ $ 50,523 $ 41,489 $ 9,034 $17,790 -- $26,824
Royalty and development
revenues............. 7,100 7,100 -- -- 7,100
-------- -------- ------- ------- ------- -------
Total net
revenues...... 57,623 41,489 16,134 17,790 -- 33,924
-------- -------- ------- ------- ------- -------
Cost of revenues:
Cost of product
revenues............. 49,838 46,711 3,127 4,430 -- 7,557
Cost of royalty and
development
revenues............. 887 -- 887 -- -- 887
-------- -------- ------- ------- ------- -------
Total cost of
revenues...... 50,725 46,711 4,014 4,430 -- 8,444
-------- -------- ------- ------- ------- -------
Gross profit.............. 6,898 (5,222) 12,120 13,360 -- 25,480
-------- -------- ------- ------- ------- -------
Operating expenses:
Research and
development.......... 8,115 1,988 6,127 5,129 -- 11,256
Selling, general and
administrative....... 22,428 16,773 5,655 10,108 -- 15,763
Amortization of
intangibles.......... -- -- -- -- $ 2,276(a) 2,276
Non-recurring items..... 675 675 -- -- -- --
-------- -------- ------- ------- ------- -------
Total operating
expenses...... 31,218 19,436 11,782 15,237 2,276 29,295
-------- -------- ------- ------- ------- -------
Operating income (loss)... (24,320) (24,658) 338 (1,877) (2,276) (3,815)
Other income, net......... 984 827 157 48 -- 205
Interest expense.......... (44) (37) (7) -- -- (7)
-------- -------- ------- ------- ------- -------
Net income (loss)......... $(23,380) $(23,868) $ 488 $(1,829) $(2,276) $(3,617)
======== ======== ======= ======= ======= =======
Net loss per share: basic
and diluted............. $ (1.20) $ (0.14)
Weighted average common
shares outstanding:
basic and diluted....... 19,450 26,427(b)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
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<PAGE> 56
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
VISIONEER
HARDWARE VISIONEER PRO FORMA PRO FORMA
VISIONEER BUSINESS ADJUSTED SCANSOFT ADJUSTMENTS COMBINED
--------- ---------- --------- -------- ----------- ---------
(C)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Product revenues......... $56,089 $49,150 $ 6,939 $15,448 $ -- $22,387
Royalty and development
revenues.............. 3,390 3,390 -- -- 3,390
------- ------- ------- ------- ------- -------
Total net
revenues....... 59,479 49,150 10,329 15,448 -- 25,777
------- ------- ------- ------- ------- -------
Cost of revenues:
Cost of product
revenues.............. 43,634 41,337 2,297 4,466 -- 6,763
Cost of royalty and
development
revenues.............. 498 -- 498 -- -- 498
------- ------- ------- ------- ------- -------
Total cost of
revenues....... 44,132 41,337 2,795 4,466 -- 7,261
------- ------- ------- ------- ------- -------
Gross profit............... 15,347 7,813 7,534 10,982 -- 18,516
------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development........... 3,486 580 2,906 4,499 -- 7,405
Selling, general and
administrative........ 14,209 11,684 2,525 8,302 -- 10,827
Amortization of
intangibles........... -- -- -- -- 1,707(a) 1,707
------- ------- ------- ------- ------- -------
Total operating
expenses....... 17,695 12,264 5,431 12,801 1,707 19,939
------- ------- ------- ------- ------- -------
Operating income (loss).... (2,348) (4,451) 2,103 (1,819) (1,707) (1,423)
Other income (expense),
net...................... 565 475 90 (3) -- 87
Interest expense........... (328) (276) (52) -- -- (52)
------- ------- ------- ------- ------- -------
Net loss................... $(2,111) $(4,252) $ 2,141 $(1,822) $(1,707) $(1,388)
======= ======= ======= ======= ======= =======
Net loss per share: basic
and diluted.............. $ (0.11) $ (0.05)
Weighted average common
shares outstanding: Basic
and diluted.............. 19,689 26,666(b)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
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<PAGE> 57
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
1. THE TRANSACTION
The pro forma condensed combined financial statements reflect the sale of
the hardware assets of Visioneer to Primax, one of Visioneer's primary
manufacturing partners, for the net book value of these assets plus
approximately $1.1 million. In addition, the pro forma condensed combined
financial statements reflect the acquisition of ScanSoft for approximately 7.0
million shares of Visioneer's common stock and 3.8 million shares of Visioneer's
non-voting Series B preferred stock. Additionally, Visioneer will issue
approximately 1.8 million options in exchange for the ScanSoft outstanding
options. The Series B preferred stock is convertible into common stock on a
share for share basis at the election of the holder after two years; however,
the preferred stock is convertible immediately if the holder's ownership of
outstanding Surviving Corporation common stock is less than 30% unless such
conversion results in the holder owning more than 50% of the outstanding
Surviving Corporation common stock. The Series B preferred stock also carries
dividend preferences and has a liquidation preference of $1.30 per share.
Visioneer will grant XIS a ten-year warrant which allows XIS to acquire shares
equal to any vested or unvested options of former ScanSoft employees forfeited
after the merger. The exercise price and the number of shares subject to the
warrant would be the same as that held by the ScanSoft employee. The warrant is
exercisable at any time; however, Xerox may not exercise the warrant prior to
two years from the date of its initial issuance unless, immediately after such
exercise, Xerox owns directly or indirectly a number of outstanding shares of
Surviving Corporation common stock that represents less than 45% of the total
number of shares of Surviving Corporation common stock outstanding immediately
after such exercise. Also, as part of this transaction, at least 5,097,000
shares of Visioneer common stock will be exchanged for cash at $2.06 per share.
The purchase price of the acquisition of ScanSoft is estimated to be $19.7
million which has been determined as follows:
<TABLE>
<S> <C>
Shares of Common Stock...................................... $10,757
Visioneer options/warrants.................................. 2,534
Shares of Preferred Stock................................... 4,887
Estimated acquisition costs................................. 1,500
-------
$19,678
=======
</TABLE>
The purchase price for pro forma purposes has been allocated to tangible
assets acquired and liabilities assumed based on the book value of ScanSoft's
current assets and liabilities, which management believes approximates their
fair value. In addition, Visioneer management has engaged an independent
appraiser to value the intangible assets, including amounts allocable to
ScanSoft's in-process research and development. The appraisal process is
currently underway and, based on the preliminary appraisal, the value of the
acquired ScanSoft in-process research and development, which will be expensed
immediately, is $4.2 million. The actual amount of acquired in-process research
and development may differ from this estimate. The in-process research and
development relates to ScanSoft's products for which technological feasibility
has not been established and has been estimated utilizing a stage of completion
approach. The resulting estimated net cash flows have been discounted at a rate
of 25%. This discount rate was based on the estimated cost of capital plus an
additional discount for the increased risk associated with in-process
technology.
The allocation of the purchase price is estimated as follows (in
thousands):
<TABLE>
<S> <C>
Property and equipment...................................... $ 974
Current and other assets.................................... 5,379
Liabilities assumed......................................... (2,254)
Identified intangible assets................................ 11,379
Acquired in-process research and development................ 4,200
-------
$19,678
=======
</TABLE>
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<PAGE> 58
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
The number of shares to be issued for the purchase of ScanSoft, and
therefore the purchase price, will be affected by the net book value of each of
Visioneer and ScanSoft on a date prior to the closing of the transaction. The
merger agreement provides for a net book value adjustment. Had the merger been
consummated on September 30, 1998, the effect of the net book value adjustment
would have resulted in the redemption of more than 5,097,000 shares of Visioneer
common stock. No net book value adjustment has been made to the pro forma
condensed combined balance sheet as of September 30, 1998, because such
adjustment is not expected to be representative of the net book value adjustment
that may result upon consummation of the merger.
2. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following adjustments were applied to the historical balance sheet of
Visioneer and ScanSoft at September 30, 1998 to arrive at the pro forma
condensed combined balance sheet:
(a) To record intangible assets acquired at their fair values, which
includes developed technology, customer base, trademark, trade name
and workforce.
(b) To record the estimated transaction costs related to the merger.
Estimated costs include all costs directly incurred as a result of the
merger agreement including, but not limited to, accountants and
attorney fees, investment banker fees and other related costs.
(c) To reflect the estimated one time charge for acquired in-process
research and development of $4.2 million.
(d) To reflect the cash received from the sale of the hardware business,
which is equal to the book value of the hardware business net assets
plus $1.1 million.
(e) To record payment of outstanding short-term bank borrowings.
(f) To record the increase in stockholders' equity of Visioneer as a
result of the issuance of common and preferred shares and valuation of
the Visioneer options for the purchase of common stock and related
warrants issued to ScanSoft option holders and XIS, respectively.
(g) To eliminate the stockholder's equity of ScanSoft as a result of the
purchase transaction.
(h) To reduce property, plant and equipment to its estimated fair value.
(i) To eliminate ScanSoft deferred revenue.
3. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
The following adjustments were applied to the historical statements of
operations for Visioneer and ScanSoft for the year ended December 31, 1997 and
the nine months ended September 30, 1998 to arrive at the unaudited pro forma
condensed combined statement of operations of the respective periods as though
the acquisition took place on January 1, 1997:
(a) Adjustment to recognize amortization of identified intangibles arising
from the merger over their estimated useful lives ranging from three to
seven years.
(b) Shares used in the per share calculation reflect approximately 7.0
million shares of Visioneer voting common stock issued to stockholders
of ScanSoft as if they were outstanding from the beginning of each
period presented. Basic and diluted weighted average shares exclude the
nonvoting preferred stock, employee stock options and warrants
outstanding in each period because of the pro forma combined net loss.
(c) Management of Visioneer has allocated the financial activity of
Visioneer in the Unaudited Pro Forma Condensed Combined Statement of
Operations for 1997 and the nine months ended
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<PAGE> 59
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1998 between the hardware and software components of its
business. These allocations have been made by Visioneer management
based upon actual revenues or costs incurred to the extent practical,
and reasonable estimations made by Visioneer management when actual
identification was not possible. The allocation of net revenues and
cost of revenues has been based primarily on specific identification of
hardware and software revenues and related costs incurred and on
specific identification of royalty and development revenues. Employees
performing research and development activities are dedicated primarily
to either hardware or software development and therefore such costs
have been allocated primarily based on the number of individuals
involved in hardware or software development. Sales and marketing costs
have been allocated based primarily on the number of individuals
involved in hardware or software related activities. General and
administrative costs have been allocated by management based on the
relative revenues of the hardware and software components of the
business.
The one time charge to expense the fair value of the in-process research
and development has been excluded from the unaudited pro forma condensed
combined statement of operations because of its nonrecurring nature.
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COMPARATIVE STOCK PRICE DATA AND DIVIDEND HISTORY
The Visioneer common stock is quoted on the Nasdaq National Market ("NMS")
under the trading symbol "VSNR." The following table sets forth, for the periods
indicated, the quarterly high and low sale prices per share of the Visioneer
common stock. Visioneer common stock began trading on NMS on December 11, 1995.
<TABLE>
<CAPTION>
VISIONEER COMMON
STOCK
----------------
HIGH LOW
------ ------
<S> <C> <C>
First quarter ended March 30, 1997......................... $6.000 $3.125
Second quarter ended June 29, 1997......................... 4.375 2.500
Third quarter ended September 28, 1997..................... 4.750 2.813
Fourth quarter ended December 28, 1997..................... 5.750 1.625
First quarter ended March 29, 1998......................... $3.500 $1.250
Second quarter ended June 28, 1998......................... 4.125 2.063
Third quarter ended September 27, 1998..................... 2.313 0.688
Fourth quarter ending January 3, 1999...................... 1.188 1.063
First quarter ending April 4, 1999 (through January 12,
1999).................................................... $1.125 $1.125
</TABLE>
On December 2, 1998, the last trading day prior to the announcement by
Visioneer and ScanSoft that they had reached an agreement concerning the merger,
the closing price of Visioneer common stock as reported on NMS was $1.50 per
share. As of January 12, 1999, there were approximately 265 stockholders of
record of Visioneer common stock.
ScanSoft common stock is not publicly traded.
Following the merger, Visioneer will change its name to ScanSoft, Inc.
Visioneer common stock will be traded on NMS under the symbol "SSFT" and will no
longer be traded under the symbol "VSNR."
Neither Visioneer nor ScanSoft has ever declared or paid cash dividends on
its respective shares of capital stock. If the merger is not consummated, the
board of directors of Visioneer presently intends to continue a policy of
retaining all earnings to finance the expansion of its business. Following the
merger, it is expected that the board of directors of the Surviving Corporation
will continue the policy of not paying cash dividends in order to retain
earnings for reinvestment in the business of the combined companies.
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<PAGE> 61
INFORMATION ABOUT VISIONEER
BUSINESS OF VISIONEER
Visioneer designs, develops and markets intelligent paper and image
management software products which facilitate the imaging, manipulation,
distribution and storage of information on personal computers, multi-function
peripherals and from digital cameras. Visioneer's PaperPort software products
provide an easy-to-use, fast and cost-effective solution for document and image
input and management at the desktop. Visioneer's software products leverage
peripherals and applications resident on the computer and help transform
personal computers into multi-function, paper-to-digital information systems for
the electronic faxing, filing, editing, printing and sending of paper-based
documents and images via e-mail, on-line information services and the Internet.
Further information on Visioneer's business can be found in Visioneer's
Annual Report on Form 10-K for the fiscal year ended December 28, 1997 and
Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 1998,
which is being mailed to stockholders together with this proxy
statement/prospectus.
In January 1999 Visioneer sold its desktop and sheetfed scanner business to
a newly formed and wholly-owned subsidiary of Primax Electronics, Ltd. for
approximately $7.0 million. Primax is a leading worldwide manufacturer of
scanners and is headquartered in Taiwan. Primax also acquired the "Visioneer"
brand name, except that Visioneer will have rights to use the name until the
effective time of the merger. Visioneer and Primax also entered into a software
license agreement granting Primax certain rights to "bundle," market and sell
Visioneer PaperPort software with Primax hardware products, including those
purchased from Visioneer.
YEAR 2000 COMPLIANCE
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
whom provide services relating to our business. Our Year 2000 project is
comprised of the following phases:
- Phase 1 -- Inventory all of our business systems and processes, including
facilities, software and components used by our employees in order to
assign priorities to potentially impacted systems and services. We expect
to complete this phase by January 31, 1999.
- 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. We expect to complete this
assessment by March 31, 1999.
- 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 our outsourcing vendors. Conduct
procurements to replace any other non-Year 2000 compliant business
systems and processes, including facilities, software and components used
by our employees and our outsourcing vendors that won't be remediated. We
expect to complete all remediation efforts, if any are required, by June
30, 1999.
- Phase 4 -- Test and validate remediated and replacements 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.
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- 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.
- 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.
Based on our inventory and assessment to date, we believe 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 our outsourcing vendors are
not material. While we are incurring some incremental costs, our costs through
September 30, 1998 are less than $40,000. Our expected total costs, including
remediation and replacements costs, if any, are estimated to between $100,000
and $150,000 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. The reasonably likely worst case risks inherent in
our business are as follows:
- Despite the assurances of our third-party suppliers, hardware and
software vendors, and outsourcing service providers regarding the 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.
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 and to complete the testing all existing systems by November
30, 1999.
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INFORMATION ABOUT SCANSOFT
BUSINESS OF SCANSOFT
In 1993, ScanSoft was established as a software business unit of Xerox
Imaging Systems, Inc. ("XIS") a wholly owned subsidiary of Xerox Corporation. On
September 16, 1996, XIS formed a wholly owned subsidiary, ScanSoft, Inc., in
order to focus on the software business. ScanSoft's subsidiary in the United
Kingdom, ScanSoft Europe, Ltd., markets and sells ScanSoft products in Europe.
ScanSoft is a leading provider of digital imaging software products for
retail, OEM and corporate markets. ScanSoft's 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. ScanSoft's products are based on patented OCR and
image processing technologies designed to address the needs of a broad group of
users ranging from consumers and small office to medium-sized businesses and
large corporations.
Growth in the digital imaging software market is driven by the increasing
need to create and use digital images. For example, on-line communication, such
as e-mail and Internet publishing, is driving the need for scanners and digital
cameras to convert existing printed or photographic information into digital
text and images. The desire to store paper by using the personal computer as a
digital filing cabinet is also driving demand for imaging devices. Individuals
can capture images of paper documents, store them in electronic folders, and
index the information so they can be quickly found. In addition, the
proliferation of high quality, low cost color printers is benefiting the digital
imaging industry. Because many personal computer users can now print color
documents and photos, they are able to make color copies at the office and make
high quality prints of captured photos conveniently at home. Other industry
trends that are having a positive effect on the digital imaging market are
increasing computer speeds and lower prices for computer memory (RAM).
ScanSoft's strategy is to target the growing imaging device market through
its core business of consumer and small office/home office ("SOHO") imaging
software. According to InfoTrends Research Group, a market research and
consulting firm, the North American market for flatbed and sheetfed scanners is
expected to exceed six million units in 1998. According to InfoTrends Research
Group, this market is projected to grow by 42% to over nine million units in
1999. The imaging software market is also connected to the multifunction device
and digital camera markets, which are expected to grow rapidly over the next
three years.
ScanSoft's software products include OCR, personal document management and
software suites that offer various combinations of these products and often
third party offerings. ScanSoft believes that its ability to achieve broad
market acceptance of its 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 ScanSoft's software to integrate with desktop operating
systems, word processing applications, e-mail software, fax applications, image
editing products and Internet publishing tools will affect ScanSoft's ability to
achieve market acceptance for its products. In that regard, ScanSoft's strategy
is to maintain and enhance its technological position by investing in OCR and
image processing technology and strategic business and technology partnerships
with other leading companies.
ScanSoft also provides 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, e-mail and the Internet.
Currently, ScanSoft bundles client software with Xerox network multifunction
devices. ScanSoft plans to offer client/server software products in the future.
The Internet imaging software market includes products that make it easier
to publish and share paper documents and photos via the Internet. Currently,
ScanSoft's products allow users to capture and convert paper-based documents to
Joint Photographic Experts Group ("JPEG"), Hypertext Mark-up Language
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("HTML") and Portable Document Format ("PDF") files and share photos and
documents via e-mail or as part of an Internet site. Based on the growth of the
Internet, and the increasing number of ways people and organizations are
leveraging the Internet for communication, ScanSoft expects revenue from, and
increased competition in, this market segment.
SCANSOFT PRODUCTS
Textbridge Pro. TextBridge, ScanSoft's OCR software, turns paper documents
into personal computer documents without retyping. TextBridge Pro combines OCR
with page layout comprehension to recreate electronic files that are similar to
the paper originals in terms of layout, font characteristics and graphics. In
addition, TextBridge Pro offers post-recognition editing, which allows the user
to identify and correct recognition errors. TextBridge Pro is a Windows 95,
Windows 98 or 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.
ScanWorks. ScanWorks is an easy to use, consumer oriented scanning software
product 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. ScanWorks also has an image viewer with image editing, selection, and
annotation tools. These tools help users enhance an image, select the portion of
an image they want to work with, and add highlights or notes to an image. For
more advanced image editing and photo projects, ScanWorks integrates a third
party photo editor. Using the Extended Image File Format ("XIFF"), 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
supports Windows drag and drop to send images to Windows 95, Windows 98 or
Windows NT compliant applications.
Pagis Pro. Pagis Pro is an all-in-one scanning suite for business users
that transforms an office personal computer into a paper-to-digital solution for
electronically filing, copying, using and communicating 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. Pagis Pro integrates TextBridge Pro to convert
paper documents into formatted personal computer documents without retyping. It
also provides an image viewer with 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. For more
advanced image editing and photo projects, Pagis Pro integrates a third party
photo editor. Using the XIFF image format, 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"). Pagis Pro supports Windows drag and drop to send images to Windows 95,
Windows 98 or Windows NT compliant applications. Pagis Pro drag and drop is
commonly used to e-mail and fax photos and documents using third party
communication software.
OEM Products. ScanSoft bundles various versions of Pagis and TextBridge
with leading scanner and multifunction device manufacturers and leading
independent software vendors. OEM customers often require ScanSoft to integrate
products with other applications or customize existing products to meet specific
requirements. Therefore, ScanSoft offers OEM customers both packaged products to
bundle and a software developer's toolkit to facilitate the integration of OCR
functionality with other applications.
ENABLING TECHNOLOGY
ScanSoft's 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, ScanSoft's products employ commercial text-retrieval database systems,
electronic document format conversion toolkits, and standard scanner device
interfaces.
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API
ScanSoft's TextBridge and PerfectScan APIs are the foundation for the
majority of ScanSoft's applications. These APIs provide an interface to the OCR
and image processing technologies and provide image-to-text conversion, image
processing and cleanup, scanner and digital camera control, image file format
read and write with image compression, and image printing.
OCR
ScanSoft's 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-on-black) text output and
insets.
Image Processing. ScanSoft's 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.
ScanSoft's 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.
COMPETITION
The digital imaging market is highly competitive and subject to rapid
change along with frequent new product introductions and enhancements, and
constant pressure to reduce prices. ScanSoft believes that the principal
competitive factors in this market include OCR accuracy, ease of understanding
and use, product reliability, product features and functions, price/performance
characteristics, brand recognition, and quality of product support. ScanSoft's
competition within the digital imaging software market ranges from large
corporations to small independent software vendors. ScanSoft also expects 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
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programs through the channel, including companies such as Caere Corporation and
Adobe Corporation and several small independent software vendors. ScanSoft faces
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 Caere Corporation and
several small independent software vendors. ScanSoft experiences significant
price competition in the OEM market and expects this to continue. In addition,
the "bundled" OCR products themselves present competition to ScanSoft's fully
featured shrinkwrap products.
The Pagis family of products competes with various products in the digital
imaging software marketplace. In the personal document management segment there
are several competitors, including Visioneer, 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,
ScanSoft expects to face increasing competition in this product category from a
variety of software developers.
In the scanning software suite segment, ScanSoft products include various
combinations of the products mentioned above and often include photo-editing
capabilities. Competitors include Visioneer and 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.
ScanSoft expects that some consolidation in the digital imaging software
industry will occur over the next few years through strategic acquisitions or
alliances, and ScanSoft expects 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, ScanSoft expects that scanner prices will continue to decline
in the future. ScanSoft believes 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 ScanSoft's business,
operating results and financial condition.
There can be no assurance that ScanSoft 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 ScanSoft's business,
operating results and financial condition.
MARKETING, SALES AND DISTRIBUTION
ScanSoft derives the majority of its revenues from sales through its
independent distributors and resellers. Although ScanSoft has established
strategic software OEM partnerships, ScanSoft expects that sales through its
independent distributors and resellers will continue to account for a
substantial portion of its revenues for the foreseeable future.
Domestically, ScanSoft markets its software products through distributors,
including Ingram Micro, Merisel, and Tech Data; computer superstores, such as
CompUSA and Fry's Electronics; consumer electronic stores, such as Best Buy and
Circuit City; mail order houses, such as PC Connection, MicroWarehouse, and
Computer Discount Warehouse; and office superstores, such as OfficeMax, Office
Depot and Staples. Tech Data represented 13%, 11% and 13% of total revenues and
Ingram Micro represented 31%, 35% and 43% of total revenues in 1996, 1997 and
for the nine months ended September 30, 1998, respectively. Accordingly,
ScanSoft will be dependent upon the continued reliability and financial
stability of such distributors and resellers, which are not under the control of
ScanSoft.
Internationally, ScanSoft's products are sold primarily through
distributors and major retailers. As of November 30, 1998, ScanSoft has
distributors servicing Western European, Canada, Australia, New Zealand, Brazil,
Chile, Argentina, South Africa, Taiwan and Japan. European revenues in 1996 and
1997 represented 27% and 21% of total revenues in the respective periods.
European revenue represented 19% of total revenues for the nine months ended
September 30, 1998. ScanSoft's international revenues are subject to certain
risks,
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such as currency fluctuations, export controls, import restrictions, longer
payment cycles, greater difficulties in accounts receivable collections and the
requirement of complying with a wide variety of foreign laws. Although ScanSoft
has not previously experienced any difficulties in exporting its products to
other countries, there can be no assurance that ScanSoft will not experience
such difficulties in the future. Any such difficulties would have a material
adverse effect on ScanSoft's international sales. ScanSoft is not currently
affected adversely by export controls or regulations and is not aware of pending
changes in export regulations that would adversely affect its international
business or its ability to collect foreign receivables. See "Risk
Factors -- Risk Factors Related to the Companies' Businesses and
Operations -- International Sales Risks."
ScanSoft's agreements with its distributors generally provide for a limited
right of return, with the distributors receiving full credit of the product's
purchase price, less any discounts, against a purchase order of equal or greater
value. In addition, ScanSoft offers various end user rebate programs for its
products. ScanSoft accrues for expected returns, anticipated price reductions,
and anticipated rebate redemption in amounts that ScanSoft 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 ScanSoft's business and
operating results.
As of November 30, 1998, ScanSoft had approximately 44 full time employees
in sales, marketing and support. Domestically, full-featured software product
customers who register with ScanSoft currently receive limited hotline technical
support and product information at no cost. Additional technical support
services are available on a "fee for support" basis. ScanSoft currently offers
several technical support options to customers of packaged products. These
include telephone, fax or e-mail support by a customer support representative or
self-help by accessing ScanSoft's 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.
ScanSoft has established several strategic OEM relationships in order to
promote its Pagis and TextBridge brand names, expand the number of ScanSoft
registered users and upgrade customers to new or more fully-featured software.
This bundling strategy increased direct revenue, as a percentage of all revenue,
from 2% in 1997 to 13% for the nine months ended September 30, 1998. The success
of this strategy will depend upon a decision by a significant proportion of
customers who first receive software in a bundled form to upgrade with software
from ScanSoft. There can be no assurance that ScanSoft's upgrade strategy will
be successful. ScanSoft is pursuing, and may enter into additional OEM
agreements, with personal computer device manufacturers and software vendors, to
distribute ScanSoft's software products.
RESEARCH AND DEVELOPMENT
As of November 1998, there were 53 full time employees on ScanSoft's
research and development staff. ScanSoft's research and development expenditures
in 1996 and 1997 were $4.0 and $5.1 million, respectively, and represented 33%
and 29% of net revenues in the respective periods. Research and development
expenses were $4.5 million and represented 29% of net revenues for the nine
months ended September 30, 1998.
ScanSoft's growth and future financial performance will depend in part upon
its ability to enhance existing applications, 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, ScanSoft expects that it will continue to commit substantial resources
to product development in the future.
ScanSoft works closely with its customers and market research firms to
determine product requirements and to design enhancements and new products to
meet customer needs. ScanSoft's current development initiatives include feature
and function enhancements of existing products, the development of new
complementary products and the development of integrated packages of its
products tailored to the requirements of certain market segments. ScanSoft plans
to enhance its current product line, including new Internet/Intranet
capabilities, as well as support for additional stand-alone and network
connected scanning and image capture devices. There can be no assurance,
however, that such enhancements will result in increased sales or market
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acceptance of ScanSoft's products. See "Risk Factors -- Risk Factors Related to
the Companies' Business and Operations -- Dependence on Developing Market; Rapid
Technological Change."
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
ScanSoft relies primarily on a combination of copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to protect
its proprietary rights. ScanSoft seeks to protect its software, documentation
and other written materials under trade secret and copyright laws, which afford
only limited protection. ScanSoft has one image processing patent and three
patent applications pertaining to image processing technology. The patent
applications are still pending. There can be no assurance that any patent
covering ScanSoft's inventions will issue or that any patent, if issued, will
provide sufficiently broad protection or will prove enforceable in actions
against alleged infringers. Despite precautions taken by ScanSoft, it may be
possible for unauthorized third parties, to copy aspects of its products or
future products or to obtain and use information that ScanSoft regards as
proprietary. In particular, ScanSoft provides its licensees with access to its
data model and other proprietary information underlying its licensed
applications. ScanSoft makes source code available for certain of its products
and occasionally enters into source code escrow agreements with certain
customers for the balance of the source code. There can be no assurance that
ScanSoft's means of protecting its proprietary rights will be adequate or that
ScanSoft's competitors will not independently develop similar or superior
technology or design around any patents owned by ScanSoft. Litigation may be
necessary in the future to enforce ScanSoft's intellectual property rights, to
protect ScanSoft's trade secrets or to determine the validity and scope of the
proprietary rights of others. Such litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on
ScanSoft's business, operating results and financial condition.
As a part of the merger agreement, ScanSoft has entered into a license
agreement with Xerox which includes limited licenses and the assignment of
certain patents and trademarks. For a more complete description of the license
agreement, see "Information Regarding Sole Stockholder of ScanSoft -- License
Agreement."
Policing unauthorized use of ScanSoft's products is difficult and, while
ScanSoft is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem. In
addition, the laws of some foreign countries do not protect ScanSoft's
proprietary rights to the same extent as do the laws of the United States.
ScanSoft is not aware that any of its product offerings infringe the proprietary
rights of third parties. There can be no assurance however, that third parties
will not claim infringement by ScanSoft with respect to current or future
products. ScanSoft expects that software product developers will increasingly be
subject to infringement claims as the number of products and competitors in
ScanSoft's industry segment grows and the functionality of products in different
industry segments overlaps. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require ScanSoft to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
ScanSoft or at all, which could have a material adverse effect on ScanSoft's
business, operating results and financial condition.
ScanSoft also relies on certain technology which it licenses from third
parties. Because ScanSoft's products incorporate software developed and
maintained by third parties, ScanSoft is, 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. In the event that
ScanSoft's agreements with its third-party vendors should fail to be renewed or
the products licensed from such vendors should fail to address the requirements
of ScanSoft's software products, ScanSoft would be required to find alternative
software products or technologies of equal performance or functionality. There
can be no assurance that ScanSoft would be able to replace such functionality
provided by the third party software currently licensed by ScanSoft in the event
that such software becomes obsolete or incompatible with future versions of
ScanSoft 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 ScanSoft's business, operating results
and financial condition.
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EMPLOYEES
As of November 30, 1998, ScanSoft had a total of 122 full time employees,
all of whom were based in the United States and the United Kingdom. Of the
total, 44 were engaged in sales, marketing and support, 53 in research and
development, 20 in administration, MIS and finance and five in operations and
manufacturing. ScanSoft's future performance depends in significant part on the
continued service of its key technical and senior management personnel. None of
ScanSoft's employees is represented by a labor union. ScanSoft has not
experienced any work stoppages and considers its relations with its employees to
be good.
PROPERTIES
ScanSoft's principal administrative, sales, marketing and support functions
are located at its leased headquarters facility in Peabody, Massachusetts.
ScanSoft currently occupies 37,636 square feet of space at this facility, and
the lease will expire in July 2001. ScanSoft also leases warehouse space in
Topsfield, Massachusetts, and research and development space at a Xerox facility
in Palo Alto, California. In addition, ScanSoft Europe Ltd. leases a sales and
support office in Reading, England.
LEGAL PROCEEDINGS
From time to time, ScanSoft is party to various legal proceedings or
claims, either asserted or unasserted, which arise in the ordinary course of
business. Management has reviewed pending legal matters and believes that the
resolution of such matters will not have a significant adverse effect on
ScanSoft's financial condition or results of operations.
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SCANSOFT MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is ScanSoft management's discussion and analysis of the
financial condition and results of operations for the fiscal years ended
December 31, 1996, 1997 and nine months ending September 30, 1998. This
discussion and analysis should be read in conjunction with, and is qualified in
its entirety by, the audited financial statements contained in this proxy
statement/prospectus. Management's discussion and analysis provides information
concerning ScanSoft's business environment, consolidated results of operations
and liquidity and capital resources. In addition to historical information,
management's discussion and analysis includes certain forward-looking statements
regarding events and financial trends that may affect ScanSoft's future
operating results and financial position. Such statements are subject to risks
and uncertainties, including the effects of competition and technological change
and the risks set forth under "Risk Factors," that could cause ScanSoft's actual
results and financial position to differ materially.
RESULTS OF OPERATIONS
The following table sets forth certain results of operations data for the
years ended December 31, 1996 and 1997, and for the nine month period ending
September 30, 1998. This information should be read in conjunction with
ScanSoft's Consolidated Financial Statements and Notes thereto included
elsewhere in this proxy statement/prospectus.
<TABLE>
<CAPTION>
NINE
YEAR ENDED DECEMBER 31, MONTHS ENDED
------------------------ SEPTEMBER 30,
1996 1997 1998
--------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues.......................................... $12,041 $17,790 $15,448
Cost of revenues...................................... 3,466 4,430 4,466
------- ------- -------
Gross margin........................................ 8,575 13,360 10,982
Sales and marketing expense........................... 6,843 8,766 6,383
Research and development expense...................... 4,028 5,129 4,499
General and administrative expense.................... 1,488 1,342 1,919
------- ------- -------
Loss from operations.................................. (3,784) (1,877) (1,819)
Other income (expense), net........................... 50 48 (3)
------- ------- -------
Net loss............................................ $(3,734) $(1,829) $(1,822)
======= ======= =======
</TABLE>
REVENUE
ScanSoft's revenues are derived primarily from the sale of shrink-wrapped
software applications sold through the retail channel, direct sales of upgrade
products to its registered users base, and OEM partnerships with scanner and
multifunction device manufacturers. ScanSoft's net revenues increased from
$12,041,000 in fiscal 1996 to $17,790,000 in fiscal 1997 representing an
increase of approximately 48%. Net revenues for the nine month period ended
September 30, 1998 were $15,448,000. ScanSoft believes the increase from fiscal
1996 to 1997 was attributable to overall growth in the imaging device market
coupled with a full year of sales after its entry into the personal document
management market segment in November 1996.
Channel revenues increased from $6,705,000 in fiscal 1996 to $9,051,000 in
fiscal 1997 representing an increase of approximately 35%. Channel revenues
accounted for 56% and 51% of net revenues for fiscal 1996 and 1997,
respectively. Channel revenues for the nine month period ended September 30,
1998 were $8,498,000, increasing to 55% of net revenues. ScanSoft attributes the
growth to an expansion in the number of retail outlets selling its products in
North America, and the overall unit growth in the sale of scanners. Scanner
growth was fueled by significantly lower prices in 1997.
Direct revenues increased from $300,000 in fiscal 1997 to $2,060,000 in the
nine month period ended September 30, 1998. Direct revenues, as a percent of net
revenues, increased from 2% in fiscal 1997 to 13% in
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the nine month period ended September 30, 1998. ScanSoft attributes this growth
to direct marketing activity of its growing registered customer database.
OEM revenue increased from $5,336,000 in fiscal 1996 to $8,439,000 in
fiscal 1997, representing an increase of approximately 58%. The increase was due
to higher unit sales by ScanSoft's OEM partners. In addition, the growth was
aided by the first bundling arrangements for Pagis. OEM revenues for the nine
month period ended September 30, 1998 were $4,890,000. OEM revenues, as a
percent of net revenues, decreased from 44% in fiscal 1996 to 47% in fiscal 1997
and 32% for the nine month period ended September 30, 1998 due to higher growth
in North American channel sales and lower unit prices in OEM products.
European revenues totaled approximately $3,268,000 and $3,727,000 in fiscal
years 1996 and 1997, respectively, accounting for approximately 27% and 21% of
net revenues, respectively, due to higher growth in North American channel
sales. European revenues in the nine month period ended September 30, 1998 were
approximately $2,946,000 and 19% of net revenues.
COST OF REVENUES
Cost of revenues consists primarily of material costs, third party
royalties, amortization of capitalized software costs, fulfillment, and salaries
for product support personnel. ScanSoft offers "no-fee" product support for
registered customers during the warranty period. Product support costs were
$908,000, $1,141,000 and $984,000 for the fiscal years ended 1996, 1997 and the
nine month period ended September 30, 1998, respectively. As a percent of
revenue, product support costs represented 8% in fiscal 1996 and 6% in both
fiscal 1997 and the nine month period ended September 30, 1998. In accordance
with Financial Accounting Standards No. 86, ScanSoft amortized capitalized
software costs of $317,000, $311,000 and $480,000 in fiscal 1996, 1997 and the
nine month period ended September 30, 1998, respectively. Cost of revenues were
approximately $3,466,000 and $4,430,000 for each of the fiscal years ended
December 31, 1996 and 1997, respectively, representing 29% and 25% of net
revenues for each of the fiscal years ended 1996 and 1997, respectively. Cost of
revenues were approximately $4,466,000 representing 29% of net revenues for the
nine month period ended September 30, 1998. The increase in cost of revenues as
a percent of net revenues from 1997 to 1998 is based on those costs associated
with lower prices per unit.
OPERATING EXPENSES
Overall expenses were higher for fiscal 1997 than fiscal 1996 primarily due
to increased marketing and sales costs in support of the increased channel and
direct revenues and higher product development.
Sales and marketing expenses include salaries, commissions, advertising,
direct mail, public relations, trade shows, travel, and other sales and
marketing expenses. Sales and marketing expenses increased from $6,843,000 to
$8,766,000 for fiscal 1996 and fiscal 1997, respectively, representing 57% and
49% of net revenues for each year, respectively. Sales and marketing expenses
for the nine month period ended September 30, 1998 were $6,383,000 representing
41% of net revenues. The increase in sales and marketing was primarily
attributable to higher marketing costs in support of the channel, including
advertising and special promotional opportunities. The decrease in sales and
marketing expenses as a percentage of net revenues from fiscal 1996 to the nine
month period ended September 30, 1998 was principally due to the increased
effectiveness of advertising and other marketing programs and greater acceptance
of ScanSoft's products.
Research and development ("R&D") expenses relate primarily to salary and
benefit costs of engineers. R&D expenses increased from $4,028,000 to $5,129,000
for fiscal 1996 and fiscal 1997, respectively, representing 33% and 29% of net
revenues for each year. R&D expenses for the nine month period ended September
30, 1998 were $4,499,000, representing 29% of net revenues. This decrease in R&D
expenses as a percentage of net revenues in 1997 compared to 1996 was
principally due to the growth of revenue and moderate additions to R&D
personnel. ScanSoft intends to continue to enhance its current products, as well
as develop new technologies for the future, and as such, expects that R&D will
continue to be a significant expense for ScanSoft. In accordance with Statement
of Financial Accounting Standards No. 86, ScanSoft
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capitalized $512,000 of software development costs in fiscal 1996, compared to
$424,000 in fiscal 1997. For the nine month period ended September 30, 1998,
ScanSoft capitalized $422,000 of software development costs.
General and administrative expenses include personnel costs for
administration, finance, human resources, and general management in addition to
legal and accounting expenses and other professional services. General and
administrative expenses decreased from $1,488,000 to $1,342,000 for fiscal 1996
and fiscal 1997, respectively. General and administrative expenses as a percent
of net revenues decreased from 12% in fiscal 1996 to 8% in fiscal 1997. General
and administrative expenses for the nine month period ended September 30, 1998
were $1,919,000, representing an increase to 12% of net revenues. The increase
was due in part to a $225,000 reserve for bad debt needed as a result of a
customer's recent bankruptcy filing, as well as an increase in audit fees
associated with the merger.
CERTAIN TRENDS
ScanSoft's results in the future may be affected by factors over which it
has very little control. These include, but are not limited to, adverse changes
in the economic conditions in the United States and in international markets in
which it participates. In addition the computer software markets in which
ScanSoft participates are characterized by rapid change in technology. ScanSoft
may be affected by the development of new or improved technology by its existing
competitors (some of whom have greater financial resources) or new entrants
drawn to the market due to the overall increase in the unit volumes of scanners,
multifunction devices and digital cameras. ScanSoft may also be affected by the
actions of the scanner and multifunction manufacturers themselves. Scanner
prices have dropped significantly over the last 24 months. This has lead to
lower per unit revenue to ScanSoft from its OEM partners. In addition, it has
lead to some instability in the financial condition of several key scanner
manufacturers. The recent bankruptcy of one of ScanSoft's key OEMs is an example
of the impact that the lower pricing is having in the marketplace. There can be
no assurance that other ScanSoft OEMs would not also be so affected.
In late 1997 ScanSoft upgraded most of its OEMs with bundled software that
encouraged electronic and/or Internet registration. This has led to an increase
in registered customers from 176,000 at December 31, 1997 to 427,000 at
September 30, 1998. ScanSoft plans to increase its direct and Internet marketing
activities to these customers and expects a higher percentage of its revenue to
come from direct upgrade activity in the future. There can be no assurance that
the combined companies will be able to maintain these relationships with these
OEMs or that registered customers will continue to upgrade.
A significant portion of ScanSoft's net revenues is attributable to sales
through the distribution channel. ScanSoft's future operating results are
dependent on maintaining these relationships. There can be no assurance that the
combined company will be able to do so.
YEAR 2000 COMPLIANCE
ScanSoft is in the process of assessing the potential effects of the "Year
2000" millennium change on its business systems and processes, including
facilities, software and components used by its employees, as well as its
outsourcing vendors and critical suppliers. ScanSoft's Year 2000 project is
proceeding on schedule. The project goal is to ensure that ScanSoft's business
is not impacted by the date transitions associated with the Year 2000.
ScanSoft's Year 2000 project plan is coordinated by a team that reports to
senior management. The project team is evaluating the Year 2000 compliance of
ScanSoft's business systems and processes, including facilities, software and
components used by its employees, as well as its outsourcing vendors and
critical suppliers whom provide services relating to its business. ScanSoft's
Year 2000 project is comprised of the following phases:
- Phase 1 -- Inventory all business systems and processes, including
facilities, software and components used by ScanSoft's employees, in
order to assign priorities to potentially impacted systems and services.
This phase was completed by December 31, 1998.
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- Phase 2 -- Assess the Year 2000 compliance of all inventoried business
systems and processes, including facilities, software and components used
by ScanSoft's employees, and determine whether to renovate or replace any
non-Year 2000 compliant systems and services. ScanSoft expects to
complete this phase by March 31, 1999.
- Phase 3 -- Complete replacement or renovation, if required, of any
non-compliant business systems and processes, including facilities,
software and components used by ScanSoft's employees and ScanSoft's
outsourcing vendors. Conduct procurements to replace any other non-Year
2000 compliant business systems and processes, including facilities,
software and components used by ScanSoft's employees and ScanSoft's
outsourcing vendors that will not be remediated. Test and validate
remedied and replacements systems, if any such remediation or replacement
is required, to ensure inter-system compliance and mission critical
system functionality. ScanSoft expects to complete testing, remediation
and validation efforts, if any are required, by June 30, 1999.
- Phase 4 -- Deploy and implement remedied and replacement systems, if any
deployment or implementation is required, after the completion of
successful testing and validation. ScanSoft expects to complete the
deployment and implementation of the remedied or replacement systems, if
required, by September 30, 1999.
- Phase 5 -- 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 ScanSoft's
employees due to the Year 2000 millennium change. ScanSoft expects that
the initial contingency and business continuation plan will be in place
by November 30, 1999.
Based on ScanSoft's inventory and assessment to date, it believes that its
facilities can be Year 2000 compliant. In addition, it is seeking assurances
from its facilities' landlords and equipment vendors and data circuit providers
regarding the Year 2000 compliance of their facilities and equipment.
At this time, ScanSoft believes that its incremental remediation costs
needed to make its current business systems and processes, including facilities,
software and components used by its employees and its outsourcing vendors are
not material. While ScanSoft is incurring some incremental costs, its costs
through September 30, 1998 were less than $40,000. ScanSoft's expected total
costs, including remediation and replacements costs, if any, are estimated to be
between $50,000 and $75,000 over the life of the Year 2000 project.
ScanSoft is contacting its hardware and software vendors, other significant
suppliers, manufacturers, outsourcing service providers and other contracting
parties to determine the extent to which it is vulnerable to any one of their
failures to achieve Year 2000 compliance for their own systems. At the present
time, ScanSoft does not expect Year 2000 issues of any such third parties to
materially affect its business.
Should ScanSoft fail to solve a Year 2000 compliance problem critical to
its business systems and processes, the result could be a failure or
interruption to normal business operations. The reasonably likely worst case
risks inherent in ScanSoft's business are as follows:
- Despite the assurances of ScanSoft's third-party suppliers, hardware and
software vendors and outsourcing service providers regarding the 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 ScanSoft's business. ScanSoft is conducting monthly discussions
with its 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 its business continuation contingency plan for a very
short time may be required while ScanSoft remediates the Year 2000
problem.
Despite its belief that its mission critical computer software applications
and systems are Year 2000 compliant and its expectation that its enhancement
effort will result in Year 2000 compliant systems, ScanSoft is currently
developing a business continuation contingency plan. ScanSoft expects to
finalize its initial contingency plan to complete the testing all existing
systems by November 30, 1999.
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Forward-Looking Statements
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.
LIQUIDITY AND CAPITAL RESOURCES
ScanSoft's operating activities used cash of $2,763,000 and $3,576,000 in
fiscal years 1996 and 1997, respectively. ScanSoft generated cash from
operations of $487,000 in the nine month period ended September 30, 1998.
ScanSoft maintains a "zero balance account" with Xerox for operating activities
in the United States. All cash transactions, deposits and disbursements are
recorded in an intercompany account with Xerox, which has been reflected in
ScanSoft's financial statements and notes. Disbursements in excess of deposits
are funded by Xerox, free of interest charges. Cash received in excess of
disbursements reduce the intercompany account with Xerox. ScanSoft used cash
from investing activities of ($1,110), ($1,426) and ($701) for the years ended
December 31, 1996 and 1997 and for the nine months ended September 30, 1998,
respectively, related to purchases of property and equipment and the
capitalization of software development costs. Cash provided by net transactions
with Xerox amounted to $5,196, $4,067 and $851 for the years ended December 31,
1996 and 1997 and for the nine months ended September 30, 1998, respectively.
ScanSoft offers credit terms to qualifying customers and also sells on a
prepaid and credit card basis. With respect to credit sales, ScanSoft attempts
to control its bad debt exposure through monitoring of customer's
creditworthiness. With the exception of the recent bankruptcy filing of a
customer, ScanSoft has not experienced any significant write-offs of bad debts.
ScanSoft has financed its operations to date through funds made available
by Xerox. There can be no assurance that such funds will be made available to
ScanSoft after consummation of the proposed transaction with Visioneer.
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COMPARISON OF STOCKHOLDER RIGHTS
GENERAL
The rights of Visioneer stockholders are currently governed by Delaware law
and the certificate of incorporation and bylaws of Visioneer. The rights of
ScanSoft stockholders are currently governed by Delaware law and the certificate
of incorporation and bylaws of ScanSoft. Upon consummation of the merger, the
rights of stockholders of the Surviving Corporation will be governed by Delaware
law, the Visioneer certificate of incorporation as it is amended, and the
Visioneer bylaws. The following is a summary of the principal differences
between the current rights of ScanSoft stockholders and those of Visioneer
stockholders following the merger.
The following summary is not intended to be complete and is qualified in
its entirety by reference to Delaware law, the Visioneer certificate of
incorporation and bylaws, and the ScanSoft certificate of incorporation and
bylaws. The Visioneer certificate of incorporation and bylaws are incorporated
by reference herein. Any of these documents will be sent to stockholders upon
request. See "Where You Can Find More Information" on page 1.
COMPARISON OF CURRENT SCANSOFT STOCKHOLDER RIGHTS AND RIGHTS OF STOCKHOLDERS
FOLLOWING THE MERGER
The Visioneer certificate of incorporation will be amended in connection
with the merger as set forth in Annex E and as discussed in "Description of
Capital Stock." The rights of Visioneer stockholders after the merger will be
the same as their rights prior to the merger.
The rights of ScanSoft stockholders under Delaware law and the ScanSoft
certificate of incorporation and bylaws prior to the merger will be
substantially the same as the rights of stockholders under Delaware law and the
Surviving Corporation's certificate of incorporation and bylaws, with the
following principal exceptions.
Authorized Capital Stock
The authorized capital stock of ScanSoft consists of 27,000,000 shares of
common stock and 23,000,000 shares of preferred stock, par value $0.001 per
share (of which 16,000,000 shares are designated Series A participating
preferred stock (the "ScanSoft Series A Preferred Stock")). The authorized
capital stock of Visioneer is set forth under "Description of Capital
Stock -- Existing Capital Stock."
Board of Directors
The ScanSoft bylaws provide that the number of directors shall be
determined by resolution of a majority of the ScanSoft board. ScanSoft currently
has one director. The ScanSoft certificate of incorporation does not provide for
cumulative voting for the election of directors.
Vacancies in the ScanSoft board may be filled by resolution of a majority
of the ScanSoft board (or a sole director, if applicable) or by the stockholders
at an annual meeting or special meeting called for that purpose, and any
director so appointed will hold office until the next annual election of
directors of that class. The ScanSoft bylaws provide that the directors may be
removed from office, but only for cause, by vote of the holders of a majority of
shares entitled to vote for the election of directors.
The Visioneer bylaws provide that the number of directors shall be
determined by resolution of a majority of Visioneer's board of directors.
Visioneer currently has five directors. Under the Visioneer bylaws, Visioneer
directors are elected at the annual meeting of stockholders and each director
elected holds office until his/her successor is elected and qualified, unless
he/she shall resign, become disqualified, disabled or otherwise removed. Neither
the Visioneer certificate of incorporation nor the Visioneer bylaws provide for
cumulative voting for election of directors. Nominations of persons for election
to Visioneer's board of directors may be made by or at the direction of
Visioneer's board of directors, or by Visioneer stockholders according to the
procedures described in the Visioneer bylaws. Under the Visioneer bylaws,
vacancies in Visioneer's board of directors may be filled by resolution of a
majority of Visioneer's board of directors (or a sole director, if applicable),
and any director so appointed will hold office until the next annual meeting of
stockholders. The
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bylaws provide that directors may be removed (with or without cause) by vote of
the holders of a majority of shares entitled to vote at an election of
directors.
In connection with the merger, Xerox and certain affiliates of Visioneer
holding approximately 29% of Visioneer's voting stock as of the date of this
proxy statement/prospectus (the "Investors") have agreed to enter into a voting
agreement pursuant to which, among other things, they will vote to elect certain
nominees to the Surviving Corporation's board of directors. Xerox and the
Investors have agreed that as of the effective time of the merger, Visioneer's
bylaws will be amended to provide for a seven member board, and that two
nominees of Xerox as well as the Chief Executive Officer of the Surviving
Corporation will be elected to the board as of the first board meeting
thereafter. The voting agreement also provides that in any election of board
members, the parties to the voting agreement will vote their shares so as to
elect certain designees and describes the manner in which such designees will be
determined. See "The Merger Agreement and Related Agreements."
Action Without a Meeting
The Visioneer certificate of incorporation provides that no action required
to be taken or that may be taken at any annual or special meeting of the
stockholders may be taken without a meeting and that the power of the
stockholders to consent in writing, without a meeting, to the taking of any
action is specifically denied.
Special Meetings of Stockholder
The ScanSoft bylaws provide that special meetings of stockholders may be
called by the chairman, president, board of directors or the holders of not less
than 10% of all shares entitled to vote at the meeting. The Visioneer bylaws
provide that special meetings of stockholders may be called by the president and
shall be called by the president or secretary at the written request of a
majority of Visioneer's board of directors, or at the request in writing of
stockholders owning not less than 10% of the entire capital stock of the
corporation issued and outstanding and entitled to vote.
Amendment of Certificate of Incorporation and Bylaws
Both the Visioneer and ScanSoft certificates of incorporation reserve the
right of each company to amend, alter or change any provision contained in such
certificate of incorporation, in accordance with Delaware law. Pursuant to
Delaware law, amendment of a company's certificate of incorporation requires the
approval of a majority of the board of directors and the approval of the holders
of a majority of the outstanding capital stock. The ScanSoft certificate of
incorporation further provides that the affirmative vote of the majority of the
outstanding shares of ScanSoft Series A Preferred Stock is required for any
amendment to the ScanSoft certificate of incorporation that would materially
adversely affect the powers, preferences or special rights of such preferred
stockholders.
Voting Rights
Each outstanding share of ScanSoft common stock is entitled to one vote on
all matters submitted to ScanSoft stockholders. Each holder of ScanSoft Series A
Preferred Stock has full voting rights and powers equal to the voting rights and
powers of the holders of ScanSoft common stock and each outstanding share of
ScanSoft Series A Preferred Stock is entitled to one vote on all matters
submitted to ScanSoft stockholders.
The outstanding voting securities of Visioneer are the shares of Visioneer
common stock. Under Delaware law, each share of Visioneer common stock is
entitled to one vote on all matters submitted to Visioneer stockholders.
Removal of Officers
The ScanSoft bylaws permit the removal of any officer by the ScanSoft board
with or without cause. The Visioneer bylaws permit Visioneer's board of
directors to remove any officer elected by the board at any time by the
affirmative vote of a majority of Visioneer's board of directors.
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Rights Plan
Visioneer has entered into a Rights Agreement (as amended, the "Rights
Agreement"), with U.S. Stock Transfer Corporation N.A. as rights agent. Pursuant
to the Rights Agreement, rights attach to each share of Visioneer common stock
outstanding and entitle the registered holder to purchase from Visioneer a
fraction of a share of Series A Preferred Stock at a purchase price of $27.50
(the "Purchase Price"), subject to adjustment. Each share of Visioneer common
stock outstanding has one right attached.
The rights will separate from the Visioneer common stock upon the earlier
of (A) 10 days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired or
obtained the right to acquire beneficial ownership of 20% or more of the
outstanding shares of Visioneer common stock (the "Stock Acquisition Date") or
(B) 10 business days following the commencement of a tender offer or exchange
offer that would result in a person or group beneficially owning 20% or more of
such outstanding shares of Visioneer common stock, unless a later date is fixed
by Visioneer's board of directors (the date of any such event, the "Distribution
Date"). Until the Distribution Date, the rights will be evidenced by Visioneer
common stock certificates and will be transferred with and only with Visioneer
common stock certificates. New Visioneer common stock certificates will contain
a notation incorporating the Rights Agreement by reference and the transfer of
any certificates representing outstanding Visioneer common stock outstanding
will also constitute the transfer of the associated rights.
In the event that an Acquiring Person becomes the beneficial owner of 20%
or more of the then outstanding shares of Visioneer common stock in an
acquisition which has not met certain requirements, each holder of a right
(other than the Acquiring Person) will thereafter have the right to receive upon
exercise Visioneer common stock having a value twice the exercise price of the
right.
If, following a Stock Acquisition Date, Visioneer engages in a merger or
business combination transaction in which Visioneer is not the surviving
corporation (other than a transaction which has met certain requirements) each
holder of the right will thereafter have the right to receive, upon exercise of
the right, common stock of the acquiring party having a value twice the exercise
price of the right.
The rights are not exercisable until the Distribution Date and will expire
at the close of business on October 23, 2006, unless earlier redeemed by
Visioneer as further described in the Rights Plan. At no time will the holder of
the rights as such have any voting power or any rights as a stockholder. Subject
to certain exceptions, any of the provisions of the Rights Agreement may be
amended by Visioneer's board of directors prior to the Distribution Date.
Pursuant to the merger agreement, Visioneer has amended the Rights Plan
such that neither ScanSoft nor any of its Affiliates (as defined therein) shall
become an Acquiring Person, nor shall any Distribution Date or Shares
Acquisition Date occur, if ScanSoft or any of its Affiliates becomes a
beneficial owner of Visioneer common stock pursuant to and not in contravention
of the merger agreement and the transactions contemplated by the merger
agreement.
The above summary of the Rights Agreement does not purport to be complete
and is qualified in its entirety by reference to the terms and conditions of the
Rights Agreement. See "Where You Can Find More Information" on page 1.
ScanSoft does not have a Rights Plan.
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DESCRIPTION OF CAPITAL STOCK
EXISTING CAPITAL STOCK
Visioneer is authorized by its existing certificate of incorporation to
issue an aggregate of 50,000,000 shares of common stock, par value $0.001 per
share and 5,000,000 shares of preferred stock, par value $0.001 per share. As of
the record date, there were 19,852,952 shares of common stock outstanding that
were held of record by approximately 265 stockholders. The following is a
summary of certain of the rights, powers, preferences and limitations pertaining
to Visioneer's capital stock. For a full description of the common stock and
preferred stock, you should refer to the amended and restated certificate of
incorporation and the bylaws of Visioneer as currently in effect, copies of
which are on file with the Securities and Exchange Commission.
Common Stock
Holders of common stock are entitled to one vote per share on all matters
submitted to a vote of stockholders. Approval of matters brought before the
stockholders requires the affirmative vote of a majority of outstanding shares,
except as otherwise required by law. Subject to the rights of holders of
preferred stock, if any, all shares of common stock are entitled to share in
such dividends as the board of directors may from time to time declare from
sources legally available therefor. Subject to the rights of creditors and
holders of preferred stock, if any, holders of common stock are entitled to
share ratably in a distribution of assets of Visioneer upon any liquidation,
dissolution or winding-up of Visioneer.
Existing Preferred Stock
The board of directors of Visioneer is authorized to issue, by resolution
and without any action by stockholders, up to 5,000,000 shares of preferred
stock and may establish the voting rights, designations, preferences and
relative, participating, optional or other special rights of such series of
preferred stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE EXISTING CERTIFICATE OF INCORPORATION
AND DELAWARE LAW
Certificate of Incorporation
Under Visioneer's existing certificate of incorporation, the board of
directors has the power to authorize the issuance of up to 5,000,000 shares of
preferred stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without further vote or
action by the stockholders. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, may have the effect of delaying, deferring or preventing a
change in control of Visioneer, may discourage bids for the common stock at a
premium over the market price of the common stock and may adversely affect the
market price of and the voting and other rights of the holders of the common
stock.
Delaware Takeover Statute
Visioneer is subject to section 203 of Delaware General Corporation Law,
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless: (i) prior to such date, the board of directors
of the corporation approved either the business combination or the transaction
that resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
law will be tendered in a tender or exchange offer; or (iii) on or subsequent to
such date, the
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business combination is approved by the board of directors and authorized at an
annual or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that is not
owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of (in
one transaction or a series of transactions) 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation, or by any direct or indirect majority-owned subsidiary thereof, of
any stock of the corporation or such subsidiary to the interested stockholder;
(iv) any transaction involving the corporation, or any direct or indirect
majority-owned subsidiary thereof, that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation or
any such subsidiary which is owned by the interested stockholder; or (v) the
receipt by the interested stockholder of the benefit, directly or indirectly, of
any loans, advances, guarantees, pledges or other financial benefits provided by
or through the corporation or any direct or indirect majority-owned subsidiary
thereof. In general, section 203 defines an interested stockholder as any entity
or person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
CAPITAL STOCK FOLLOWING THE MERGER
If the merger is approved by the requisite vote of the stockholders of
Visioneer at the special meeting, the certificate of incorporation of Visioneer
will be amended and restated at the effective time of the merger. The amended
and restated certificate of incorporation, in the form attached as Annex E to
this proxy statement/ prospectus and incorporated herein by reference, will be
that of the Surviving Corporation. The following is a summary of certain of the
rights, powers, preferences and limitations pertaining to the capital stock of
Visioneer after giving effect to the merger. For a full description of such
capital stock, see Annex E hereof.
Pursuant to the proposed amendment and restatement to the certificate of
incorporation, the Surviving Corporation will be authorized to issue 70,000,000
shares of common stock and 20,000,000 shares of preferred stock, of which
15,000,000 shares will be designated as Series B preferred stock.
Holders of common stock will be entitled to one vote per share on all
matters submitted to a vote of stockholders. Approval of matters brought before
the stockholders will require the affirmative vote of a majority of the holders
of the outstanding shares of common stock, except as otherwise required by
Delaware law. In addition, a supermajority vote of the common stock will be
required for certain matters, including:
- the merger or sale of substantially all the assets of the Surviving
Corporation;
- the authorization or issuance of any equity security having a preference
over or being on a parity with the Series B preferred stock with respect
to voting, dividends, conversion or upon liquidation;
- any alteration or change, in an adverse manner, to the rights,
preferences and privileges of the Series B preferred stock;
- any change in the total number of authorized shares of Series B preferred
stock;
- subject to certain exceptions, the redemption, purchase or acquisition of
any shares of common stock or preferred stock;
- the declaration or payment of dividends on the common stock or preferred
stock; or
- any amendment to the bylaws of the Surviving Corporation.
Following the merger, the board of directors of the Surviving Corporation
will be authorized to issue, from time to time, by resolution and without any
action by stockholders, up to 20,000,000 shares of preferred stock, par value
$0.001 per share, in one or more classes and/or series and may establish the
powers, designations, preferences, rights and qualifications, limitations or
restrictions (which may differ with respect to each such class and/or series) of
such class and/or series. Of these shares, 15,000,000 will be designated Series
B preferred stock. The Series B preferred stock will be convertible into shares
of common stock of the
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Surviving Corporation on a share for share basis at the execution of the holder
at any time after the second anniversary of the merger; however, the Series B
preferred stock is convertible immediately if the holder's ownership of
outstanding Surviving Corporation common stock is less than 30%, unless such
conversion results in the holder owning more than 50% of the outstanding
Surviving Corporation common stock.
The Series B preferred stock will be entitled to dividends at the rate of
$0.065 per annum, payable when, as and if declared by the board of directors of
the Surviving Corporation but subject to availability of funds. Dividends will
be non-cumulative. The Series B preferred stock will have a liquidation
preference of $1.30 per share plus all declared but unpaid dividends.
Holders of Series B preferred stock will not have any voting rights, except
for such rights as are provided under Delaware law.
There is currently no other series of preferred stock authorized by
Visioneer's certificate of incorporation or outstanding. However, Visioneer has
authorized the creation of Series A preferred stock which may be issued pursuant
to Visioneer's Rights Plan, and the filing of a certificate of designation
setting forth the rights of the Series A preferred stock.
Certain holders of capital stock are also entitled to certain registration
rights. See "The Merger Agreement and Related Agreements -- Related
Agreements -- Registration Rights Agreements."
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THE MERGER AGREEMENT AND RELATED AGREEMENTS
The following summary describes the material provisions of the merger
agreement, a copy of which is attached as Annex A to this proxy
statement/prospectus and is incorporated herein by reference. This summary is
qualified in its entirety by reference to the merger agreement.
THE MERGER
The merger agreement provides that, following the approval of the merger
and the adoption of the merger agreement by the affirmative vote of the holders
of a majority of the outstanding shares of common stock of Visioneer entitled to
vote thereon, and the satisfaction or waiver of the other conditions to the
merger, ScanSoft will be merged with and into Visioneer, the separate corporate
existence of ScanSoft will cease, and Visioneer will continue as the surviving
corporation succeeding to and assuming all rights and obligations of ScanSoft
and Visioneer in accordance with Delaware law.
If the conditions to the merger are satisfied or waived, a certificate of
merger will be filed with the Secretary of State of Delaware. The merger will
become effective upon the filing and acceptance thereof or at such date
thereafter as ScanSoft and Visioneer have agreed and have specified in the
certificate of merger.
In the merger, each share of Visioneer common stock outstanding at the
effective time (other than shares held by Visioneer, which will be canceled and
retired and shall cease to exist, and any fractional shares and Dissenting
Shares) will be exchanged, based on the election made by each stockholder, for
cash or common stock of the Surviving Corporation, as more fully described under
"The Merger -- Merger Consideration" and "-- Cash Election and Proration for
Visioneer Stockholders." For a discussion of the treatment of fractional shares,
see "The Merger -- Fractional Shares," and for Dissenting Shares, see
"Stockholders' Appraisal Rights."
Book Value Adjustment
The number of shares of Visioneer common stock to be exchanged for cash and
the number of shares of Series B preferred stock to be received by XIS will be
subject to adjustment based upon the variance from a predetermined relationship
between the Visioneer net book value and the ScanSoft net book value, each
calculated on a date prior to the merger. If the difference between the
Visioneer net book value and the ScanSoft net book value is higher than the
predetermined variance, then the cash election number of 5,097,000 shares will
be increased by a number of shares equal to the excess of such variance divided
by $2.06. Such additional shares are referred to as the "Additional Cash
Election Shares." Alternatively, in the event that the difference between the
Visioneer net book value and the ScanSoft net book value is less than the
predetermined variance, then the cash election number of 5,097,000 will not
increase. Instead, Visioneer will issue to XIS that number of additional shares
of Series B preferred stock equal to such shortfall divided by approximately
$2.06.
The purpose of this book value adjustment is to adjust the consideration
amounts to be received and the relative ownership percentages in the Surviving
Corporation that are contemplated by the merger agreement. The book value
adjustment compensates for changes in the value of either Visioneer or ScanSoft
that occur in the time period (which is expected to exceed 90 days) between the
signing of the merger agreement, at which time the deal terms were set, and the
effective time of the merger.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties of
Visioneer and ScanSoft relating to, among other things:
- due organization, standing and similar corporate matters;
- certificate of incorporation and bylaws;
- capital stock structure;
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- financial statements;
- the absence of certain changes;
- title to owned real property, valid leasehold interests in leased real
property and other real estate related matters;
- title to assets;
- receivables and significant customers;
- ownership of or right to use proprietary assets and the lack of any
material unauthorized use, infringement or misappropriation of certain
proprietary assets;
- compliance with applicable laws;
- the absence of defaults under material contracts;
- the absence of undisclosed liabilities;
- compliance with legal requirements;
- absence of certain business practices;
- receipt of governmental authorizations;
- filing of complete and correct tax returns and payment of all applicable
taxes;
- benefit plans and other matters relating to the Employee Retirement
Income Security Act of 1974, as amended, employment matters and certain
labor matters;
- brokers' and financial advisors' fees and expenses;
- environmental matters;
- insurance;
- pending or threatened litigation or investigation;
- the authorization, execution, delivery, performance and enforceability of
the merger agreement and related matters;
- the accuracy of information prepared by each party;
- the accuracy of information supplied by each party in connection with
this proxy statement/prospectus and the compliance as to form of this
proxy statement/prospectus in all material respects with the requirements
of the Securities Act and the Exchange Act;
- the absence of conflict between the execution and delivery of the merger
agreement and the consummation of the transactions contemplated thereby
with any standstill, exclusivity or confidentiality agreement to which
either ScanSoft or Visioneer is a party, with respect to the acquisition
or other disposition of the party's software business;
- board approval of the merger agreement and the merger; and
- sufficiency of assets.
The merger agreement contains additional representations and warranties of
Visioneer with respect to:
- the absence of conflict between (A) the execution and delivery of the
merger agreement, the Primax asset purchase agreement and the
transactions contemplated thereby and (B) Visioneer's charter or a
material contract of Visioneer;
- SEC filings and the accuracy of information contained in public documents
filed with the SEC;
- the inapplicability of certain state laws governing business
combinations;
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- the absence of certain transactions with affiliates;
- obtaining the requisite stockholder approval for the merger agreement and
the merger;
- certain matters relating to the sale of Visioneer's hardware business;
- the execution of an irrevocable proxy and voting agreement by certain
Visioneer stockholders;
- amendments to Visioneer's Rights Plan to render it inapplicable to the
merger;
- compliance with applicable securities and blue sky laws;
- usability and salability of Visioneer's software inventory; and
- the absence of additional obligations to pay any employees as a result of
the merger.
CERTAIN PRE-CLOSING COVENANTS AND AGREEMENTS
Covenants Regarding the Conduct of Business
Pursuant to the merger agreement and until the effective time, Visioneer
and ScanSoft have each agreed to carry on its business in the usual, regular and
ordinary course in substantially the same manner as currently conducted and to
use all reasonable efforts to preserve intact its business organization, to keep
available the services of its present officers and key employees and to preserve
present relationships with customers, suppliers and other persons with which it
has business dealings. In addition, each of Visioneer and ScanSoft agreed that
it will not, without the prior written consent of the other:
- amend its certificate of incorporation or bylaws;
- (A) declare or pay any dividends on, or make any other distributions in
respect of, any of its capital stock or make payments to stockholders, or
(B) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock (except that ScanSoft
may, without the prior consent of Visioneer, sell outstanding or newly
issued shares of its common or preferred stock provided that the number
of shares issued or sold does not exceed 10% of the total number of
shares of capital stock of ScanSoft then outstanding);
- enter into any material contract, or violate, amend, or otherwise modify
or waive any of the terms of any material contract other than in ordinary
course of business consistent with past practice;
- enter into or amend any agreements pursuant to which any other party is
granted exclusive rights of any type or scope with respect to any of its
products or technology;
- sell, lease, license or otherwise dispose of or encumber any of its
assets, except (A) in the ordinary course of business consistent with
past practice, and (B) for the sale of the Visioneer's hardware business
in accordance with the terms of the form of asset purchase agreement;
- incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others;
- enter into an operating lease in excess of $25,000;
- unless arising other than in the ordinary course of business, pay,
discharge or satisfy any claim, liability or obligation above limits
specified in the merger agreement;
- make any capital expenditures, capital additions or capital improvements
above limits specified in the merger agreement;
- materially reduce the amount of any material insurance coverage provided
by existing insurance policies;
- terminate or waive any right of substantial value, other than in the
ordinary course of business;
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- subject to certain exceptions, adopt or amend any employee benefit, stock
purchase or option plan, amend any outstanding option, reprice any
outstanding option, or hire any new director level or officer level
employee, pay any special bonus or special remuneration to any employee
or director, or increase the salaries or wage rates of its employees;
- subject to certain exceptions, grant any incentive, severance or
termination pay to any director, officer or any other employee;
- subject to certain exceptions, commence a lawsuit;
- acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or
other business organization, or otherwise acquire or agree to acquire any
assets which are material to its business;
- other than in the ordinary course of business, make or change any
material election, adopt or change any accounting method in respect of
taxes, file any material tax return or any amendment to a material tax
return, enter into any closing agreement, settle any claim or assessment
in respect of taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of
taxes;
- each shall give all notices and other information required to be given to
the employees of Visioneer, any collective bargaining unit representing
any group of employees of Visioneer, and any applicable government
authority under the WARN Act, the National Labor Relations Act, the
Internal Revenue Code, COBRA, and other applicable law in connection with
the transactions provided for in the merger agreement; or
- authorize, recommend, propose or announce an intention to do any of the
foregoing.
No Solicitation of Transaction
Pursuant to the merger agreement, each of Visioneer and ScanSoft has agreed
that neither Visioneer nor ScanSoft nor any officer, director, employee,
stockholder, or agent of Visioneer or ScanSoft, will, directly or indirectly,
solicit, initiate, entertain, or encourage any proposals or offers from any
third party relating to an acquisition of their respective company or any
acquisition of a material portion of the assets or stock of their respective
company, whether through a merger, consolidation, stock purchase, purchase of
all or substantially all of its assets, or acquisition of all or substantially
all of its stock or other similar transaction (a "Takeover Proposal") or
participate in any discussions or negotiations regarding any Takeover Proposal,
provided that prior to the receipt of approval of the merger by the Visioneer
stockholders, Visioneer may, together with its officers, directors and financial
advisors, to the extent the Visioneer board of directors determines, in good
faith, after consultation with outside legal counsel, that it would be a breach
of the board's fiduciary duties to fail to do so, participate in discussions or
negotiations with and afford access to the properties, books or records of
Visioneer to any person, entity or group after such person, entity or group has
delivered to Visioneer in writing an unsolicited Superior Proposal (as defined
below) (which Superior Proposal has not been withdrawn).
Neither the board of directors of Visioneer nor any committee thereof may
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to ScanSoft, the approval or recommendation by Visioneer's board of
directors of the merger or the merger agreement. The merger agreement does not
prevent Visioneer, at any time prior to the receipt of stockholder approval of
the merger, from: (A) modifying or withdrawing the recommendation of the board
of directors to approve the merger if the board of directors determines in good
faith that a Takeover Proposal is a Superior Proposal (as defined below) and,
after consultation with outside counsel, that it would be a breach of its
fiduciary responsibilities to not so modify or withdraw such recommendation; or
(B) to approve or recommend, or propose publicly to approve or recommend, such
Superior Proposal if the board of directors of Visioneer determines in good
faith, after consulting with outside counsel, that it would be a breach of its
fiduciary responsibilities to not approve or recommend such Superior Proposal. A
"Superior Proposal" is defined in the merger agreement as any
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unsolicited written proposal determined by the Visioneer board of directors in
good faith, after consultation with outside legal counsel, to be a bona fide
proposal and made by a third party to acquire, directly or indirectly, for
consideration consisting of cash, property and/or securities, more than 50% of
the combined voting power of the shares of the Visioneer common stock then
outstanding or all or substantially all the assets of Visioneer and otherwise on
terms which the Visioneer board of directors determines in its good faith
judgment to be more favorable to Visioneer's stockholders than the merger, after
consultation with outside counsel and receipt of a written opinion of a
financial advisor of nationally recognized reputation that the terms of such
written proposal are more favorable from a financial point of view than the
merger.
Visioneer must promptly notify ScanSoft in writing of the terms of any
third party inquiries or proposals involving a Takeover Proposal received by
Visioneer, identify the name of such third party and provide ScanSoft with a
copy of such Superior Proposal prior to taking the above action. Visioneer may
approve or recommend a Superior Proposal or terminate the merger agreement,
subject to the payment of specified termination fees. See "-- Additional
Agreements -- Fees and Expenses" below.
Third Party Standstill Agreements and Rights Agreement
The merger agreement provides that Visioneer will not terminate, amend,
modify or waive any provision of any confidentiality or standstill agreement to
which it is a party (other than any such agreement involving ScanSoft) or,
except for the amendment of the Rights Agreement in connection with the merger,
redeem, amend, modify or waive the rights or any provisions of the Rights
Agreement.
Stock Plans
The treatment in the merger of outstanding Visioneer stock options is
described in "The Merger -- Effect on Visioneer and ScanSoft Options."
Commercially Reasonable Efforts
Pursuant to the merger agreement, Visioneer, and ScanSoft have agreed to
use commercially reasonable efforts to effectuate the transactions contemplated
by the merger agreement and to take certain other actions, including (A)
obtaining from any governmental body any consents, licenses, permits, waivers,
approvals, authorizations or orders required to be obtained or made in
connection with the authorization, execution and delivery of the merger
agreement, including those required under the HSR Act, and (B) make all
necessary filings, and thereafter make any other required submissions, with
respect to the merger agreement and the merger required under the Securities Act
and the Exchange Act and any other applicable federal, state or foreign
securities laws.
ADDITIONAL AGREEMENTS
Pursuant to the terms of the merger agreement, Visioneer and ScanSoft have
agreed to the following additional covenants:
Obligations of both Visioneer and ScanSoft
Each of Visioneer and ScanSoft have agreed to:
- abide by the terms of the confidentiality agreement;
- afford to each other and to the accountants, counsel, and other
representatives of each party reasonable access to the properties, books,
contracts, commitments, and records and all other information as may be
needed;
- not make any public announcements with respect to the merger except as
required by law;
- give prompt notice to the other of: (A) the occurrence or non-occurrence
of any event, the occurrence or non-occurrence of which would be
reasonably likely to cause any representation or warranty contained in
the merger agreement to be untrue or inaccurate in any material respect,
and (B) the
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failure to comply with in any material respect or satisfy in any material
respect any covenant, condition or agreement related to the merger.
Obligations of Visioneer
Pursuant to the terms of the merger agreement, Visioneer will:
- comply with the securities and blue sky laws of all applicable
jurisdictions;
- file a notification form to list the shares of common stock to be issued
in the merger on the Nasdaq National Market; and
- use reasonable efforts to grant the necessary approvals if any "fair
price" or "control share acquisition" statute or other similar statute or
regulation shall become applicable to the merger agreement.
Obligations of ScanSoft
Pursuant to the terms of the merger agreement, ScanSoft will:
- use its reasonable efforts to assist Visioneer as may be necessary to
comply with the applicable securities and blue sky laws;
- provide Visioneer with a properly executed Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA") Notification Letter;
- provide Visioneer a form of notice to the Internal Revenue Service in
accordance with the requirements of Treasury Regulation section
1.897-2(h)(2).
Maintenance of Indemnification Obligations
Pursuant to the merger agreement, the Surviving Corporation will indemnify
and hold harmless each present and former director, officer, employee and agent
of Visioneer determined as of the effective time (the "Indemnified Parties") to
the extent provided in the bylaws or certificate of incorporation of Visioneer
and as provided in any surviving indemnification agreements between Visioneer
and an Indemnified Party. The Surviving Corporation will be obligated to pay
reasonable expenses, including reasonable attorney's fees that may be incurred
by such Indemnified Parties in connection with any claim, action, suit,
proceeding or investigation arising out of or pertaining to matters existing or
occurring at or prior to the effective time. The Surviving Corporation will also
advance any such expenses as incurred to the fullest extent permitted under the
bylaws or certificate of incorporation of Visioneer, subject to the undertaking
of such party to repay such advances in the event that it is ultimately
determined that such party is not entitled to indemnification.
For a period of six years after the effective time, the Surviving
Corporation will maintain a policy of officers' and directors' tail liability
insurance for directors and officers of Visioneer who terminate or resign their
positions after the date of the merger agreement but on or prior to the
effective time. The coverage under such insurance must be at least as favorable
as Visioneer's existing directors' and officers' liability insurance coverage;
however, the Surviving Corporation will not be obligated to pay aggregate
premiums for such tail coverage in excess of $250,000.
Fees and Expenses
Visioneer has agreed to pay ScanSoft by wire transfer a termination fee in
an amount equal to $1,700,000 (1) if the merger agreement is terminated because
the board of directors of Visioneer or any committee thereof fails to recommend,
withdraws, modifies or publicly announces in a manner adverse to ScanSoft, its
approval or recommendation of the merger or the merger agreement or (2) if the
approval of Visioneer's stockholders of the merger agreement and the merger is
not obtained at a meeting held for the purpose of obtaining such approval or any
adjournment thereof and the board of directors of Visioneer has withdrawn or
modified or proposed publicly to withdraw or modify its approval or
recommendation of the merger or the merger agreement.
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<PAGE> 87
Except as otherwise provided above, all fees and expenses incurred in
connection with the merger agreement and the merger will be paid by the party
incurring such expenses, whether or not the merger is consummated, except that
filing fees related to compliance with the HSR Act will be borne equally by
Visioneer and ScanSoft.
State Takeover Laws
Visioneer and its board of directors have agreed to use reasonable efforts
to grant the necessary approvals and take any necessary actions if any "fair
price" or "control share acquisition" statute or other similar statute or
regulation shall become applicable to the transactions contemplated by the
merger agreement.
Cash Merger Consideration
ScanSoft must deposit or cause to be deposited approximately $10,500,000
with the exchange agent on or prior to the closing date of the merger. The cash
will be provided by Xerox. Visioneer must deposit with the exchange agent on or
prior to the closing date of the merger an amount in cash equal to the excess of
Visioneer's net book value over its targeted amount. See "The Merger -- Merger
Consideration -- Book Value Adjustment." Visioneer shall provide cash in lieu of
fractional shares.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The respective obligations of Visioneer and ScanSoft to consummate and
effect the merger agreement and the transactions contemplated thereby are
subject to the satisfaction on or prior to the effective time of each of the
following conditions, any of which may be waived, in writing, by agreement of
all the parties:
Conditions to Each Party's Obligations
- the merger agreement shall have been duly approved and adopted by the
requisite vote of the stockholders of Visioneer;
- no temporary restraining order, preliminary or permanent injunction or
other ruling, decree or order issued by any court of competent
jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the merger or the sale of Visioneer's
hardware business shall be in effect, nor shall any legal proceeding be
commenced which seeks to rescind the sale of the Visioneer's hardware
business and which is reasonably likely to succeed on the merits nor
shall any proceeding brought by governmental body, seeking any of the
foregoing be pending; nor shall there be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the merger, which makes the consummation of the merger
illegal. In the event an injunction or other order shall have been
issued, each party agrees to use its reasonable diligent efforts to have
such injunction or other order lifted; and
- the waiting period applicable to the merger under the HSR Act shall have
expired or been terminated and all approvals, waivers, permits,
authorizations, consents and registrations, if any, as may be required
under HSR, the Securities Act of 1933, as amended, or any state
securities or other laws shall have been obtained;
Additional Conditions to ScanSoft's Obligations
- Visioneer shall have performed in all material respects all obligations
of the merger agreement, and the representations and warranties of
Visioneer contained in the merger agreement shall be true and correct as
of the closing date; provided, however, any inaccuracies in such
representations and warranties will be disregarded if the circumstances
giving rise to such inaccuracies (considered collectively) do not
constitute, and are not reasonably expected to result in a material
adverse effect on Visioneer, and Visioneer shall have substantially
performed and complied with certain specified covenants in the merger
agreement. For purposes of the merger agreement, a material adverse
effect on Visioneer will have occurred if: (A) Visioneer's revenues are
less than $2,316,000 in any complete
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fiscal quarter ending on a date after the date of the merger agreement
and prior to the closing (including, without limitation, the fourth
quarter of fiscal 1998) and preceding the fiscal quarter in which the
closing occurs; (B) any legal proceeding which would be reasonably likely
to result in expenses, damages and/or other liability to Surviving
Corporation in excess of one and one-half times the amount of the
coverage provided under Visioneer's current directors and officers
liability insurance as determined by an independent arbiter to be
mutually agreed upon by Visioneer and ScanSoft; (C) the completion of any
environmental assessment of Visioneer which concludes that it would be
reasonably likely that the Surviving Corporation would incur expenses,
damages, remediation costs and/or other liability in excess of
$3,500,000, exclusive of any insurance coverage; or (D) Visioneer's net
book value is $4,500,000 or less;
- Visioneer shall have provided ScanSoft customary officers' certificates;
- Visioneer shall have obtained the consent or approval of third parties
whose consents or approvals are required in order to consummate the
merger;
- Visioneer's common stock shall not have been delisted from the Nasdaq
National Market and Visioneer shall have filed a Notification Form for
Listing of Additional Shares with respect to the shares of Surviving
Corporation common stock with the Nasdaq National Market and have
received acknowledgment of receipt;
- ScanSoft shall have received the results of any environmental assessment
of Visioneer that reveal no material issues;
- the sale of the Visioneer's hardware business shall have been consummated
in accordance with the terms of the asset purchase agreement;
- a voting agreement shall have been duly executed by the Affiliates of
Visioneer and delivered to ScanSoft;
- Visioneer shall have paid off all outstanding balances under its loan
from Silicon Valley Bank;
- Visioneer shall have executed and delivered to XIS the Registration
Rights Agreement; and
- Visioneer shall have executed and delivered a services agreement pursuant
to which Primax will provide administrative services to Visioneer to
enable Visioneer to continue to operate its software business after the
closing date of the Primax transaction and for a period of six months
thereafter.
Additional Conditions to Visioneer's Obligations
- ScanSoft shall have performed in all material respects all obligations of
the merger agreement, and the representations and warranties of ScanSoft
contained in the merger agreement shall be true and correct as of the
date of the merger agreement and the closing date of the merger;
provided, however, any inaccuracies in such representations and
warranties will be disregarded if the circumstances giving rise to such
inaccuracies (considered collectively) do not constitute, and are not
reasonably expected to result in a material adverse effect on ScanSoft,
and ScanSoft shall have substantially performed and complied with certain
specified covenant in the merger agreement;
- ScanSoft shall have provided Visioneer customary officers' certificates;
and
- ScanSoft shall have obtained the consent or approval of third parties
whose consents or approvals are required in order to consummate the
merger.
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TERMINATION
The merger agreement may be terminated at any time prior to the effective
time of the merger, whether before or after approval of the merger by the
stockholders of Visioneer:
(A) by mutual written consent of ScanSoft and Visioneer;
(B) by either ScanSoft or Visioneer if:
- the merger is not consummated on or before April 30, 1999 (provided
that the terminating party has not breached its obligations under the
merger agreement in any manner that shall have proximately caused the
failure to consummate the merger by April 30, 1999);
- any court or governmental entity of competent jurisdiction shall have
issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the merger
and such order, decree, ruling or other action shall have become final
and nonappealable (provided that the right to terminate the merger
agreement pursuant to this provision will not be available to any
party who has not used its reasonable best efforts to cause such order
to be lifted); or
- the approval of Visioneer's stockholders of the merger agreement and
the merger is not obtained at the special meeting or any adjournment
thereof;
(C) by ScanSoft if:
- any of the representations or warranties of Visioneer in the merger
agreement that are expressly qualified by a reference to materiality
shall not have been or shall not be true and correct in all respects
as so qualified or any such representations or warranties that are not
so qualified shall not have been or shall not be true and correct in
any material respect on the date of the merger agreement and the
Closing Date, and such untruth or incorrectness cannot be cured or has
not been cured within 20 days after the giving of written notice to
Visioneer;
- Visioneer fails to substantially perform any obligation or comply with
any agreement or covenant to be performed or complied with by it under
the merger agreement and such failure cannot be or has not been cured
within 20 days after the giving of written notice to Visioneer;
- Visioneer shall have failed to satisfy any of the conditions set forth
in the merger agreement and ScanSoft had not waived such conditions;
or
- the board of directors or any committee thereof shall have failed to
recommend, withdrawn, modified or publicly announced in a manner
adverse to ScanSoft its approval or recommendation of the merger or
merger agreement; or
(D) by Visioneer, if:
- any of the representations or warranties of ScanSoft in the merger
agreement that are expressly qualified by a reference to materiality
shall not have been or shall not be true and correct in all respects
as so qualified or any such representations or warranties that are not
so qualified shall not have been or shall not be true and correct in
any material respect on the date of the merger agreement and the
Closing Date and such untruth or incorrectness cannot be or has not
been cured within 20 days after giving of written notice to ScanSoft;
- ScanSoft fails to substantially perform any obligation or comply with
any agreement or covenant to be performed or complied with by it under
the merger agreement and such failure cannot be or has not been cured
within 20 days after giving of written notice to ScanSoft; or
- ScanSoft shall have failed to satisfy any of the conditions set forth
in the merger agreement and Visioneer had not waived such condition.
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Effect of Termination
If the merger agreement is terminated pursuant to the above sections, the
merger agreement will become void and Visioneer, ScanSoft and their respective
officers or directors will have no liabilities or obligations except with
respect to the termination provisions of the merger agreement and certain
provisions regarding confidentiality and fees and expenses. In addition,
Visioneer, ScanSoft or their respective officers or directors may be liable for
breach under certain provisions of the merger agreement.
AMENDMENT
The merger agreement may be amended by the parties at any time before or
after obtaining approval of the merger agreement and the merger by the
stockholders of Visioneer; provided, however, that, after approval of the
stockholders of Visioneer, no amendment may be made which would require further
stockholder approval.
EXTENSION; WAIVER
At any time prior to the effective time any party may: (1) extend the time
for the performance of any of the obligations or other acts of the other parties
of the merger agreement; (2) waive any inaccuracies in the representations and
warranties made by the other party contained in the merger agreement or in any
document delivered pursuant thereto; and (3) waive compliance with any of the
agreements or conditions contained in the merger agreement.
RELATED AGREEMENTS
Side Letters
Pursuant to side letters, dated as of December 2, 1998, by and among Xerox
and Visioneer, Xerox agreed to be bound by certain provisions of the merger
agreement, including sections 6.3 (regarding taxes) and 6.12 (regarding the
voting agreement), to the extent such sections impose obligations on Xerox, as
well as section 6.6 (regarding confidentiality). Pursuant to the side letters,
Xerox has also agreed that: (1) during the period commencing on the effective
time and ending on the second anniversary of the effective time, Xerox's
percentage ownership of Visioneer's common stock will not exceed 49.5%; (2) in
accordance with section 6.18 of the merger agreement, Xerox will cancel, as of
the Effective Date, the tax agreement between Xerox and ScanSoft; and (3) Xerox
will deposit or cause ScanSoft to deposit with the exchange agent the cash
necessary for payment of the shares to be exchanged for cash.
Voting Agreement
Xerox and the Investors have agreed to enter into a voting agreement
pursuant to which they will vote to elect certain nominees to the Surviving
Corporation's board of directors. The parties to the voting agreement have
agreed that as of the effective time of the merger, Visioneer's bylaws will be
amended to provide for a seven member board, and two nominees of Xerox as well
as the Chief Executive Officer of the Surviving Corporation will be elected to
the board as of the first board meeting thereafter. At each annual meeting of
stockholders of Visioneer, 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:
(A) so long as XIS owns at least 20% of the Visioneer's outstanding
voting stock: two Xerox designees, two individuals designated by the four
members of the board who were not nominated by Xerox and who are not
Visioneer's Chief Executive Officer, Visioneer's then current Chief
Executive Officer, and two independent members with relevant industry
experience who are designated by at least four out of the five directors
who are not considered to be independent directors; or
(B) so long as XIS owns at least 10% of Visioneer's outstanding voting
stock: one Xerox designee, two individuals designated by the five members
of the board who were not nominated by Xerox and who are not Visioneer's
Chief Executive Officer, Visioneer's then current Chief Executive Officer,
and three
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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 Visioneer's property or business or its
merger into or consolidation with any other corporation or if Visioneer effects
any other transaction(s) in which more than 50% of its voting power is disposed
of; (2) such time as XIS owns less than 10% of Visioneer's outstanding voting
stock; or (3) such time as the non-Xerox parties to the voting agreement own, in
the aggregate, less than 7% of the Visioneer's outstanding voting stock,
provided, however, that if such time occurs prior to the second anniversary of
the effective time of the merger and XIS holds at such time shares of
Visioneer's Series B preferred stock, the voting agreement will not terminate
until the earlier of (x) the second anniversary of the effective time and (y)
the date on which XIS (together with its affiliates) no longer hold any shares
of Visioneer's preferred stock.
Stockholders' Voting Agreement
The following summary describes the material provisions of a Stockholders'
Voting Agreement between ScanSoft and the Investors. A copy of the Stockholders
Voting Agreement is attached as Annex B to this proxy statement/prospectus and
is incorporated herein by reference. This summary is qualified in its entirety
by reference to the Stockholders Voting Agreement.
Voting Arrangements. Pursuant to the Stockholders Voting Agreement, the
Investors, severally and jointly, have agreed that at any meeting of the
Visioneer stockholders called to vote upon the merger agreement and the merger
or in any other circumstances upon which a vote, consent or other approval
(including by written consent) with respect to the merger agreement and the
merger is sought, each Investor shall vote the number of shares of Visioneer
common stock it owns (A) in favor of the merger and the adoption by Visioneer of
the merger agreement and (B) against (1) any merger agreement or merger (other
than the merger agreement and the merger), consolidation, combination, sale of
substantial assets (other than the sale of the hardware business),
reorganization, recapitalization, dissolution, liquidation or winding up of or
involving Visioneer; or (2) any amendment of Visioneer's certificate of
incorporation or bylaws or other proposal or transaction involving Visioneer,
which amendment or other proposal or transaction would in any manner impede,
frustrate, prevent, delay or nullify the merger, the merger agreement or any of
the other transactions contemplated by the merger agreement or change in any
manner the voting rights of any class of capital stock of Visioneer. The
Investors further agreed not to take any action inconsistent with the foregoing.
Transfer Restriction. Under the Stockholders Voting Agreement, the
Investors have agreed not to: (1) transfer, sell, pledge, assign or otherwise
dispose of (including by gift), or enter into any contract, option or other
arrangement (including any profit sharing arrangement) with respect to the
transfer of, any of their shares of Visioneer common stock to any person, other
than pursuant to the terms of the merger, unless the transferee agrees to be
bound by the terms of the agreement; or (2) enter into any voting arrangement,
whether by proxy, power-of-attorney, voting agreement, voting trust or
otherwise, which restrictions terminate on the earlier of (A) the effective time
of the merger or (B) either the termination of the merger agreement or six
months thereafter, depending on the basis for termination of the merger
agreement.
No Solicitation. During the term of the Stockholders Voting Agreement, the
Investors shall not, nor shall they permit any of their affiliates or any
director, officer, employee, investment banker, attorney or other adviser or
representative of any of the foregoing to: (1) directly or indirectly, solicit,
initiate or knowingly encourage the submission of, any Takeover Proposal; or (2)
directly or indirectly, participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Takeover Proposal.
Grant of Irrevocable Proxy. Under the Stockholders Voting Agreement, the
Investors revoked all previous proxies (if any) with respect to their shares of
Visioneer common stock. Further, the Investors agreed that if they fail to
comply with the voting arrangements discussed above, such failure shall result,
without any further action by an Investor, in the irrevocable appointment of
ScanSoft, and any person or persons who may be designated by ScanSoft as
permitted under applicable law, and each of such person(s) individually, as the
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Investor's proxy and attorney-in-fact (with full power of substitution), for and
in the name, place and stead of the Investor, to vote the Investor's shares of
Visioneer common stock, or grant a consent or approval in respect of such
shares, in favor of or against, as the case may be, the merger and any alternate
Takeover Proposals, and to execute and deliver an appropriate instrument
irrevocably granting such proxy. The proxy terminates upon any termination of
the Stockholders Voting Agreement in accordance with its terms.
Termination. The Stockholders Voting Agreement will terminate as follows:
- if the transactions contemplated by the merger agreement are not
consummated, and the merger agreement is terminated because Visioneer's
stockholders did not approve the merger agreement or Visioneer's board of
directors failed to recommend the approval of the merger agreement (or
withdrew or modified its recommendation), upon the six month anniversary
of the date of termination of the merger agreement;
- if the transactions contemplated by the merger agreement are not
consummated, and the merger agreement is terminated for any reason other
than as set forth above, as of the date of termination of the merger
agreement; and
- if the transactions contemplated by the merger agreement are consummated,
upon the effective time of the merger.
Notwithstanding the above, if Visioneer receives and publicly announces any
Takeover Proposal prior to the date of termination of the merger agreement and
the transactions contemplated by the merger agreement are not consummated
(regardless of the reason for the termination of the merger agreement), the
Stockholders Voting Agreement will terminate upon the later of (A) the six-month
anniversary of the date of termination of the merger agreement or (B) one month
following the date of the stockholder vote or consent taken in connection with
any such alternative Takeover Proposal.
Registration Rights Agreement
Visioneer and XIS will execute the Registration Rights Agreement, pursuant
to which XIS may demand registration under the Securities Act of some or all of
the shares of common stock to be owned by XIS upon consummation of the merger,
conversion of the Series B preferred stock owned by XIS or pursuant to the
exercise of the warrant. Each such registration will be at Visioneer's expense.
Visioneer may postpone such a demand under certain circumstances. In addition,
XIS may request Visioneer to include shares of common stock held by XIS in any
registration proposed by Visioneer of such common stock under the Securities
Act.
Warrant
At the effective time of the merger, Visioneer will issue to XIS a ten-year
warrant that allows XIS to acquire a number of shares of common stock equal to
the number of options (whether vested or unvested) that remain unexercised at
the termination of any ScanSoft option assumed by the Surviving Corporation in
the merger. The exercise price for each warrant share will be 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, XIS would be entitled to purchase approximately 1,836,000
shares of Surviving Corporation common stock. The warrant will be exercisable at
any time; however, XIS may not exercise the warrant prior to two years from the
date of its initial issuance unless, immediately after such exercise, XIS owns
directly or indirectly a number of outstanding shares of Surviving Corporation
common stock that represents less than 45% of the total number of shares of
Surviving Corporation common stock outstanding immediately after such exercise.
Board of Directors and Officers of Surviving Corporation Following the Merger
The merger agreement provides that the officers of ScanSoft immediately
prior to the effective time will be officers of the Surviving Corporation
following the merger until the earlier of their resignation or removal and until
their respective successors are duly elected and qualified, as the case may be.
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The merger agreement also provides that the directors of Visioneer
immediately prior to the effective time will be the directors of the Surviving
Corporation following the merger. As of the effective time, Visioneer's board of
directors shall be increased to include seven members. The following table sets
forth as of December 31, 1998, the name, age and position of each person who is
expected to serve as a director of the Surviving Corporation after the effective
time. Paul A. Ricci will serve as Chairman of the Surviving Corporation's board
of directors. In addition, one additional director will be appointed to the
board. Such candidate has not been identified at this time. After the effective
time, the board of directors will be subject to change from time to time.
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION
---- --- ----------------
<S> <C> <C>
William J. Harding, Ph.D.......... 50 Director of Visioneer
David F. Marquardt................ 49 Director of Visioneer
Mark B. Myers..................... 59 Senior Vice President of Corporate
Research and Technology of Xerox
Paul A. Ricci..................... 42 Vice President, Corporate Business
Development of Xerox
J. Larry Smart.................... 51 President, Chief Executive Officer
and Director of Visioneer
Michael K. Tivnan................. 46 President of ScanSoft
</TABLE>
Dr. Harding has served as a director of Visioneer 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 Visioneer 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 is Senior Vice President, Xerox Research and Technology,
responsible for worldwide research and technology. Since joining Xerox in 1964,
Dr. Myers has held several research and engineering positions. He was named Vice
President and Manager of the Webster Research Center in 1984. He was elected
Corporate Vice President in May 1989 and was named to his current position in
February 1992. 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.
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. Smart has served as President and Chief Executive Officer of Visioneer
since April 1997. Mr. Smart served as Chairman of the board of directors from
February 1997 until assuming the position of President and Chief Executive
Officer. 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.
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Mr. Smart has advised Visioneer's board of directors of his intention to
step down as President and Chief Executive Officer on the earlier of the
effective time, any day prior to the closing of the merger on which the merger
agreement has been terminated by either Visioneer or ScanSoft, or March 31,
1999. See "Risk Factors." Additional information about Mr. Smart is contained in
Visioneer's Annual Report on Form 10-K for the year ended December 31, 1997,
which is incorporated by reference in this proxy statement/prospectus. See
"Where You Can Find More Information" and "Incorporation of Certain Information
by Reference."
Mr. Tivnan has served as the President of ScanSoft, Inc. since February,
1998. 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. Prior positions in Mr.
Tivnan's career include Executive Vice President and Chief Financial Officer for
Project Software and Development, Inc.; Vice President of Finance for
Genigraphics Corporation; and several leadership roles within the finance
organization at General Electric Company in Military Electronics and
Semiconductors operations groups.
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INFORMATION REGARDING BENEFICIAL OWNERSHIP
OF PRINCIPAL VISIONEER STOCKHOLDERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Visioneer's
common stock as of December 31, 1998 as to: (1) each person (or group of
affiliated persons) who is known by Visioneer to own beneficially more than 5%
of Visioneer's common stock; (2) each of Visioneer's directors; (3) each of the
Visioneer's executive officers; and (4) all directors and executive officers as
a group. The number of shares outstanding as of December 31, 1998 was
.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
--------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
------------------------ --------- -------
<S> <C> <C>
Technology Venture Investors -- IV, L.P.(2)................. 2,214,649 11.16%
2480 Sand Hill Road
Menlo Park, CA 94025
Morgan Stanley Venture Capital Fund II, L.P.(3)............. 1,775,000 8.94%
3000 Sand Hill Road
Building 4, Suite 250
Menlo Park, CA 94025
Parvest U.S. Partners II, C.V.(4)........................... 1,717,661 8.65%
Partech International, Inc.
50 California Street, Suite 3200
San Francisco, CA 94111
William J. Harding, Ph.D.(3)................................ 1,775,000 8.94%
David F. Marquardt(2)....................................... 2,214,649 11.16%
Vincent Worms(4)............................................ 1,717,661 8.65%
J. Larry Smart(5)........................................... 676,786 3.30%
Rudolph E. Burger(5)........................................ 86,825 *
Murray Dennis(5)............................................ 152,632 *
Michael T. Burt(5).......................................... 86,808 *
Jay Hanson.................................................. 137,447 *
Richard Brenner............................................. 0 0
All directors and executive officers as a group (9
persons)(2)(3)(4)(5)...................................... 6,847,808 32.60%
</TABLE>
- ---------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
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 December 31, 1998 are deemed outstanding. Such
shares, however, are not deemed outstanding for the purposes of computing
the percentage ownership of each 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 community
property laws where applicable and except as indicated in the other
footnotes to this table.
(2) Includes 2,186,199 shares owned by Technology Venture Investors IV, L.P.,
and 25,000 shares issuable upon exercise of outstanding options exercisable
within 60 days of November 30, 1998 held by David F. Marquardt, a director
of Visioneer. 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.
(3) Includes 1,159,959 shares owned by Morgan Stanley Venture Capital Fund II,
L.P., 301,052 shares owned by Morgan Stanley Venture Investors, L.P. and
288,989 shares owned by Morgan Stanley Venture Capital Fund II, C.V., and
25,000 shares issuable upon exercise of outstanding options exercisable
within 60 days of November 30, 1998 held by William J. Harding, a director
of Visioneer. Dr. Harding is a
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<PAGE> 96
general partner of Morgan Stanley Venture Partners II L.P., the general
partner of Morgan Stanley Venture Capital Fund 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.
(4) Includes 869,722 shares owned by Parvest U.S. Partners II, C.V., 361,945
shares owned by Paribas U.S. Partners, V.O.F. and 405,494 shares held by
certain entities that may be deemed affiliated with Parvest U.S. Partners
II, C.V. and Paribas U.S. Partners, V.O.F. and 25,000 shares issuable upon
exercise of outstanding options exercisable within 60 days of November 30,
1998 held by Vincent Worms, a director of Visioneer. Mr. Worms is a general
partner of Parvest U.S. Partners II, C.V. and is a general partner of the
investment general partner of Paribas U.S. Partners, V.O.F. and, as such,
may be deemed to share voting and investment power with respect to such
shares. Mr. Worms disclaims beneficial ownership with respect to such shares
except to the extent of his pecuniary interest in such shares. Also includes
55,500 shares held directly by Mr. Worms.
(5) Includes 671,786 shares issuable upon exercise of outstanding options held
by Mr. Smart, 86,825 shares issuable upon the exercise of outstanding
options held by Dr. Burger, 152,632 shares issuable upon exercise of
outstanding options held by Mr. Dennis, 86,808 shares issuable upon exercise
of outstanding options held by Mr. Burt, and 81,157 shares issuable upon
exercise of outstanding options held by Mr. Hanson, all of which are
currently exercisable or are expected to become exercisable within 60 days
of December 31, 1998, including options for which vesting will be
accelerated in connection with the consummation of the merger. See
"Interests of Certain Persons in the Merger and Related Matters --
Agreements with Visioneer's Executive Officers." Dr. Burger terminated his
employment with Visioneer in December 1998.
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INFORMATION REGARDING SOLE STOCKHOLDER OF SCANSOFT
As of the date of this proxy statement/prospectus, Xerox Imaging Systems, a
wholly owned subsidiary of Xerox, owns all of the outstanding capital stock of
ScanSoft.
RELATIONSHIP WITH XEROX
ScanSoft was originally established as a business unit of Xerox Imaging
Systems, Inc. in 1993 and became a wholly owned subsidiary of XIS in 1996.
Subject to the adjustments described under "The Merger -- Merger
Consideration -- Book Value Adjustment" and assuming no transfers of outstanding
ScanSoft shares or exercises of vested ScanSoft options, XIS will own 45% of the
Surviving Corporation common stock and all of the Series B preferred stock
outstanding immediately after the merger. In addition, XIS will hold a warrant
to purchase approximately 1,836,000 shares of Surviving Corporation common stock
(representing any shares forfeited by ScanSoft optionholders). This will
represent approximately 53.8% of the total equity capital of the Surviving
Corporation on a fully diluted basis immediately after the merger, subject to
the book value adjustment. Immediately following consummation of the merger, XIS
will be the largest stockholder of the Surviving Corporation and will likely
have a strong influence over the business and affairs of the Surviving
Corporation.
For as long as XIS continues to be a significant stockholder of the
Surviving Corporation, XIS will be able, among other things, to strongly
influence the outcome of any corporate action requiring approval of holders of a
majority of the common stock, including the election of the Board of Directors
of the Surviving Corporation. In addition, through its representation on the
Board of Directors and ownership of common stock, XIS will be able to strongly
influence certain decisions, including decisions with respect to the Surviving
Corporation's dividend policy, the Surviving Corporation's access to capital
(including borrowing from third party lenders and the issuance of additional
equity securities), merger or other business combinations involving the
Surviving Corporation, the acquisition or disposition of assets by the Surviving
Corporation and any change in control of the Surviving Corporation.
XIS has advised the Surviving Corporation that its current intent is to
hold all of its shares of common stock to be acquired in the merger. However,
there can be no assurance concerning the periods of time during which time XIS
will maintain its ownership of common stock.
The Surviving Corporation's relationship with XIS will also be governed by
the voting agreement and a registration rights agreement, each of which were
described previously, and a license agreement, the material terms of which are
summarized below. The descriptions of agreements set forth below are intended to
be summaries and, while material terms of the agreements are set forth herein,
the descriptions are qualified by reference to the relevant agreements filed as
exhibits to the Registration Statement of which this proxy statement/prospectus
forms a part.
LICENSE AGREEMENT
In connection with the merger agreement, Xerox and ScanSoft entered into a
License Agreement dated December 2, 1998, under which Xerox granted to ScanSoft
limited licenses to certain patents and know-how for use in the client or
client-server digital imaging software products that provide at least two of the
following: capture, editing, optical character recognition, communication or
management of digital images. In addition, Xerox assigned certain patents and
trademarks to ScanSoft, subject to a broad license granted back to Xerox. Xerox
also agreed to enter into negotiations with ScanSoft with respect to future
technology for use in the licensed field. Further, ScanSoft agreed to negotiate
an agreement with Xerox, at Xerox's request, providing Xerox with most favored
customer terms and conditions for the purchase or other acquisition of ScanSoft
products. The parties also agreed to enter into a trademark license under which
Xerox would license ScanSoft certain trademarks. The license agreement is
effective for the life of the licensed patents, unless terminated earlier by
Xerox for ScanSoft's breach, bankruptcy event or cessation of an active
business. The license agreement terminates immediately upon the termination of
the merger agreement.
OTHER TRANSACTIONS WITH XEROX
ScanSoft currently subleases facilities from Xerox in Palo Alto,
California. In fiscal 1998, ScanSoft made lease payments of approximately
$61,000 to Xerox for the facilities.
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REGULATORY APPROVALS
The merger is subject to the expiration or termination of the applicable
waiting period under the HSR Act. Certain aspects of the merger will require
notification to, and filings with, certain securities and other authorities in
certain states, including jurisdictions where Visioneer currently operates.
ANTITRUST
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission, the merger may not be consummated until notifications have been
given and certain information has been furnished to the FTC and the Antitrust
Division and the applicable waiting period has expired or been terminated. At
any time before or after consummation of the merger, the Antitrust Division or
the FTC could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the consummation
of the merger or seeking divestiture of substantial assets of Visioneer. At any
time before or after the effective time, any state could take such action under
the antitrust laws as it deems necessary or desirable in the public interest.
Such action could include seeking to enjoin the consummation of the merger or
seeking divestiture of substantial assets of Visioneer. Private parties may also
seek to take legal action under the antitrust laws under certain circumstances.
Based on information available to them, Visioneer and ScanSoft believe that
the merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
merger on antitrust grounds will not be made or that, if such a challenge were
made, Visioneer and ScanSoft would prevail or would not be required to accept
certain adverse conditions in order to consummate the merger.
OTHER
The obligations of Visioneer and ScanSoft under the merger agreement are
also subject to the filing of all notices, reports and other requisite filings
and the receipt of all consents, registrations, approvals, permits and
authorizations required to be obtained prior to the effective time by Visioneer
or ScanSoft, or any of their respective subsidiaries, from any governmental
entity in connection with the execution and delivery of the merger agreement and
the consummation of the merger and the other transactions contemplated thereby
upon terms and conditions that are not reasonably likely to have a material
adverse effect on Visioneer or ScanSoft.
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STOCKHOLDERS' APPRAISAL RIGHTS
HOLDERS OF SHARES OF COMMON STOCK WHO DO NOT VOTE IN FAVOR OF OR CONSENT TO
THE MERGER AND WHO HAVE PROPERLY COMPLIED WITH THE REQUIREMENTS OF SECTION 262
OF THE DELAWARE GENERAL CORPORATION LAW WILL BE ENTITLED TO APPRAISAL RIGHTS
UNDER SECTION 262. SECTION 262 IS REPRINTED IN ITS ENTIRETY AS ANNEX D TO THIS
PROXY STATEMENT/PROSPECTUS. THE FOLLOWING DISCUSSION IS A SUMMARY OF THE LAW
RELATING TO APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
ANNEX D. THIS DISCUSSION AND ANNEX D SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER
WHO WISHES TO EXERCISE STATUTORY APPRAISAL RIGHTS, IF AVAILABLE, OR WHO WISHES
TO PRESERVE THE RIGHT TO DO SO, AS FAILURE TO COMPLY WITH THE PROCEDURES SET
FORTH HEREIN OR THEREIN WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS, IF
AVAILABLE.
A stockholder of Visioneer who makes the demand described below with
respect to its shares, who continuously is the record holder of such shares
through the effective time, who otherwise complies with the statutory
requirements of section 262 and who neither votes in favor of the merger
agreement nor consents thereto in writing may be entitled to an appraisal by the
Delaware Court of Chancery (the "Delaware Court") of the fair value of its
shares of common stock, exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
Except as set forth herein, stockholders of Visioneer will not be entitled to
appraisal rights in connection with the merger.
Under section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the special meeting, not less than 20 days prior
to the meeting, each constituent corporation must notify each of the holders of
its stock for which appraisal rights are available that such appraisal rights
are available and include in each such notice a copy of section 262. This proxy
statement/prospectus will constitute such notice to the stockholders of
Visioneer.
STOCKHOLDERS OF VISIONEER WHO DESIRE TO EXERCISE THEIR APPRAISAL RIGHTS
MUST NOT VOTE IN FAVOR OF THE MERGER AGREEMENT OR THE MERGER AND MUST DELIVER A
SEPARATE WRITTEN DEMAND FOR APPRAISAL TO VISIONEER PRIOR TO THE VOTE BY THE
STOCKHOLDERS OF VISIONEER ON THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE MERGER. A stockholder of Visioneer who signs
and returns a proxy without expressly directing by checking the applicable boxes
on the reverse side of the proxy enclosed herewith that its shares of common
stock be voted against the proposal or that an abstention be registered with
respect to its shares of common stock in connection with the proposal will
effectively have thereby waived its appraisal rights as to those shares of
common stock because, in the absence of express contrary instructions, such
shares of common stock will be voted in favor of the proposal. See "Special
Meeting -- Voting and Revocation of Proxies." Accordingly, a stockholder of
Visioneer who desires to perfect appraisal rights with respect to any of its
shares of common stock must, as one of the procedural steps involved in such
perfection, either (i) refrain from executing and returning the enclosed proxy
and from voting in person in favor of the proposal to approve the merger
agreement, or (ii) check either the "Against" or the "Abstain" box next to the
proposal on such card or affirmatively vote in person against the proposal or
register in person an abstention with respect thereto. A demand for appraisal
must be executed by or on behalf of the stockholder of Visioneer of record and
must reasonably inform Visioneer of the identity of the stockholder of Visioneer
of record and that such record stockholder of Visioneer intends thereby to
demand appraisal of the common stock. A person having a beneficial interest in
shares of common stock that are held of record in the name of another person,
such as a broker, fiduciary or other nominee, must act promptly to cause the
record holder to follow the steps summarized herein properly and in a timely
manner to perfect whatever appraisal rights are available. If the shares of
common stock are owned of record by a person other than the beneficial owner,
including a broker, fiduciary (such as a trustee, guardian or custodian) or
other nominee, such demand must be executed by or for the record owner. If the
shares of common stock are owned of record by more than one person, as in a
joint tenancy or tenancy in common, such demand must be executed by or for all
joint owners. An authorized agent, including an agent for two or more joint
owners, may execute the demand for appraisal for a stockholder of record;
however, the agent must identify the record owner and expressly disclose the
fact that, in exercising the demand, such person is acting as agent for the
record owner. If a stockholder holds shares through a broker who in turn holds
the shares through a central securities depository nominee such as Cede & Co., a
demand
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for appraisal of such shares must be made by or on behalf of the depository
nominee and must identify the depository nominee as record holder.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of common stock as a nominee for others, may exercise appraisal rights
with respect to the shares held for all or less than all beneficial owners of
shares as to which such person is the record owner. In such case, the written
demand must set forth the number of shares covered by such demand. Where the
number of shares is not expressly stated, the demand will be presumed to cover
all shares of common stock outstanding in the name of such record owner.
A stockholder of Visioneer who elects to exercise appraisal rights, if
available, should mail or deliver his or her written demand to: Visioneer, Inc.,
34800 Campus Drive, Fremont, California 94555, Attention: President and Chief
Executive Officer.
The written demand for appraisal should specify the name and mailing
address of the stockholder of Visioneer, the number of shares of common stock
owned, and that the stockholder of Visioneer is thereby demanding appraisal of
its shares. A PROXY OR VOTE AGAINST THE MERGER AGREEMENT WILL NOT BY ITSELF
CONSTITUTE SUCH A DEMAND. Within ten days after the effective time, the
Surviving Corporation must provide notice of the effective time to all
stockholders of Visioneer who have complied with section 262.
Within 120 days after the effective time, either the Surviving Corporation
or any stockholder of Visioneer who has complied with the required conditions of
section 262 may file a petition in the Delaware Court, with a copy served on the
Surviving Corporation in the case of a petition filed by a stockholder of
Visioneer, demanding a determination of the fair value of the shares of all
stockholders of Visioneer entitled to appraisal rights. There is no present
intent on the part of Visioneer to file an appraisal petition and stockholders
of Visioneer seeking to exercise appraisal rights should not assume that the
Surviving Corporation will file such a petition or that the Surviving
Corporation will initiate any negotiations with respect to the fair value of
such shares. Accordingly, stockholders of Visioneer who desire to have their
shares appraised should initiate any petitions necessary for the perfection of
their appraisal rights within the time periods and in the manner prescribed in
section 262. If appraisal rights are available, within 120 days after the
effective time, any stockholder of Visioneer who has theretofore complied with
the applicable provisions of section 262 will be entitled, upon written request,
to receive from the Surviving Corporation a statement setting forth the
aggregate number of shares of common stock not voting in favor of the merger
agreement and with respect to which demands for appraisal were received by
Visioneer and the number of holders of such shares. Such statement must be
mailed within 10 days after the written request therefor has been received by
the Surviving Corporation.
If a petition for an appraisal is timely filed and assuming appraisal
rights are available, at the hearing on such petition, the Delaware Court will
determine which stockholders of Visioneer, if any, are entitled to appraisal
rights. The Delaware Court may require the stockholders of Visioneer who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder of Visioneer fails to comply with such direction, the Delaware Court
may dismiss the proceedings as to such stockholder of Visioneer. Where
proceedings are not dismissed, the Delaware Court will appraise the shares of
common stock owned by such stockholders of Visioneer, determining the fair value
of such shares exclusive of any element of value arising from the accomplishment
or expectation of the merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining fair
value, the Delaware Court is to take into account all relevant factors. In
Weinberger v. UOP Inc., the Delaware Supreme Court discussed the factors that
could be considered in determining fair value in an appraisal proceeding,
stating that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered, and that "fair price obviously requires
consideration of all relevant factors involving the value of a company." The
Delaware Supreme Court stated that in making this determination of fair value
the court must consider market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts which could be
ascertained as of the date of the merger which throw light on future prospects
of the merged
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corporation. In Weinberger, the Delaware Supreme Court stated that "elements of
future value, including the nature of the enterprise, which are known or
susceptible of proof as of the date of the merger and not the product of
speculation, may be considered." Section 262, however, provides that fair value
is to be "exclusive of any element of value arising from the accomplishment or
expectation of the merger."
Stockholders of Visioneer considering seeking appraisal should recognize
that the fair value of their shares determined under section 262 could be more
than, the same as or less than the consideration they are entitled to receive
pursuant to the merger agreement if they do not seek appraisal of their shares.
The cost of the appraisal proceeding may be determined by the Delaware Court and
taxed against the parties as the Delaware Court deems equitable in the
circumstances. Upon application of a stockholder of Visioneer entitled to
appraisal rights, the Delaware Court may order that all or a portion of the
expenses incurred by any stockholder of Visioneer entitled to appraisal rights
in connection with the appraisal proceeding, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts, be charged pro
rata against the value of all shares of common stock entitled to appraisal.
Any stockholder of Visioneer who has duly demanded appraisal in compliance
with section 262 will not, after the effective time, be entitled to vote for any
purpose any shares subject to such demand or to receive payment of dividends or
other distributions on such shares, except for dividends or distributions
payable to stockholders of Visioneer of record at a date prior to the effective
time.
At any time within 60 days after the effective time, any stockholder of
Visioneer will have the right to withdraw such demand for appraisal and to
accept the terms offered in the merger; after this period, the stockholder of
Visioneer may withdraw such demand for appraisal only with the consent of the
Surviving Corporation. If no petition for appraisal is filed with the Delaware
Court within 120 days after the effective time, stockholders' rights to
appraisal will cease, and stockholders of Visioneer will be entitled to receive
the merger consideration. Inasmuch as the Surviving Corporation has no
obligation to file such a petition, and Visioneer has no present intention to do
so, any stockholder of Visioneer who desires such a petition to be filed is
advised to file it on a timely basis. Any stockholder of Visioneer may withdraw
such demand for appraisal by delivering to the Surviving Corporation a written
withdrawal of its demand for appraisal and acceptance of the merger
consideration, except that any such attempt to withdraw made more than 60 days
after the effective time will require written approval of the Surviving
Corporation and that no appraisal proceeding in the Delaware Court will be
dismissed as to any stockholder of Visioneer without the approval of the
Delaware Court, and such approval may be conditioned upon such terms as the
Delaware Court deems just. Any stockholder of Visioneer who withdraws such
demand for appraisal or who fails to perfect such demand after the effective
time will be entitled to the merger consideration in accordance with the merger
agreement for each share of common stock owned by such stockholder.
LEGAL MATTERS
The validity of the Visioneer common stock issuable pursuant to the merger
and certain other legal matters relating thereto will be passed upon for
Visioneer by Venture Law Group, A Professional Corporation, Menlo Park,
California. Pillsbury Madison & Sutro LLP, Palo Alto, California, is acting as
counsel for Xerox and ScanSoft in connection with certain legal matters relating
to the merger and the transactions contemplated thereby. As of the date of this
proxy statement/prospectus, certain attorneys of Venture Law Group and
affiliated partnerships beneficially own an aggregate of 15,968 shares of
Visioneer common stock.
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EXPERTS
The financial statements of Visioneer incorporated in this Prospectus by
reference to the Annual Report on Form 10-K for the year ended December 31, 1997
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of ScanSoft, Inc. and subsidiaries as
of December 31, 1997, and September 30, 1998 and for each of the years in the
two-year period ended December 31, 1997 and for the nine-month period ended
September 30, 1998, have been included herein and in the registration statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
As specified in Visioneer's Proxy Statement dated April 21, 1998 for its
1998 Annual Meeting of Stockholders, proposals of stockholders intended to be
included in the proxy statement for Visioneer's 1999 Annual Meeting of
Stockholders must be received by Visioneer no later than March 31, 1999.
Proposals of stockholders or a nomination for a director made by a stockholder
that are not intended to be included in Visioneer's proxy statement for the 1999
Annual Meeting must be submitted by not less than twenty (20) days nor more than
sixty (60) days prior to the date of the 1999 Annual Meeting.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Visioneer's Annual Report on Form 10-K for the year ended December 28, 1997
(File No. 0-27038), and its Quarterly Report on Form 10-Q for the quarter ended
September 28, 1998 (File No. 0-27038) are incorporated by reference herein.
Certain information about the business of Visioneer, certain financial
information, and management's discussion of this financial information, are
incorporated by reference from this Form 10-K and Form 10-Q. The Form 10-K and
the Form 10-Q are being mailed to stockholders concurrently with this proxy
statement.
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INDEX TO SCANSOFT, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and
September 30, 1998........................................ F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and the nine months ended
September 30, 1998........................................ F-4
Consolidated Statements of Changes in Stockholder's Equity
for the years ended December 31, 1996, 1997 and the nine
months ended September 30, 1998........................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and the nine months ended
September 30, 1998........................................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 104
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ScanSoft, Inc. and Subsidiaries (a Wholly Owned Subsidiary of Xerox
Corporation):
We have audited the accompanying consolidated balance sheets of ScanSoft,
Inc. and subsidiaries (a wholly owned subsidiary of Xerox Corporation) as of
December 31, 1997 and September 30, 1998, and the related consolidated
statements of operations, changes in stockholder's equity and cash flows for
each of the years in the two-year period ended December 31, 1997 and for the
nine months ended September 30, 1998. These consolidated financial statements
are the responsibility of ScanSoft's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ScanSoft,
Inc. and subsidiaries (a wholly owned subsidiary of Xerox Corporation) as of
December 31, 1997 and September 30, 1998, and the results of their operations
and their cash flows for each of the years in the two-year period ended December
31, 1997 and for the nine months ended September 30, 1998, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
November 30, 1998, except for
note 11, which is as of
December 2, 1998
F-2
<PAGE> 105
SCANSOFT, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF XEROX CORPORATION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PAR VALUE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 461 $ 986
Accounts receivable, less allowance for doubtful accounts
and returns of $772 at December 31, 1997 and $1,336 at
September 30, 1998..................................... 5,125 2,797
Inventories............................................... 429 592
Prepaid expenses and other current assets................. 258 569
------ ------
Total current assets.............................. 6,273 4,944
Property and equipment, net................................. 1,286 1,078
Capitalized software costs, net............................. 463 405
Other assets................................................ 30 30
------ ------
$8,052 $6,457
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... 137 399
Accrued compensation and benefits......................... 765 583
Accrued expenses.......................................... 1,462 1,272
Deferred revenue.......................................... 1,316 915
------ ------
Total current liabilities......................... 3,680 3,169
------ ------
Stockholder's equity:
Series A Convertible Preferred Stock, $.001 par value; 0
and 23,000,000 authorized at December 31, 1997 and
September 30, 1998, respectively; 0 and 16,000,000
shares issued and outstanding at December 31, 1997 and
September 30, 1998 (liquidation preference of
$24,000)............................................... -- 16
Common stock, $.001 par value; 27,000,000 shares
authorized at December 31, 1997 and September 30, 1998;
1,000 shares issued and outstanding at December 31,
1997 and September 30, 1998............................ -- --
Net parent equity......................................... 4,445 3,233
Cumulative translation adjustment......................... (73) 39
------ ------
Total stockholder's equity........................ 4,372 3,288
------ ------
$8,052 $6,457
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 106
SCANSOFT, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF XEROX CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------ SEPTEMBER 30,
1996 1997 1998
------- ------- -------------
<S> <C> <C> <C>
Net revenues:
Third-party.............................................. $12,041 $16,290 $15,168
Xerox.................................................... -- 1,500 280
------- ------- -------
12,041 17,790 15,448
Cost of revenues........................................... 3,466 4,430 4,466
------- ------- -------
Gross profit............................................. 8,575 13,360 10,982
Operating expenses:
Sales and marketing...................................... 6,843 8,766 6,383
Research and development................................. 4,028 5,129 4,499
General and administrative............................... 1,488 1,342 1,919
------- ------- -------
Total operating expenses......................... 12,359 15,237 12,801
------- ------- -------
Loss from operations............................. (3,784) (1,877) (1,819)
Other income (expense), net................................ 50 48 (3)
------- ------- -------
Net loss......................................... $(3,734) $(1,829) $(1,822)
======= ======= =======
Basic and diluted loss per share........................... $(3,734) $(1,829) $(1,822)
======= ======= =======
Weighted-average number of shares used in per-share
computations -- basic and diluted........................ 1,000 1,000 1,000
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 107
SCANSOFT, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF XEROX CORPORATION)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
SERIES A NET COMPREHENSIVE OTHER
PREFERRED COMMON PARENT INCOME COMPREHENSIVE
STOCK STOCK EQUITY (LOSS) INCOME TOTAL
--------- ------ ------ ------------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995................ $-- $-- $ 363 $ -- $ -- $ 363
Net transactions with parent.............. -- -- 5,266 -- -- 5,266
Comprehensive income (loss):
Net loss................................ -- -- (3,734) (3,734) -- (3,734)
Other comprehensive income -- cumulative
translation adjustment................ -- -- -- 133 133 133
-------
Comprehensive loss...................... -- -- -- (3,601) --
--- --- ------ ======= ---- ------
Balance, December 31, 1996................ -- -- 1,895 133 2,028
Net transactions with parent............ -- -- 4,379 -- -- 4,379
Comprehensive income:
Net loss.............................. -- -- (1,829) (1,829) -- (1,829)
Other comprehensive income -- cumulative
translation adjustment................ -- -- -- (206) (206) (206)
-------
Comprehensive loss...................... -- -- -- (2,035) -- --
--- --- ------ ======= ---- ------
Balance, December 31, 1997................ -- -- 4,445 (73) 4,372
Net transactions with parent............ -- -- 610 -- -- 610
Issuance of preferred stock............. 16 -- -- -- -- 16
Comprehensive income (loss):
Net loss.............................. -- -- (1,822) (1,822) -- 1,822
Other comprehensive income -- cumulative
translation adjustment................ -- -- -- 112 112 112
-------
Comprehensive loss.................... -- -- -- (1,710) -- --
--- --- ------ ======= ---- ------
Balance, September 30, 1998............... $16 $-- $3,233 $ 39 $3,288
=== === ====== ==== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 108
SCANSOFT, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF XEROX CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------ SEPTEMBER 30,
1996 1997 1998
------- ------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................. $(3,734) $(1,829) $(1,822)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization....................... 857 886 967
Changes in operating assets and liabilities:
Accounts receivable................................. (1,183) (2,568) 2,328
Inventories......................................... (147) (57) (163)
Prepaid expenses and other assets................... (266) 73 (311)
Accounts payable and accrued expenses............... 379 392 72
Accrued compensation and benefits................... 466 10 (182)
Deferred revenue.................................... 865 (483) (402)
------- ------- -------
Net cash (used in) provided by operating
activities..................................... (2,763) (3,576) 487
------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment....................... (598) (1,002) (279)
Capitalized software development costs................... (512) (424) (422)
------- ------- -------
Net cash used in investing activities................. (1,110) (1,426) (701)
------- ------- -------
Cash flows from financing activities:
Net transactions with parent company..................... 5,196 4,067 851
------- ------- -------
Net cash provided by financing activities............. 5,196 4,067 851
------- ------- -------
Effect of exchange rates on cash and cash equivalents...... (133) 206 (112)
Net increase (decrease) in cash and cash equivalents....... 1,190 (729) 525
Cash and cash equivalents, beginning of period............. -- 1,190 461
------- ------- -------
Cash and cash equivalents, end of period................... $ 1,190 $ 461 $ 986
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 109
SCANSOFT, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF XEROX CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) THE COMPANY
ScanSoft, Inc. and subsidiaries (the "Company") develops, markets,
distributes and supports systems and software that capture, communicate and
print documents at the desktop. These systems and software products incorporate
advanced technologies to improve document quality and communication, and are
marketed through retail channels, direct channels and strategic original
equipment manufacturer ("OEM") partnerships.
The Company was originally part of the Imaging Systems division of the
Xerox Corporation ("Xerox" or "Parent"), and remains a wholly owned subsidiary
of Xerox.
On September 16, 1996, ScanSoft was incorporated in the State of Delaware,
and all amounts due to Xerox were forgiven and recorded as net parent equity.
On July 1, 1998, ScanSoft formed a wholly owned subsidiary for the purpose
of acquiring XIS UK Limited, a wholly owned sales subsidiary of Xerox
Corporation. Consideration paid on this date in excess of the historical
carrying value of the net assets of XIS UK Limited of approximately $750 has
been recorded as a reduction of equity in net transactions with parent as the
transaction occurred between companies under common control. The consolidated
financial statements include the operations of XIS UK Limited for all periods
presented.
(b) BASIS OF PRESENTATION AND RELATIONSHIP WITH XEROX CORPORATION
The Company is a wholly owned subsidiary of Xerox. The accompanying
consolidated financial statements, which have been prepared as if ScanSoft had
operated as a separate stand-alone entity for all periods presented, include
only revenue and expenses attributable to ScanSoft's operations.
Cash and cash equivalents in the accompanying December 31, 1997 and
September 30, 1998 consolidated balance sheets represent balances of ScanSoft's
foreign entities. All domestic cash receipts and disbursements and worldwide
intercompany charges related to ScanSoft's operations are charged or credited to
the Net Parent Equity account.
The consolidated financial statements include certain allocations from
Xerox for certain research and development costs and general and administrative
expenses such as legal services. Management believes that the allocation method
used to allocate the costs and expenses is reasonable; however, such allocated
amounts may or may not necessarily be indicative of what actual expenses would
have been had ScanSoft operated independently of Xerox.
(c) USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
F-7
<PAGE> 110
SCANSOFT, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF XEROX CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(d) PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of ScanSoft and
its wholly owned subsidiaries after elimination of significant intercompany
balances and transactions.
(e) FOREIGN CURRENCY TRANSLATION
The financial statements of ScanSoft's foreign subsidiaries, where the
local currency is the functional currency, are translated using the exchange
rate in effect at the end of the period for assets and liabilities and average
exchange rates during the year for assets and liabilities, and average exchange
rates during the period for results of operations. The resulting currency
translation adjustments are recorded as adjustments of stockholder's equity.
(f) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on deposit with banks and other
instruments with original maturities of 90 days or less.
(g) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of ScanSoft's cash and cash equivalents, accounts
receivable, and accounts payable approximates their respective carrying amounts,
due to their short-term nature.
(h) CONCENTRATION OF CREDIT RISK
Financial assets that potentially subject ScanSoft to significant
concentrations of credit risk consist principally of cash, cash equivalents, and
trade accounts receivable. The Company's cash and cash equivalents are held with
a commercial bank. The Company markets and sells its product throughout the
world and performs ongoing credit evaluations of its customers. The Company
generally does not require collateral on accounts receivable, as many of its
customers are large, well-established companies. The Company maintains reserves
for potential credit losses but historically has not experienced any significant
losses related to individual customers or groups of customers in any particular
industry or geographic area.
(i) INVENTORIES
Inventories, which consist principally of costs of product disks and
packaging, are stated at the lower of first-in, first-out cost or market.
(j) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided over the estimated useful lives of the
respective assets, generally three to ten years, on a straight-line basis.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the lease terms or the useful lives of the respective assets.
In accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed of, ScanSoft evaluates long-lived
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Under SFAS No. 121, an impairment
loss would be recognized when
F-8
<PAGE> 111
SCANSOFT, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF XEROX CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
estimated future cash flows expected to result from the use of the asset and its
eventual disposition are less than the carrying amount.
(k) SOFTWARE DEVELOPMENT COSTS
In accordance with SFAS No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased or Otherwise Marketed, ScanSoft capitalizes software
development costs incurred subsequent to determining a product's technological
feasibility. Such costs are amortized on a straight-line basis over the
estimated useful life of the product, generally one to two years. Accumulated
amortization of capitalized software costs was $1,078 and $1,558 at December 31,
1997 and September 30, 1998, respectively. Amortization of capitalized software
development costs is included in cost of revenues and amounted to $317, $311,
and $480 for the year ended December 31, 1996 and 1997 and the nine months ended
September 30, 1998, respectively.
(l) REVENUE RECOGNITION
Prior to January 1, 1998, revenue from product sales to customers was
generally recognized when the product was shipped, provided that no significant
obligations remained and collectibility was considered probable, in accordance
with SOP 91-1, Software Revenue Recognition. Effective January 1, 1998, ScanSoft
adopted the provisions of SOP 97-2, Software Revenue Recognition. For
transactions subsequent to January 1, 1998, revenue from product sales to
customers is generally recognized when (i) persuasive evidence of an arrangement
exists, (ii) delivery has occurred, (iii) ScanSoft's fee is fixed or
determinable, and (iv) collectibility is probable. There was no material change
to ScanSoft's accounting for revenue as a result of the adoption of SOP 97-2.
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
protections 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 ScanSoft's sales may from
time to time result in increased inventory at its distributors and resellers,
which may result in returns or price protection allowances. The Company provides
related reserves which are based on ScanSoft'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.
Certain prepaid product license fees paid by OEMs are deferred and
recognized ratably over the license and maintenance period, typically twelve
months.
(m) STOCK-BASED COMPENSATION
The Company applies SFAS No. 123, Accounting for Stock-Based Compensation,
which gives companies the option to adopt the fair value method for expense
recognition of employee stock options and other stock-based awards or to
continue to account for such items using the intrinsic value method as outlined
under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25") with pro forma disclosures of net income or loss as if the
fair value method had been applied. The Company has elected to continue to apply
APB 25 and related interpretations for stock options and other stock-based
awards and has disclosed pro forma net loss and net loss per share as if the
fair value method had been applied.
F-9
<PAGE> 112
SCANSOFT, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF XEROX CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(n) INCOME TAXES
As a wholly owned subsidiary of Xerox, ScanSoft's operations are included
in the U.S. federal consolidated tax return of Xerox. The provision for income
taxes includes ScanSoft's allocated share of Xerox's consolidated income tax
provision and is calculated on a separate company basis pursuant to the
requirements of SFAS No. 109, Accounting for Income Taxes. The terms of the cost
sharing agreement with Xerox require ScanSoft to pay for any liability that it
might have incurred on a separate basis. However, ScanSoft will not be
reimbursed for any losses which reduce the consolidated tax liability.
(o) EARNINGS PER SHARE
The Company applies the provisions of SFAS No. 128, Earnings Per Share.
Basic EPS excludes dilution and is computed by dividing net loss available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS is computed similarly to fully diluted EPS pursuant
to Accounting Principles Board Opinion ("APB") No. 15.
Diluted loss per share has not been presented separately as the outstanding
stock options are anti-dilutive for each of the periods presented.
(p) RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information,
effective for ScanSoft as of January 1, 1998. SFAS No. 131 establishes annual
and interim reporting standards relating to the disclosure of an enterprise's
business segments, products, services, geographic areas, and major customers.
The Company operates in one segment.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which will be effective for ScanSoft
beginning with its year ending December 31, 2000. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments embedded in other
contracts and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company does not
expect this statement to have a material impact on its consolidated financial
position or results from operations.
In March 1998, the AICPA issued SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. This SOP applies to
software that is acquired or developed solely for an entity's internal use and
requires the capitalization of qualifying costs in software application
development activities, which include design, coding, installation hardware, and
testing. Qualifying capitalizable computer software costs includes the external
direct costs of materials and services and the payroll related costs of
employees who are directly involved with the internal project. All other costs
related to the project are expensed as incurred.
SOP 98-1 will be effective for internal use computer software costs
incurred in future years commencing with 1999. The Company does not believe that
the adoption of SOP 98-1 will have a material effect on ScanSoft's consolidated
financial position or results of operations.
(q) ADVERTISING COSTS
The Company generally expenses advertising costs as incurred, except for
certain costs associated with direct-response advertising, which are deferred
and charged to expense over periods which generally do not exceed 90 days.
Advertising expenses, including amounts reimbursed by ScanSoft for certain
advertising
F-10
<PAGE> 113
SCANSOFT, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF XEROX CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
expenses incurred by customers, totaled approximately $1,566, $1,565 and $1,934
for the year ended December 31, 1996 and 1997 and the nine months ended
September 30, 1998, respectively.
(2) PROPERTY AND EQUIPMENT
Property, plant and equipment, consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Furniture and fixtures............................. $ 518 $ 314
Computer hardware and software..................... 3,417 2,380
Leasehold improvements............................. 239 249
------- -------
4,174 2,943
Less accumulated depreciation and amortization..... (2,888) (1,865)
------- -------
$ 1,286 $ 1,078
======= =======
</TABLE>
(3) ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Sales and marketing incentives..................... $ 948 $ 515
Royalties.......................................... 172 101
Other.............................................. 342 656
------ ------
$1,462 $1,272
====== ======
</TABLE>
(4) COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and warehouse space under various
noncancelable operating leases that expire in July 2002. As of December 31,
1998, future minimum lease payments under operating leases were as follows:
<TABLE>
<S> <C>
1999................................................ $ 306
2000................................................ 302
2001................................................ 302
2002................................................ 138
------
$1,048
======
</TABLE>
Rent expense was approximately $383, $335 and $251 for the year ended
December 31, 1996 and 1997 and the nine months ended September 30, 1998,
respectively.
Certain claims arise against ScanSoft in the normal course of business. The
Company believes that the ultimate resolution of these matters will not have a
material adverse effect on its consolidated financial position or results from
operations.
F-11
<PAGE> 114
SCANSOFT, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF XEROX CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(5) STOCK COMPENSATION PLAN
Effective June 1, 1998, ScanSoft implemented an employee stock option plan
which provides for the issuance of up to 4,000,000 incentive and nonqualified
stock options. Options granted under the Plan vest annually over a four-year
period and expire not more than ten years from the date of grant. Options which
are canceled become available for future grants. At September 30, 1998,
1,558,100 of authorized but unissued common shares were reserved and available
for granting additional options. The weighted-average contractual remaining life
of stock options outstanding at September 30, 1998 is 9.7 years.
Stock Option Plan
Activity in ScanSoft's stock option plan as of September 30, 1998 is as
follows:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1997............................ -- $ --
Granted................................................... 2,630,900 0.39
Exercised................................................. --
Forfeited................................................. (189,000) 0.39
---------
Outstanding at September 30, 1998........................... 2,441,900 0.39
=========
Exercisable at September 30, 1998........................... 405,000 0.39
=========
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plan. Accordingly, no compensation costs have been recognized
for its fixed stock option plan. Had compensation cost for such plan been
determined consistent with SFAS No. 123, ScanSoft's reported net loss and loss
per share would not have differed materially from the pro forma amounts.
The weighted-average grant-date fair value of $.09 for each option is
estimated using the Black-Scholes option-pricing model, with the following
weighted-average assumptions: dividend yield of 0%; expected volatility of 0%;
risk free interest rate of 5.5% and an expected life of four years.
F-12
<PAGE> 115
SCANSOFT, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF XEROX CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(6) INCOME TAXES
At December 31, 1997 and September 30, 1998, the tax effects of temporary
differences that give rise to deferred income tax assets and liabilities are
comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Deferred tax assets:
Revenue recognized for tax and deferred for book purposes,
principally deferred revenues.......................... $ 527 $ 366
Accounts receivable, principally due to allowances for
doubtful accounts and sales returns.................... 258 446
Inventories............................................... 16 25
Compensated absences...................................... 14 57
Property and equipment, principally due to differences in
depreciation........................................... 174 182
----- -----
Total gross deferred tax assets................... 989 1,076
Less valuation allowance.................................. (804) (914)
----- -----
Net deferred tax assets........................... 185 162
Deferred tax liabilities:
Software development costs, principally due to
capitalization and amortization....................... 185 162
----- -----
Total gross deferred tax liabilities.............. 185 162
----- -----
Net deferred taxes................................ $ -- $ --
===== =====
</TABLE>
In assessing the realizability of deferred tax assets, ScanSoft considers
whether it is more likely than not that some or all of the deferred tax assets
will not be realized. The Company believes that sufficient uncertainty exists
regarding the realizability of the deferred tax assets; accordingly, valuation
allowances of $804 and $914 have been established at December 31, 1997 and
September 30, 1998, respectively.
(7) STOCKHOLDER'S EQUITY
The Company was initially incorporated with 1,000 shares of $1.00 par value
common stock on September 16, 1996. In 1998, ScanSoft's certificate of
incorporation was amended and restated to: (1) increase the number of shares
ScanSoft it is authorized to issue up to 50,000,000 shares, divided into
27,000,000 shares of common stock, par value $.001 per share, and 23,000,000
shares of Preferred Stock, par value $.001 per share; and (2) designate a new
Series A Preferred Stock.
In 1998, ScanSoft issued 16,000,000 shares of Series A Convertible
Preferred Stock ("Series A Preferred Stock"), $.001 par value. The Series A
Preferred Stock is voting. Holders of Series A Preferred Stock are entitled to
dividends, when and if declared, at the rate of $.12 per share per annum and the
dividends are noncumulative. The Series A Preferred Stock is convertible into
common stock at any time by the holder at an initial conversion rate of one to
one. The Series A Preferred Stock automatically converts to common stock upon
the occurrence of a qualifying initial public offering, as defined, or upon the
date that such conversion is approved by a majority of the shares of the Series
A Preferred Stock. The Series A Preferred Stock has a liquidation preference
equal to $1.50 per share plus all declared but unpaid dividends, and Preferred
Shareholders will participate equally in liquidation with the common
shareholders thereafter.
F-13
<PAGE> 116
SCANSOFT, INC. AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF XEROX CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(8) EMPLOYEE BENEFIT PLAN
The Company provides a 401(k) employee retirement plan under which eligible
employees may contribute up to 15% of their annual compensation, subject to
limitations. The plan requires ScanSoft to match employee contributions up to a
maximum of 4% of the employee's pretax compensation, subject to limitations.
Employees vest 100% on the first day of the fiscal quarter following their date
of hire. Employer contributions to the plan were $280, $296, and $303 for the
years ended December 31, 1996 and 1997 and the nine months ended September 30,
1998, respectively.
(9) MAJOR CUSTOMERS
Net revenues from two major customers that comprise 10% or more of total
net revenues are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, NINE MONTHS ENDED
------------ SEPTEMBER 30,
1996 1997 1998
---- ---- ------------------
<S> <C> <C> <C>
Ingram Micro................................. 31% 35% 43%
Tech Data.................................... 13% 11% 13%
</TABLE>
Accounts receivable from these customers comprising 10% or more of accounts
receivable at December 31, 1997 and September 30, 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -----------------
<S> <C> <C>
Ingram Micro.................................. 52% 40%
Tech Data..................................... 13% 15%
</TABLE>
(10) TRANSACTIONS WITH XEROX
The Company entered into a licensing agreement with Xerox under an OEM
arrangement during 1997 under which ScanSoft recognized $1,500 in revenue in
1997 and $115 in 1998. The Company believes that the terms of this agreement
were substantially the same as those extended to other third parties.
Net transactions with parent are comprised of the following for the year
ended December 31, 1996 and 1997 and the nine months ended September 30, 1998:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, NINE MONTHS ENDED
---------------- SEPTEMBER 30,
1996 1997 1998
------ ------ -----------------
<S> <C> <C> <C>
Net working capital...................... $5,266 $4,379 $1,360
Dividend to Xerox affiliates............. -- -- (750)
------ ------ ------
$5,266 $4,379 $ 610
====== ====== ======
</TABLE>
(11) SUBSEQUENT EVENT
On December 2, 1998, ScanSoft entered into an agreement to be acquired by
Visioneer, Inc. ("Visioneer"), a Fremont, California-based imaging hardware and
software products company, for approximately 6.9 million shares of common stock
and approximately 3.8 million shares of non-voting convertible preferred stock.
In addition, Visioneer will assume all outstanding options to acquire shares of
ScanSoft common stock. In addition, approximately 5.1 million Visioneer shares
will be exchanged for cash in the merger at $2.06 per share, using cash to be
provided by Xerox or an affiliate, and those shares will then be owned by Xerox
or an affiliate.
F-14
<PAGE> 117
ANNEX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
SCANSOFT, INC.
AND
VISIONEER, INC.
DATED AS OF DECEMBER 2, 1998
<PAGE> 118
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER.................................................. A-1
SECTION 1.1 The Merger.................................................. A-1
SECTION 1.2 Closing..................................................... A-1
SECTION 1.3 Effective Time.............................................. A-1
SECTION 1.4 Effects of the Merger....................................... A-1
SECTION 1.5 Certificate of Incorporation and Bylaws; Officers and
Directors................................................... A-2
SECTION 1.6 Plan of Reorganization...................................... A-2
ARTICLE II EFFECT OF THE MERGER ON THE STOCK OF THE CONSTITUENT
CORPORATIONS; SURRENDER OF CERTIFICATES..................... A-2
SECTION 2.1 Effect on Stock............................................. A-2
SECTION 2.2 Assumption of ScanSoft Options.............................. A-6
SECTION 2.3 Surrender of Certificates................................... A-7
SECTION 2.4 Adjustments to Prevent Dilution............................. A-9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... A-9
SECTION 3.1 Due Organization; Subsidiaries; Etc......................... A-9
SECTION 3.2 Certificate of Incorporation and Bylaws..................... A-10
SECTION 3.3 Capital Structure........................................... A-10
SECTION 3.4 SEC Filings; Financial Statements........................... A-10
SECTION 3.5 Absence of Changes.......................................... A-11
SECTION 3.6 Leasehold; Equipment........................................ A-13
SECTION 3.7 Title to Assets............................................. A-13
SECTION 3.8 Receivables; Significant Customers of the Business.......... A-13
SECTION 3.9 Proprietary Assets.......................................... A-13
SECTION 3.10 Contracts................................................... A-15
SECTION 3.11 Liabilities................................................. A-17
SECTION 3.12 Compliance with Legal Requirements.......................... A-17
SECTION 3.13 Certain Business Practices.................................. A-17
SECTION 3.14 Governmental Authorizations................................. A-17
SECTION 3.15 Tax Matters................................................. A-17
SECTION 3.16 Employee and Labor Matters; Benefit Plans................... A-19
SECTION 3.17 Environmental Matters....................................... A-21
SECTION 3.18 Insurance................................................... A-21
SECTION 3.19 Transactions with Affiliates................................ A-21
SECTION 3.20 Legal Proceedings; Orders................................... A-21
SECTION 3.21 Authority................................................... A-22
SECTION 3.22 Management Incentive Payments............................... A-22
SECTION 3.23 Required Vote of Stockholders............................... A-22
SECTION 3.24 Non-Contravention; Consents................................. A-22
SECTION 3.25 Sale of Hardware Business................................... A-23
SECTION 3.26 Brokers..................................................... A-23
SECTION 3.27 [Reserved].................................................. A-23
SECTION 3.28 State Takeover Statutes; Charter Provisions................. A-23
SECTION 3.29 Accuracy of Information..................................... A-23
SECTION 3.30 Proxy Statement/Registration Statement...................... A-24
SECTION 3.31 Third Party Standstill Agreements........................... A-24
SECTION 3.32 Irrevocable Proxy/Voting Agreement.......................... A-24
SECTION 3.33 Board Approval.............................................. A-24
</TABLE>
A-i
<PAGE> 119
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 3.34 Shareholder Rights Agreement................................ A-24
SECTION 3.35 Blue Sky Laws............................................... A-25
SECTION 3.36 Sufficiency of Assets....................................... A-25
SECTION 3.37 Software Inventory.......................................... A-25
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SCANSOFT, INC. ........... A-25
SECTION 4.1 Due Organization; Subsidiaries; Etc......................... A-25
SECTION 4.2 Certificate of Incorporation and Bylaws..................... A-25
SECTION 4.3 Capital Structure........................................... A-25
SECTION 4.4 Financial Statements........................................ A-26
SECTION 4.5 Absence of Changes.......................................... A-26
SECTION 4.6 Leasehold; Equipment........................................ A-27
SECTION 4.7 Title to Assets............................................. A-27
SECTION 4.8 Receivables; Significant Customers of the Business.......... A-28
SECTION 4.9 Proprietary Assets.......................................... A-28
SECTION 4.10 Contracts................................................... A-29
SECTION 4.11 Liabilities................................................. A-31
SECTION 4.12 Compliance with Legal Requirements.......................... A-31
SECTION 4.13 Certain Business Practices.................................. A-31
SECTION 4.14 Governmental Authorizations................................. A-31
SECTION 4.15 Tax Matters................................................. A-32
SECTION 4.16 Employee and Labor Matters; Benefit Plans................... A-33
SECTION 4.17 Environmental Matters....................................... A-34
SECTION 4.18 Insurance................................................... A-35
SECTION 4.19 Legal Proceedings; Orders................................... A-35
SECTION 4.20 Authority................................................... A-35
SECTION 4.21 Non-Contravention; Consents................................. A-35
SECTION 4.22 Brokers..................................................... A-36
SECTION 4.23 Accuracy of Information..................................... A-36
SECTION 4.24 Proxy Statement/Registration Statement...................... A-37
SECTION 4.25 Third Party Standstill Agreements........................... A-37
SECTION 4.26 Sufficiency of Assets....................................... A-37
SECTION 4.27 Board Approval.............................................. A-37
ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME......................... A-37
SECTION 5.1 Conduct of Business of ScanSoft and the Company............. A-37
SECTION 5.2 Conduct of Business of the Company.......................... A-38
SECTION 5.3 Conduct of Business of ScanSoft............................. A-39
SECTION 5.4 No Solicitation............................................. A-40
SECTION 5.5 Third Party Standstill Agreements and Rights Agreement...... A-41
ARTICLE VI ADDITIONAL AGREEMENTS....................................... A-41
SECTION 6.1 Reasonable Efforts and Further Assurances................... A-41
SECTION 6.2 Consents; Cooperation....................................... A-41
SECTION 6.3 Taxes....................................................... A-42
SECTION 6.4 Access to Information....................................... A-43
SECTION 6.5 Confidentiality............................................. A-43
SECTION 6.6 Public Disclosure........................................... A-43
SECTION 6.7 FIRPTA...................................................... A-43
SECTION 6.8 Blue Sky Laws............................................... A-44
SECTION 6.9 Stockholder Approval........................................ A-44
</TABLE>
A-ii
<PAGE> 120
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 6.10 Maintenance of Indemnification Obligations.................. A-44
SECTION 6.11 Listing of Additional Shares................................ A-45
SECTION 6.12 Voting Agreement............................................ A-45
SECTION 6.13 [Reserved].................................................. A-45
SECTION 6.14 Fees and Expenses........................................... A-45
SECTION 6.15 State Takeover Laws......................................... A-45
SECTION 6.16 Notification of Certain Matters............................. A-46
SECTION 6.17 Cash Merger Consideration................................... A-46
SECTION 6.18 Tax Agreement............................................... A-46
ARTICLE VII CONDITIONS PRECEDENT........................................ A-46
SECTION 7.1 Conditions to Obligations of Each Party to Effect the
Merger...................................................... A-46
SECTION 7.2 Additional Conditions to Obligations of ScanSoft............ A-46
SECTION 7.3 Additional Conditions to the Obligations of the Company..... A-48
ARTICLE VIII TERMINATION AND AMENDMENT................................... A-49
SECTION 8.1 Termination................................................. A-49
SECTION 8.2 Effect of Termination....................................... A-50
SECTION 8.3 Amendment................................................... A-50
SECTION 8.4 Extension; Waiver........................................... A-50
ARTICLE IX GENERAL PROVISIONS.......................................... A-50
SECTION 9.1 Non-Survival of Representations and Warranties and
Agreements.................................................. A-50
SECTION 9.2 Notices..................................................... A-51
SECTION 9.3 Interpretation.............................................. A-51
SECTION 9.4 Counterparts................................................ A-51
SECTION 9.5 Entire Agreement; No Third-Party Beneficiaries.............. A-51
SECTION 9.6 Governing Law............................................... A-52
SECTION 9.7 Assignment.................................................. A-52
SECTION 9.8 Severability................................................ A-52
SECTION 9.9 Enforcement of This Agreement............................... A-52
ANNEX A Glossary of Defined Terms................................... A-53
ANNEX B Protective Provisions....................................... A-57
</TABLE>
EXHIBIT A -- Irrevocable Proxy/Voting Agreement.............................AA-1
EXHIBIT B -- Preferred Stock Rights, Preferences and Privileges.............AB-1
EXHIBIT C -- Warrant........................................................AC-1
EXHIBIT D -- Affiliates.....................................................AD-1
EXHIBIT E -- Voting Agreement...............................................AE-1
EXHIBIT F -- Registration Rights Agreement..................................AF-1
A-iii
<PAGE> 121
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of December 2, 1998 (this
"Agreement"), entered into between ScanSoft, Inc., a Delaware corporation
("ScanSoft"), and Visioneer, Inc., a Delaware corporation (the "Company").
Capitalized terms not defined in this Agreement shall have the meanings ascribed
to them in Annex A hereto.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company has determined that the
merger of ScanSoft with and into the Company, upon the terms and subject to the
conditions set forth in this Agreement, would be fair to and in the best
interests of the stockholders of the Company, and such Board of Directors and
the Board of Directors of ScanSoft have approved such merger (the "Merger"); and
WHEREAS, the Merger and this Agreement require the affirmative vote of the
holders of a majority of the shares of Common Stock, par value $.001 per share,
of the Company (individually a "Share" and collectively the "Shares"), issued
and outstanding immediately prior to the Effective Time (as defined in Section
1.3) for the approval thereof (the "Company Stockholder Approval"); and
WHEREAS, it is intended that the Merger be treated as a tax-free
reorganization pursuant to the provisions of section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code"):
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, the parties hereto hereby
agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the General Corporation Law of the State of
Delaware (the "DGCL"), ScanSoft shall be merged with and into the Company at the
Effective Time (as defined in Section 1.3). Following the Merger, the separate
corporate existence of ScanSoft shall cease and the Company shall continue as
the surviving corporation (the "Surviving Corporation") and shall succeed to and
assume all the rights and obligations of ScanSoft and the Company in accordance
with the DGCL.
SECTION 1.2 Closing. Upon the terms and subject to the conditions of this
Agreement, the closing (the "Closing") of the Merger will take place at 10:00
a.m. on a date to be specified by ScanSoft, which shall be no later than the
sixth business day after satisfaction or waiver of the conditions set forth in
Article VII (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the fulfillment or waiver of those
conditions at Closing), at the offices of Pillsbury Madison & Sutro LLP, 2550
Hanover Street, Palo Alto, California, unless another date, time or place is
agreed to in writing by the parties hereto (the "Closing Date").
SECTION 1.3 Effective Time. The Merger shall become effective when a
Certificate of Merger (the "Certificate of Merger"), executed in accordance with
the relevant provisions of the DGCL, is duly filed with the Secretary of State
of the State of Delaware, or at such other time as ScanSoft and the Company
shall have agreed upon and specified in the Certificate of Merger. When used in
this Agreement, the term "Effective Time" shall mean the later of the date and
time at which the Certificate of Merger is duly filed with the Secretary of
State of the State of Delaware or such time established by the Certificate of
Merger. The filing of the Certificate of Merger shall be made as soon as
practicable on or after the Closing, provided that this Agreement shall not have
been terminated as provided in Section 8.1.
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL.
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<PAGE> 122
SECTION 1.5 Certificate of Incorporation and Bylaws; Officers and
Directors.
(a) The Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be amended at the Effective Time
so that Article I of such Certificate of Incorporation is amended to read in its
entirety as follows:
"ARTICLE I
The name of this corporation is ScanSoft, Inc."
and to provide for the provisions set forth in Annex B hereto.
As so amended, such Certificate of Incorporation shall be the Certificate
of Incorporation of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
(b) The Bylaws of the Company, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein, by the Certificate of
Incorporation of the Surviving Corporation or by applicable law.
(c) The directors of the Surviving Corporation shall be determined in
accordance with the provisions of Section 6.12, until the next annual meeting of
stockholders (or the earlier of their resignation or removal) and until their
respective successors are duly elected and qualified, as the case may be.
(d) The officers of ScanSoft immediately prior to the Effective Time shall
be the officers of the Surviving Corporation until the earlier of their
resignation or removal and until their respective successors are duly elected
and qualified, as the case may be.
SECTION 1.6 Plan of Reorganization. The parties hereto hereby adopt this
Agreement as a "plan of reorganization" within the meaning of sections
1.368-2(g) and 1.368-3(a) of the Income Tax Regulations promulgated under the
Code.
ARTICLE II
EFFECT OF THE MERGER ON THE STOCK OF THE
CONSTITUENT CORPORATIONS; SURRENDER OF CERTIFICATES
SECTION 2.1 Effect on Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the holders of any securities of
ScanSoft or the Company:
(a) Conversion of Shares. Except as otherwise provided herein and subject
to Section 2.1(d), each Share issued and outstanding immediately prior to the
Effective Time, other than Shares to be retired pursuant to Section 2.1(b)
("Excluded Shares") and any Dissenting Shares (as defined in Section 2.1(i)),
shall be converted into the following (the "Merger Consideration"):
(i) for each Share with respect to which an election to receive cash
pursuant to Section 2.1(c) has been effectively made, and not revoked or
lost (collectively, the "Electing Shares"), subject to Section 2.1(d)(ii),
the right to receive in cash following the Merger an amount equal to $2.06
(the "Cash Merger Consideration"); and
(ii) for each Share (other than Electing Shares), the right to receive
one fully paid and non-assessable share of Surviving Corporation Common
Stock (a "Non-Cash Election Share" and, together with the Cash Merger
Consideration, the "Merger Consideration"), subject to Section 2.1(d)(iii).
(b) Treasury Stock. Each Share issued and held in the Company's treasury
or owned by the Company shall be retired and no consideration shall be delivered
in exchange therefor.
(c) Cash Elections. Each person who, on or prior to the Election Date
referred to herein, is a record holder of Shares will be entitled, with respect
to all or any portion of such holder's Shares, subject to Section 2.1(d), to
make an unconditional election (a "Cash Election") on or prior to such Election
Date to receive the Cash Merger Consideration on the basis hereinafter set
forth.
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<PAGE> 123
(d) Proration.
(i) Notwithstanding anything in this Agreement to the contrary (but
subject to the provisions of Section 2.4), the aggregate number of Shares
that shall be converted into the right to receive the Cash Merger
Consideration at the Effective Time shall be the sum of the Additional
Share Number (as defined in Section 2.1(g)) and 5,097,000 (such sum, the
"Cash Election Number").
(ii) If the aggregate number of Electing Shares exceeds the Cash
Election Number, then a portion of the Electing Shares covered by each Cash
Election shall be converted into the right to receive Non-Cash Election
Shares in accordance with the terms of Section 2.1(a) in the following
manner:
(A) A proration factor (the "Cash Proration Factor") shall be
determined by dividing the Cash Election Number by the total number of
Electing Shares.
(B) The number of Electing Shares covered by each holder's Cash
Election to be converted into the right to receive the Cash Merger
Consideration shall be determined by multiplying the Cash Proration
Factor set forth in Section 2.1(d)(ii)(A) above by the total number of
Electing Shares covered by such Cash Election.
(C) All Electing Shares, other than that number of shares converted
into the right to receive the Cash Merger Consideration in accordance
with Section 2.1(d)(ii)(B), shall be converted into the right to receive
Non-Cash Election Shares (on a consistent basis among holders who made
the election referred to in Section 2.1(a)(i), pro rata to the number of
Shares as to which they made such election) as if such Shares were not
Electing Shares in accordance with the terms of Section 2.1(a)(ii).
(iii) If the number of Electing Shares is less than the Cash Election
Number, then:
(A) all Electing Shares shall be converted into the right to
receive the Cash Merger Consideration in accordance with the terms of
Section 2.1(a)(i);
(B) additional Shares other than Electing Shares, Excluded Shares
and Dissenting Shares shall be converted into the right to receive the
Cash Merger Consideration in accordance with the terms of 2.1(a)(i) in
the following manner:
(1) a proration factor (the "Cash Proration Factor") shall be
determined by dividing (x) the difference between the Cash Election
Number and the number of Electing Shares, by (y) the total number of
Shares other than Electing Shares, Excluded Shares and Dissenting
Shares; and
(2) the number of Shares in addition to Electing Shares to be
converted into the right to receive the Cash Merger Consideration
shall be determined by multiplying the Cash Proration Factor set
forth in Section 2.1(d)(iii)(B)(1) above by the total number of
Shares other than Electing Shares, Excluded Shares and Dissenting
Shares; and
(C) subject to Sections 2.1(e) and (g), Shares subject to clause
(B) of this paragraph 2.1(d)(iii) shall be converted into the right to
receive the Cash Merger Consideration in accordance with Section
2.1(a)(i) (on a consistent basis among holders who held Shares as to
which they did not make the election referred to in Section 2.1(a)(i),
pro rata to the number of Shares as to which they did not make such
election).
(e) Cancellation of Shares. As of the Effective Time, all Shares (other
than Dissenting Shares, Non-Cash Election Shares and Excluded Shares) issued and
outstanding immediately prior to the Effective Time shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any Non-Cash Election
Shares and Excluded Shares shall, to the extent such certificate represents such
Shares, cease to have any rights with respect thereto, except the right to
receive Cash Merger Consideration upon surrender of such certificate in
accordance with Section 2.3.
A-3
<PAGE> 124
The Company Stock Options and the warrants to purchase shares of Common
Stock of the Company set forth in Item 3.3 of the Company Disclosure Schedule
(the "Company Warrants") shall remain outstanding as rights to purchase shares
of Surviving Corporation Common Stock and shall continue in effect on the same
terms and conditions as were in effect prior to the Effective Time.
(f) Capital Stock of ScanSoft. All of the Series A Preferred Stock of
ScanSoft ("ScanSoft Preferred Stock") and Common Stock of ScanSoft ("ScanSoft
Common Stock") issued and outstanding immediately prior to the Effective Time
shall be converted into and become the number of newly issued shares of
Surviving Corporation Common Stock and Series B Convertible Preferred Stock of
the Surviving Corporation ("Surviving Corporation Preferred Stock"), having the
rights, privileges and preferences set forth on Exhibit B as follows:
(i) each share of ScanSoft Common Stock shall be converted into the
number of shares of Surviving Corporation Common Stock equal to the
Exchange Ratio (as defined in Section 2.1(g)); and
(ii) the issued and outstanding shares of ScanSoft Preferred Stock
shall be converted into (A) that number of shares of Surviving Corporation
Common Stock equal to the sum of the Targeted Number (as defined in Section
2.1(g)) and 5,097,000 (it being understood and agreed that a negative value
for the Targeted Number will reduce the number of shares of Surviving
Corporation Common Stock deliverable under this subclause (A) to below
5,097,000), (B) the Excess Number plus the True-Up Number (each as defined
in Section 2.1(g)) of shares of Surviving Corporation Preferred Stock and
(C) a Warrant to purchase newly issued shares of Surviving Corporation
Common Stock in the form attached hereto as Exhibit C.
(g) Certain Definitions. For purposes of this Agreement, the following
definitions shall apply.
"ScanSoft Net Book Value" shall mean the net book value of ScanSoft as of
the Closing Date, determined in accordance with Section 2.1(h).
"Company Net Book Value" shall mean the net book value of the Company as of
the Closing Date, determined in accordance with Section 2.1(h).
"Fully Diluted ScanSoft Shares" shall mean the sum of (i) the number of
shares of ScanSoft Common Stock outstanding immediately prior to the Merger,
(ii) the number of shares of ScanSoft Preferred Stock outstanding immediately
prior to the Merger and (iii) the number of shares of ScanSoft Common Stock
issuable immediately prior to the Merger upon exercise of the ScanSoft Stock
Options (as hereinafter defined), determined as if all such options were fully
vested.
"Fully Diluted Company Shares" shall mean the sum of (i) the number of
Shares outstanding immediately prior to the Merger and (ii) the number of Shares
issuable immediately prior to the Merger upon exercise of Company Stock Options
not canceled as of the Merger (as hereinafter defined), determined as if all
such options were fully vested.
"Excess Company Net Book Value" shall mean the result of the expression
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
V(S) FD(C) - 5,097,000
V(C) - ( -- ) ( ------------------- )
2 .538FD(C) - 5,097,000
</TABLE>
where
V(C) = Company Net Book Value
V(S) = ScanSoft Net Book Value
FD(C) = Fully Diluted Company Shares
"Additional Share Number" shall mean the Excess Company Net Book Value
divided by $2.06; provided that if the Excess Company Net Book Value is no
greater than zero, "Additional Share Number" shall mean zero.
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<PAGE> 125
"Exchange Ratio" shall mean the result of the expression
.538(FD(C) - A(C)) - 5,097,000
------------------------------------
.462FD(S)
where
<TABLE>
<S> <C> <C>
FD(C) = Fully Diluted Company Shares
FD(S) = Fully Diluted ScanSoft Shares
A(C) = Additional Share Number
</TABLE>
"Targeted Number" shall mean the result, whether positive or negative, of
the expression
.45(C(V) + rC(S) - A(C)) - rC(SP) - 5,097,000
---------------------------------------------
.55
where
<TABLE>
<S> <C> <C>
C(V) = Pre-Merger outstanding Company Shares
C(S) = Pre-Merger outstanding shares of ScanSoft Common Stock
C(SP) = Pre-Merger outstanding shares of ScanSoft Common Stock held
by the ScanSoft Preferred Stockholder
A(C) = Additional Share Number
r = Exchange Ratio
</TABLE>
"Excess Number" shall mean the difference, if positive, between (i) the
product of the Exchange Ratio and the number of shares of ScanSoft Preferred
Stock outstanding immediately prior to the Merger and (ii) the Targeted Number
(it being understood and agreed that the Excess Number will exceed the amount
specified in clause (i) if the Targeted Number is less than zero).
"True-Up Number" shall mean zero unless the Excess Company Net Book Value
is less than zero, in which case "True-Up Number" shall mean the result of the
expression
-E(C)(FD(C) + rFD(S))
------------------------------
2.06(FD(C) + rFD(S)) + E(C)
where
<TABLE>
<S> <C> <C>
E(C) = Excess Company Net Book Value
FD(C) = Fully Diluted Company Shares
FD(S) = Fully Diluted ScanSoft Shares
r = Exchange Ratio
</TABLE>
(h) Determination of Net Book Value. Each of the Company and ScanSoft
shall promptly prepare a balance sheet as of the month-end (X) immediately
preceding the Closing Date (the "Prior Month") if the Closing Date is later than
the 15th day in the month in which the Closing occurs or (Y) of the month
immediately preceding the Prior Month if the Closing Date is on or prior to the
15th day in the month in which the Closing occurs, in accordance with GAAP (with
respect to the Company) and consistent with the method of preparation of the
Company Unaudited Interim Balance Sheet (as defined in Section 3.4(b)) and the
ScanSoft Unaudited Interim Balance Sheet (as provided for in Section 4.4) (each,
a "Closing Balance Sheet"); provided, however, that any and all accounting,
legal and financial advisors, finders or brokers or similar fees (including, but
not limited to fees paid to The Brenner Group LLC and Broadview International
LLC) disclosed in Sections 3.11 and 3.26 of the Company Disclosure Schedule and
all Management Incentive Payments disclosed in Section 3.22 of the Company
Disclosure Schedule relating to the transactions contemplated by this Agreement
and the Asset Purchase Agreement shall be accrued if unpaid in the Company
Closing Balance Sheet; provided, however, that to the extent any such fee or
expense is required to be capitalized as an asset, the Company Closing Balance
Sheet shall be adjusted to exclude such asset. All such fees of ScanSoft
relating to the transactions contemplated by this Agreement as disclosed in
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<PAGE> 126
Sections 4.11 and 4.22 of the ScanSoft Disclosure Schedule shall be reflected in
the ScanSoft Closing Balance Sheet as paid or accrued. In addition, in the event
the transactions contemplated by the Asset Purchase Agreement shall have not
occurred as of the date of the Company Balance Sheet, such Balance Sheet shall
give pro forma effect to the closing contemplated by the Asset Purchase
Agreement. Each Closing Balance Sheet shall be completed and delivered to the
other party within ten (10) days prior to the Closing Date. The Company and
ScanSoft shall each prepare a computation of their respective book value as of
the date of the Closing Balance Sheet and shall submit such computation to the
other party in writing at the same time as copies of the Closing Balance Sheets
are delivered. If within five (5) days following delivery of the Closing Balance
Sheets, neither party has given notice of its objection to the Closing Balance
Sheet to the other party (such notice must contain a statement of the basis of
such party's objection), then the Closing Balance Sheets will be used in
computing the net book value. If either party gives such notice of objection,
then the issues in dispute will be submitted to an independent auditor to be
agreed upon between the Company and ScanSoft (the "Auditor") for resolution. If
issues in dispute are submitted to the Auditor for resolution, (i) each party
will furnish to the Auditor such workpapers and other documents and information
relating to the disputed issues as the Auditor may request and are available to
that party, and will be afforded the opportunity to present to the Auditor any
material relating to the determination and to discuss the determination with the
Auditor, and (ii) the determination by the Auditor, as set forth in a notice
delivered to both parties by the Auditor, will be binding and conclusive on the
parties. Each party will bear fifty percent (50%) of the fees of the Auditor for
the resolution of any disputes.
(i) Shares of Dissenting Stockholders. Notwithstanding anything in this
Agreement to the contrary, any issued and outstanding Shares held by a person (a
"Dissenting Stockholder") who shall not have voted in favor of the Merger or
consented thereto in writing and who shall have demanded properly in writing
appraisal for such Shares pursuant to section 262 of the DGCL and who shall not
have withdrawn such demand or otherwise have forfeited appraisal rights
("Dissenting Shares") shall not be converted into or represent the right to
receive the Merger Consideration. Such stockholders shall be entitled to receive
payment of the appraised value of such Shares in accordance with section 262 of
the DGCL, except that if, after the Effective Time, such Dissenting Stockholder
withdraws his demand for appraisal or fails to perfect or otherwise loses his
right of appraisal, in any case pursuant to the DGCL, his Shares shall be deemed
to be canceled as of the Effective Time and such Dissenting Stockholders shall
be deemed to have elected the right to receive the Merger Consideration as
provided in Section 2.1(a). The Company shall give ScanSoft (i) prompt notice of
any demands for appraisal of Shares received by the Company and (ii) the
opportunity to participate in and direct all negotiations and proceedings with
respect to any such demands. The Company shall not, without the prior written
consent of ScanSoft, make any payment with respect to, or settle, offer to
settle or otherwise negotiate, any such demands.
(j) Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional share of Surviving Corporation Common Stock shall be
issued in the Merger. All fractional shares of Surviving Corporation Common
Stock that a holder of Shares would otherwise be entitled to receive as a result
of the Merger shall be aggregated and, if a fractional share results from such
aggregation, such holder shall be entitled to receive, in lieu thereof, an
amount in cash determined by multiplying such fraction by the Cash Merger
Consideration.
SECTION 2.2 Assumption of ScanSoft Options.
(a) At the Effective Time, each outstanding option to purchase common stock
of ScanSoft issued by ScanSoft pursuant to the ScanSoft 1998 Stock Option Plan
(each, a "ScanSoft Option"), whether vested or unvested, shall be assumed by the
Company and constitute an option to acquire, on the same terms and conditions
(including, without limitation, vesting provisions) as were applicable under
such ScanSoft Option prior to the Effective Time, that number of whole shares of
Common Stock of the Surviving Corporation equal to the product of the number of
shares of ScanSoft Common Stock subject to such ScanSoft Option multiplied by
the Exchange Ratio (rounded down to the nearest whole number), and shall have an
exercise price per share of Common Stock of the Surviving Corporation equal to
the quotient obtained by dividing the exercise price per share of the ScanSoft
Common Stock subject to such ScanSoft Option by the Exchange Ratio (rounded up
to the nearest whole cent). All such calculations shall ignore whether or not
such ScanSoft
A-6
<PAGE> 127
Option is exercisable as of the Effective Time. At and after the Effective Time,
the Company will honor all obligations with respect to such ScanSoft Options
under the terms of such ScanSoft Options and the ScanSoft Option Plans as in
effect on the date hereof.
(b) As soon as practicable after the Effective Time (but in any event
within thirty (30) business days) the Company shall deliver to each holder of an
outstanding ScanSoft Option an appropriate notice setting forth such holder's
rights pursuant thereto, and such ScanSoft Option shall otherwise continue in
effect on the same terms and conditions as were in effect prior to the Effective
Time.
SECTION 2.3 Surrender of Certificates.
(a) Exchange Agent. Prior to the record date for the Stockholder Meeting
(as defined in Section 6.1), ScanSoft shall designate a bank or trust company
who shall be reasonably satisfactory to the Company to act as paying agent in
the Merger (the "Exchange Agent"), and prior to the Effective Time, ScanSoft
shall cause to be deposited with the Exchange Agent $10,500,000 and the Company
shall deposit with the Exchange Agent an amount necessary for the payment of the
Excess Company Net Book Value as provided in Section 2.1 following surrender of
Certificates (as defined below) representing Shares as part of the Merger. Funds
made available to the Exchange Agent shall be invested by the Exchange Agent as
directed by the person depositing such funds (the "Depositor"), provided that
such investments shall only be in obligations of or guaranteed by the United
States of America, in commercial paper obligations rated A-1 or P-1 or better by
Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively,
or in certificates of deposit, bank repurchase agreements or banker's
acceptances of commercial banks whose commercial paper is rated A-1 or P-1 (it
being understood that any and all interest or income earned on funds made
available to the Exchange Agent pursuant to this Agreement shall be turned over
to the Depositor).
(b) Exchange Procedure. The Company shall prepare and mail a form of
election, which form shall be subject to the reasonable approval of ScanSoft
(the "Form of Election"), with the Proxy Statement (as defined in Section 3.8)
to the record holders of Shares (other than to holders of Excluded Shares) as of
the record date for the Stockholder Meeting (as defined in Section 6.1), which
Form of Election shall be used by each record holder of Shares to indicate the
form of Merger Consideration such holder elects to receive for any or all Shares
held by such holder. The Company will make the Form of Election and the Proxy
Statement available to all persons who become holders of Shares during the
period between the record date for the Stockholder Meeting and the Election Date
referred to below. The Form of Election shall specify that delivery shall be
effected, and risk of loss and title to each certificate or certificates
representing outstanding Shares (the "Certificates") shall pass, only upon
proper delivery of the Certificates to the Exchange Agent, shall be in a form
and have such other provisions as ScanSoft may reasonably specify and shall
contain instructions for use in effecting the surrender of Certificates in
exchange for Merger Consideration. Promptly following the Effective Time,
assuming surrender of a Certificate to the Exchange Agent or to such other agent
or agents as may be appointed by ScanSoft, together with such Form of Election,
duly executed and completed in accordance with the instructions thereto, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor the
Merger Consideration for each Share formerly represented by such Certificate,
and the Certificate so surrendered shall forthwith be canceled. If payment of
the Cash Merger Consideration is to be made to a person other than the person in
whose name the Certificate so surrendered is registered, it shall be a condition
of payment that the Certificate so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the person requesting such
payment shall pay any transfer or other taxes required by reason of the payment
of the Cash Merger Consideration to a person other than the registered holder of
the Certificate surrendered or shall have established to the satisfaction of the
Surviving Corporation that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.3, each Certificate (other than
Certificates representing Dissenting Shares or Excluded Shares) shall be deemed
at any time after the Effective Time to represent only the right to receive upon
such surrender the Non-Cash Electing Shares or the Cash Merger Consideration,
without interest, into which the Shares theretofore represented by such
Certificate shall have been converted pursuant to Section 2.1. No interest will
be paid or will accrue on the Cash Merger Consideration payable upon the
surrender of any Certificate. The Exchange Agent shall be entitled to deduct and
withhold from the consideration otherwise payable pursuant to this Agreement to
any holder of a
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Certificate such amounts as the Exchange Agent is required to deduct and
withhold with respect to the making of payment under the Code (as hereinafter
defined) or under any provision of state, local or foreign tax law. To the
extent that amounts are so withheld by the Exchange Agent, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the Shares in respect of which such deduction and withholding was made
by the Exchange Agent.
Any such holder's election with respect to the Merger Consideration shall
have been properly made only if the Exchange Agent (as defined in Section
2.3(a)) shall have received at its designated office by 5:00 p.m., New York City
time on the date of the Stockholder Meeting, a Form of Election properly
completed and signed and accompanied by certificates for the Shares to which
such Form of Election relates, duly endorsed in blank or otherwise in form
acceptable for transfer on the books of the Company (or by an appropriate
guarantee of delivery of such certificates as set forth in such Form of Election
from a firm which is a participant in the Security Transfer Agent's Medallion
Program, provided such certificates are in fact delivered to the Exchange Agent
within three (3) Nasdaq Stock Market trading days after the date of execution of
such guarantee of delivery).
Any Form of Election may be changed by the holder submitting it to the
Exchange Agent only by written notice received by the Exchange Agent prior to
5:00 p.m., New York City time, on the Election Date (unless ScanSoft and the
Company determine not less than two (2) business days prior to the Election Date
that the Effective Time is not likely to occur within five (5) business days
following the date of the Stockholder Meeting, in which case the Form of
Election will remain revisable until a subsequent date which shall be a date
prior to the Effective Time determined by ScanSoft and the Company). In
addition, all Forms of Election shall automatically be revoked if the Exchange
Agent is notified in writing by ScanSoft and the Company that the Merger has
been abandoned. If a Form of Election is revoked in accordance with the
preceding sentence, the Certificate or Certificates (or guarantees of delivery,
as appropriate) for the Shares to which such Form of Election relates shall be
promptly returned to the holder submitting the same to the Exchange Agent.
The determination of the Exchange Agent shall be binding as to whether or
not elections have been properly made, changed or revoked pursuant to this
Section 2.1 with respect to Shares and when elections, changes or revocations
were received by it. If the Exchange Agent determines that any election to
receive Cash Merger Consideration in exchange for Electing Shares was not
properly made with respect to Shares, such Shares shall be treated by the
Exchange Agent as Non-Cash Election Shares at the Effective Time. The Exchange
Agent shall also make all computations as to the allocation and the proration
contemplated by Section 2.1(d), and any such computation shall be conclusive and
binding on the holders of Shares. The Exchange Agent may, with the mutual
agreement of ScanSoft and the Company, make such rules as are consistent with
this Section 2.1 for the implementation of the elections provided for herein as
shall be necessary or desirable fully to effect such elections.
(c) No Further Ownership Rights in Shares Exchanged for Cash. All Cash
Merger Consideration paid upon the Closing in accordance with the terms of this
Article II shall be deemed to have been paid in full satisfaction of all rights
pertaining to the Cash Election Shares, prorated in accordance with Section
2.1(d) above, theretofore represented by such Certificates.
(d) Closing of Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed, and there shall be no further registration
of transfers on the stock transfer books of the Surviving Corporation of the
Shares that were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation or
the Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Article II.
(e) Distributions With Respect to Unexchanged Shares. No cash payment in
lieu of fractional shares shall be paid to any holder of any unsurrendered
Certificate until the surrender of such Certificate in accordance with this
Article II. Subject to the effect of applicable laws, following surrender of any
such Certificate, there shall be paid to the holder of the Certificate
representing whole Non-Cash Election Shares issued in connection therewith,
without interest, at the time of such surrender or as promptly thereafter as
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practicable, the amount of any cash payable in lieu of a fractional Non-Cash
Election Share to which such holder is entitled pursuant to Section 2.1(j).
(f) Termination of Payment Fund. Any portion of the funds made available
to the Exchange Agent which remains undistributed to the holders of Shares for
nine (9) months after the Effective Time shall be delivered to the Depositor,
upon demand, and any holders of Shares who have not theretofore complied with
this Article II and the instructions set forth in the Form of Election shall
thereafter look only to the Surviving Corporation (subject to abandoned
property, escheat or other similar laws) and only as general creditors thereof
for payment of their claim for cash (without interest), if any, Non-Cash
Election Shares, if any, or any cash in lieu of fractional Non-Cash Election
Shares to which such holders may be entitled.
(g) No Liability. None of ScanSoft, the Company, the Exchange Agent or any
other person shall be liable to any person in respect of any Non-Cash Election
Shares (or dividends or distribution with respect thereto) or cash delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
(h) Lost Certificates. In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Company, the posting by such person of a bond in such reasonable amount as
the Company may direct as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent shall issue in exchange
for such lost, stolen or destroyed Certificate the Merger Consideration to which
such person is entitled pursuant to this Agreement.
(i) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any "Affiliate" (as determined pursuant
to Section 3.19) of the Company shall not be exchanged until the Company has
received a written agreement from such person as provided in Section 3.19
hereof.
(j) Exchange of Stock Certificates. As soon as reasonably practicable
after the Effective Time, the Exchange Agent shall mail to each holder of record
of Non-Cash Election Shares new certificates representing such Non-Cash Election
Shares. Although certificates representing Non-Cash Election Shares which are
not so exchanged will be deemed for all purposes to represent validly issued and
outstanding shares of Surviving Corporation Common Stock, such certificates will
not be transferable on the books of the Company. Any holder of a certificate
which represents some Shares entitled to receive the Cash Merger Consideration
and some Non-Cash Election Shares shall receive in exchange therefor the Cash
Merger Consideration for the Electing Shares pursuant to Section 2.3(b) (subject
to the adjustments set forth in Section 2.1) and a new certificate for the
Non-Cash Election Shares pursuant to this Section 2.3(j).
SECTION 2.4 Adjustments to Prevent Dilution. In the event that prior to
the Effective Time there is a change in the number of Shares issued and
outstanding as a result of a reclassification, stock split (including a reverse
split), stock dividend or distribution, or other similar transaction, the Cash
Merger Consideration, Cash Election Number and Exchange Ratio shall be equitably
adjusted to eliminate the effects of such event.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Company Disclosure Schedule attached hereto and
delivered to ScanSoft by the Company, the Company represents and warrants to
ScanSoft as of the date of this Agreement as follows:
SECTION 3.1 Due Organization; Subsidiaries; Etc.
(a) The Company has no Subsidiaries and the Company does not own any
capital stock of, or any equity interest of any nature in, any other Entity. The
Company has not agreed nor is it obligated to make, nor is it bound by any
Contract under which it may become obligated to make, any future investment in
or capital contribution to any other Entity. The Company has not at any time
been a general partner of any general partnership, limited partnership or other
Entity.
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(b) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority: (i) to conduct its business in the
manner in which its business is currently being conducted; (ii) to own and use
its assets in the manner in which its assets are currently owned and used; and
(iii) to perform its obligations under all Contracts by which it is bound.
(c) The Company has not been required to be qualified, authorized,
registered or licensed to do business as a foreign corporation in any
jurisdiction other than the jurisdictions identified in Item 3.1(c) of the
Company Disclosure Schedule, except where the failure to be so qualified,
authorized, registered or licensed has not had and will not have a Material
Adverse Effect on the Company. The Company is in good standing as a foreign
corporation in each of the jurisdictions identified in Item 3.1(c) of the
Company Disclosure Schedule.
SECTION 3.2 Certificate of Incorporation and Bylaws. The Company has
delivered to ScanSoft accurate and complete copies of its certificate of
incorporation, bylaws and other charter and organizational documents, including
all amendments thereto. The Company is not in violation of any of the provisions
of its certificate of incorporation or bylaws or equivalent governing
instruments.
SECTION 3.3 Capital Structure. The authorized capital stock of the
Company consists of 50,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock, par value $.001 per share (the "Company Preferred Stock"). As
of the close of business on November 10, 1998, (a) 19,818,300 shares of Common
Stock were issued and outstanding, all of which were validly issued, fully paid
and nonassessable and free of preemptive rights, (b) no shares of Common Stock
were held by the Company in its treasury and (c) no shares of Company Preferred
Stock were issued and outstanding. As of the date of this Agreement, except for
outstanding stock options covering not in excess of 2,637,209 shares of Common
Stock under the Company's 1993 Incentive Stock Option Plan, 1995 Director Stock
Option Plan and 1997 Employee Stock Option Plan (collectively, the "Company
Stock Options") with an average exercise price of $2.0746, up to 700,000 shares
of Common Stock subject to subscription or reserved for issuance under the
Company's 1993 Restricted Stock Purchase Plan and 1995 Employee Stock Purchase
Plan and rights to purchase Company Preferred Stock issuable pursuant to the
Rights Agreement (as defined in Section 3.34), and 126,500 shares of Common
Stock issuable upon exercise of the Company Warrants, there are no options,
warrants, calls, subscriptions, convertible securities or other rights or
agreements to which the Company is a party or by which any of them is bound
obligating the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, any shares of capital stock, or any securities convertible
into or exchangeable for shares of capital stock, of the Company or obligating
the Company to grant, extend or enter into any such option, warrant, call,
subscription or other right or agreement, and there are no other obligations of
any kind which would require any person to sell, pledge, transfer or register
any shares of capital stock of the Company. Item 3.3 of the Company Disclosure
Schedule sets forth a true and complete list of the holders of the Company Stock
Options as of November 20, 1998.
Except as set forth in the Company SEC Documents (as defined in Section
3.4) or the preceding paragraph, as of the date of this Agreement, there are no
outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any shares of capital stock of the Company.
SECTION 3.4 SEC Filings; Financial Statements.
(a) The Company has delivered or made available to ScanSoft accurate and
complete copies of all publicly available registration statements, proxy
statements and other statements, reports, schedules, forms and other documents
filed by the Company with the SEC and will deliver to ScanSoft accurate and
complete copies of all such publicly available registration statements, proxy
statements and other statements, reports, schedules, forms and other documents
filed after the date of this Agreement and prior to the Closing Date
(collectively, the "Company SEC Documents"). All statements, reports, schedules,
forms and other documents required to have been filed by the Company with the
SEC have been so filed. As of the time it was filed with the SEC (or, if amended
or superseded by a later filing, then on the date of such filing): (i) each of
the Company SEC Documents filed with the SEC complied in all material respects
with the applicable requirements of the Securities Act or the Exchange Act and
the rules and regulations under either of them (as
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the case may be) as of the date of such filing and any the Company SEC Documents
filed after the date hereof will so comply; and (ii) none of the Company SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(b) The financial statements (including any related notes) contained in the
Company SEC Documents filed with the SEC (the "Company Financial Statements"):
(i) complied as to form in all material respects with the published rules and
regulations of the SEC applicable thereto; (ii) were prepared in accordance with
GAAP applied on a consistent basis throughout the periods covered (except as may
be indicated in the notes to such financial statements or, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC, and except that the
unaudited financial statements may not contain footnotes and other information
required for complete financial statements), and (iii) fairly present the
consolidated financial position of the Company as of the respective dates
thereof and the consolidated results of operations of the Company for the
periods covered thereby. All adjustments (consisting of recurring accruals)
considered necessary for a fair presentation of the financial statements have
been included. The audited consolidated balance sheet of the Company included in
the Company's Annual Report on Form 10-K for the year ended December 28, 1997 is
sometimes referred to herein as the "1997 Balance Sheet" and the unaudited
consolidated balance sheet of the Company as of September 27, 1998 is sometimes
referred to herein as the "the Company Unaudited Interim Balance Sheet." All
financial statements (including any related notes) contained in the Company SEC
Documents filed after the date hereof shall meet the conditions set forth in
(i), (ii) and (iii) of this Section 3.4(b).
(c) The Company Unaudited Interim Balance Sheet and the statement of
operations of the Company for the quarter ended September 27, 1998 and delivered
to ScanSoft were prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered (except that the such financial statements may
not contain footnotes and other information required for complete financial
statements), and fairly present the financial position of the Business as of the
respective dates thereof and the results of operations of the Business for the
periods covered thereby.
(d) Beginning January 1, 1998, the Company recognized revenues in
accordance with GAAP and Statement of Position 97-2 entitled "Software Revenue
Recognition," (SOP 97-2) dated October 27, 1997, issued by the American
Institute of Certified Public Accountants. The Company recognizes revenue when
all of the following criteria are met: (i) persuasive evidence of an arrangement
exists; (ii) delivery has occurred; (iii) the Company's fee is fixed or
determinable; and (iv) collectibility is probable. Prior to January 1, 1998, the
Company recognized revenue in accordance with Statement of Position 91-1
entitled "Software Revenue Recognition." If the Company had used SOP 97-2 in
prior years, the Company's revenue would not be materially different than that
reported.
SECTION 3.5 Absence of Changes. Since the date of the Company Unaudited
Interim Balance Sheet:
(a) there has not been any Material Adverse Change in the business,
condition, assets, Liabilities, operations, financial performance or
prospects of the Company, and no event has occurred that could reasonably
be expected to have a Material Adverse Effect on the Company;
(b) there has not been any material loss, damage or destruction
(whether or not covered by insurance) that could reasonably be expected to
have a Material Adverse Effect on the Company;
(c) there has been no amendment to the certificate of incorporation,
bylaws or other charter or organizational documents of the Company, and the
Company has not effected or been a party to any merger, consolidation,
share exchange, business combination, recapitalization, reclassification of
shares, stock split, reverse stock split or similar transaction, other than
the Merger Agreement and the Asset Purchase Agreement;
(d) the Company has not (i) received any Takeover Proposal, or (ii)
solicited, initiated, encouraged or induced, or provided any nonpublic
information to or entered into any discussions with any Person for the
purpose of soliciting, initiating, encouraging or inducing, the making or
submission of any Takeover Proposal except as contemplated by this
Agreement and the Asset Purchase Agreement;
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(e) the Company has not formed any subsidiary or acquired any equity
interest or other interest in any other entity:
(f) the Company has not made any capital expenditures which exceed
$25,000 with respect to any single matter, or $50,000 in the aggregate;
(g) except in the ordinary course of business and consistent with past
practices and except for the Asset Purchase Agreement, the Company has not
(i) entered into or become bound by any Company Material Contract (as
defined in Section 3.10), or (ii) amended or prematurely terminated, or
waived any material right or remedy under, any Company Material Contract;
(h) except as contemplated by the Asset Purchase Agreement, the
Company has not (i) acquired, leased or licensed any material right or
other material asset from any other Person, (ii) sold or otherwise disposed
of, or leased or licensed, any material asset to any other Person, or (iii)
waived or relinquished any material right relating to the Company, except
for rights or other assets acquired, leased, licensed or disposed of in the
ordinary course of business and consistent with past practices;
(i) the Company has not written off as uncollectible, or established
any extraordinary reserve with respect to, any account receivable or other
indebtedness in excess of $25,000 with respect to any single matter, or in
excess of $50,000 in the aggregate;
(j) the Company has not made any pledge or otherwise permitted any
material asset to become subject to any Encumbrance, except for pledges of
immaterial assets made in the ordinary course of business and consistent
with past practices and except as set forth in the Asset Purchase
Agreement;
(k) the Company has not (i) lent money to any Person, or (ii) incurred
or guaranteed any indebtedness for borrowed money;
(l) the Company has not (i) established or adopted any Plan, (ii)
caused or permitted any Plan to be amended in any material respect, (iii)
paid any bonus or made any profit-sharing or similar payment to, or
materially increased the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its
directors, officers or employees, (iv) made any material change to the
Company's severance or termination plans, agreements or arrangements with
any of its employees, except as part of a standard employment package to
any person promoted or hired (but not including the five most senior
officers), or as was required under employment, severance or termination
agreements in effect as of the date of the Company Unaudited Interim
Balance Sheet, or (v) except for employment agreements in the ordinary
course of business consistent with past practice with employees other than
any executive officer of the Company, entered into any employment,
consulting, severance, termination or indemnification agreement with any
such employee or executive officer;
(m) the Company has not made any revaluation of any of its material
assets;
(n) the Company has not made any material change in any of its
accounting methods, principles or practices;
(o) the Company has not made any material election with respect to
Taxes;
(p) the Company has not commenced or settled any Legal Proceeding;
(q) the Company has not entered into any material transaction or taken
any other material action that has had, or could reasonably be expected to
have, a Material Adverse Effect on the Company;
(r) the Company has not agreed or committed to take any of the actions
referred to in clauses (c) through (p) above; and
(s) the Company has not taken any other action that occurred prior to
the date hereof that, if it occurred after the date of this Agreement and
prior to the Effective Time, would be prohibited by paragraphs (c), (f),
(g) or (p) of Section 5.2 of this Agreement.
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SECTION 3.6 Leasehold; Equipment. The Company does not own any real
property or any interest in real property, except for the leaseholds created
under the real property leases identified in Item 3.6 of the Company Disclosure
Schedule (which Item 3.6 indicates that such leaseholds are included as part of
the Purchased Assets). All such real property is being leased pursuant to lease
agreements that are in full force and effect, are valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event of default (or event which with notice or
lapse of time, or both, would constitute a default). Item 3.6 of the Company
Disclosure Schedule accurately identifies all material equipment leased by the
Company and indicates whether such equipment constitutes Software Assets. All
material items of equipment and other tangible assets owned by or leased to the
Company are adequate for the uses to which they are being put, are in good
condition and repair (ordinary wear and tear excepted).
SECTION 3.7 Title to Assets. The Company owns, and has good, valid and
marketable title to, or in the case of leased properties and assets, valid
leasehold interests in, all of its tangible properties and assets, real,
personal and mixed. All of said assets are owned or leased by the Company free
and clear of any encumbrances, except for (x) any lien for current taxes not yet
due and payable, and (y) minor liens that have arisen in the ordinary course of
business and that do not (in any case or in the aggregate) materially detract
from the value of the assets subject thereto or materially impair the operations
of the Company. Item 3.7 sets forth a list of all material tangible personal
property and assets of the Company and which of such assets constitute Software
Assets.
SECTION 3.8 Receivables; Significant Customers of the Business.
(a) Item 3.8(a) of the Company Disclosure Schedule provides an accurate and
complete breakdown and aging of all accounts receivable of the Company as of the
date of the Company Unaudited Interim Balance Sheet. All such accounts
receivable are current, and the Company believes that there is reasonable basis
that such accounts receivable will be collected (net of the allowance of
doubtful accounts set forth on the Company Unaudited Interim Balance Sheet,
which allowance the Company believes is reasonable).
(b) Item 3.8(b) of the Company Disclosure Schedule contains an accurate and
complete list as of date of this Agreement of all outstanding loans and advances
made by the Company to any employee, director, consultant or independent
contractor of the Company, other than routine travel or relocation advances made
to employees in the ordinary course of business. There are no such loans and
advances existing as of the Closing Date.
(c) Item 3.8(c) of the Company Disclosure Schedule sets forth a complete
and accurate list of all Significant Customers of the Company's Software
Business and Hardware Business, respectively. For purposes of this Agreement,
"Significant Customers" are the thirty customers of the Company (including
without limitation original equipment manufacturers and royalty-paying
customers) that have effected the most purchases from the Company, in dollar
terms, and accounted for the most revenues for the Company, in dollar terms,
during the eight fiscal quarter period ended September 27, 1998. None of the
Company's Significant Customers has canceled or returned or, to the Company's
knowledge, is currently attempting or threatening to cancel or return, any
purchases from, orders to or services provided by the Company. The Company has
not received any material customer complaints concerning its products and/or
services.
SECTION 3.9 Proprietary Assets.
(a) Item 3.9(a) of the Company Disclosure Schedule sets forth a list of all
patents and patent applications, trademarks (whether or not registered),
trademark applications, trade names, fictitious business names, service marks
(whether or not registered), service mark applications, copyrights (whether or
not registered), copyright applications, maskworks, maskwork applications,
computer software, computer programs (in source and executable form) and
proprietary products of the Company and which of such Proprietary Assets are
Purchased Assets. Item 3.9(a) of the Company Disclosure Schedule indicates each
Proprietary Asset of the Company registered with any Governmental Body or for
which an application has been filed with any Governmental Body and the names of
the jurisdictions covered by the applicable registration or application. For
purposes of this Section 3.9, all Proprietary Assets of the Company that are not
Purchased Assets being sold to Primax pursuant to the Asset Agreement shall
hereinafter also be referred to
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as "Software Proprietary Assets." The Company owns no Proprietary Assets
registered with any Governmental Body or for which an application has been filed
with any Governmental Body other than the Proprietary Assets set forth in Item
3.9(a) of the Company Disclosure Schedule. Item 3.9(a) of the Company Disclosure
Schedule identifies and provides a brief description of each Proprietary Asset
licensed to the Company by any Person (except for any Proprietary Asset that is
licensed to the Company under any third party software license generally
available to the public at a cost of less than $25,000), and identifies the
license agreement under which such Proprietary Asset is being licensed to the
Company. The Company has good and marketable title to all of the Proprietary
Assets identified in Item 3.9(a) of the Company Disclosure Schedule, free and
clear of all liens and other Encumbrances, and has a right to use all of the
Software Proprietary Assets. To the Company's knowledge, the Company is not
obligated to make any payment after the date of this Agreement to any Person for
the use of any Proprietary Asset. To the Company's knowledge, the Company has
not developed jointly with any other Person any Proprietary Asset with respect
to which such other Person has any rights.
(b) The Company has taken all reasonable and appropriate steps to protect
and preserve all Trade Secrets. The use, possession or disclosure by the Company
of any Software Proprietary Assets used in its business but which are not owned
by the Company has been in compliance with the terms and conditions of a valid
and enforceable agreement between the Company and the owner of such Software
Proprietary Assets, or such use, possession or disclosure is otherwise lawful
under the circumstances. To the Company's knowledge, there has been no
unauthorized disclosures of any Trade Secrets, no unauthorized disclosures of
any Proprietary Assets of any third party by the Company or any of its
respective employees or consultants, and there has been no breach of any
confidentiality or nondisclosure agreements to which the Company is a party.
(c) To the Company's knowledge, none of the Company's Software Proprietary
Assets infringes or conflicts with any Proprietary Asset owned or used by any
other Person and the Company is not infringing, misappropriating or making any
unlawful use of, and the Company has not at any time infringed, misappropriated
or made any unlawful use of, or received any notice or other communication (in
writing or otherwise) of any actual, alleged, possible or potential
infringement, misappropriation or unlawful use of, any Proprietary Asset owned
or used by any other Person. To the Company's knowledge, no other Person is
infringing, misappropriating or making any unlawful use of, and no Proprietary
Asset owned or used by any other Person infringes or conflicts with, any
Software Proprietary Asset of the Company.
(d) There has not been any claim by any customer or other Person alleging
that any Software Proprietary Asset of the Company (including each version
thereof that has ever been licensed or otherwise made available by the Company
to any Person) does not conform in all material respects with any specification,
documentation, performance standard, representation or statement made or
provided by or on behalf of the Company. The Company has established adequate
reserves on the Company Unaudited Interim Balance Sheet to cover all costs that
the Company reasonably anticipates to be associated with any obligations that
the Company may have with respect to the correction or repair of programming
errors or other defects in the Proprietary Assets.
(e) The Company's Proprietary Assets constitute all the Proprietary Assets
necessary to enable the Company to conduct its business in the manner in which
such business has been and is being conducted and the Software Proprietary
Assets constitute all software proprietary assets that are necessary to continue
the Software Business following consummation of transactions contemplated by the
Asset Purchase Agreement. The Company has not licensed any of the Proprietary
Assets to any Person on an exclusive basis, and the Company has not entered into
any covenant not to compete or Company Material Contract limiting its ability to
exploit fully any of its Proprietary Assets (including without limitation "most
favorable pricing" clauses in any Contracts) or to transact business in any
market or geographical area or with any Person.
(f) All current and former employees have executed and delivered to the
Company an agreement (containing no exceptions to or exclusions from the scope
of its coverage) that is substantially identical to the form of confidential
information and invention assignment agreement previously delivered to ScanSoft.
All current and former consultants and independent contractors to the Company
have executed and delivered to the Company an agreement (containing no
exceptions to or exclusions from the scope of its coverage) that is
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substantially identical to the form of consultant confidential information and
invention assignment agreement previously delivered to ScanSoft.
SECTION 3.10 Contracts.
(a) Item 3.10 of the Company Disclosure Schedule identifies each Contract
of the Company that constitutes a "Company Material Contract" and indicates
whether or not each such Contract is a Software Asset. For purposes of this
Agreement, each of the following shall be deemed to constitute a "Company
Material Contract":
(i) (A) any Contract or outstanding offer relating to the employment
of, or the performance of services by, any employee, (B) any Contract
pursuant to which the Company is required to make any severance,
termination or similar payment, bonus or relocation payment or any other
payment (other than payments in respect of salary) to any current or former
employee or director of the Company (if any such payment is disclosed on
Item 3.10 of the Company Disclosure Schedule, such reference also states
whether or not such payment is an Assumed Liability for purposes of the
Asset Purchase Agreement) and (C) any Contract or Plan (including, without
limitation, any stock option plan, stock appreciation plan or stock
purchase plan), any of the benefits of which may be increased, or the
vesting of benefits of which may be accelerated;
(ii) any Contract (A) relating to the acquisition, transfer,
development, sharing, license (to or by the Company), use or other
exploitation of any Proprietary Asset (except for any Contract pursuant to
which any Proprietary Asset is licensed to the Company under any third
party software license generally available to the public); or (B) with
respect to the distribution or marketing of any products of the Company, in
each case the absence of which would have a Material Adverse Effect on the
Company;
(iii) any Contract which provides for indemnification of any officer,
director, employee or agent of the Company;
(iv) any Contract imposing any material restriction on the right or
ability of the Company (A) to compete in any market or geographic area with
any other Person, (B) to acquire any product or other asset or any services
from any other Person, to sell any product or other asset to or perform any
services for any other Person or to transact business or deal in any other
manner with any other Person, or (C) to develop or distribute any
technology;
(v) any Contract (A) relating to the acquisition, issuance, voting,
registration, sale or transfer of any securities (other than the issuance
of the Company Common Stock upon the valid exercise of the Company Options,
Employee Stock Purchase Plan Rights or the Company Warrants outstanding as
of the date of this Agreement), (B) providing any Person with any
preemptive right, right of participation, right of maintenance or any
similar right with respect to any securities, or (C) providing the Company
with any right of first refusal with respect to, or right to repurchase or
redeem, any securities;
(vi) any Contract requiring that the Company give any notice or
provide any information to any Person prior to accepting any Takeover
Proposal;
(vii) any Contract that (A) contemplates or involves payment or
delivery of cash or other consideration in an amount or having a value in
excess of $25,000 per month and (B) has a term of more than ninety (90)
days and that may not be terminated by the Company within ninety (90) days
after the delivery of a termination notice by the Company;
(viii) any Contract that contemplates or involves payment or delivery
of cash or other consideration by the Company in an amount or having a
value in excess of $75,000 in the aggregate;
(ix) any Contract or Plan (including, without limitation, any stock
option plan, stock appreciation plan or stock purchase plan), any of the
benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the execution of this Agreement or the consummation
of any of the transactions contemplated by this Agreement or the value of
any of the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement;
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(x) any joint marketing or development Contract currently in force
under which the Company has continuing material obligations to jointly
market any product, technology or service and which may not be canceled
without penalty upon notice of ninety (90) days or less, or any Company
Material Contract pursuant to which the Company has continuing material
obligations to jointly develop any Proprietary Asset that will not be
owned, in whole or in part, by the Company and which may not be canceled
without penalty upon notice of ninety (90) days or less;
(xi) any Contract currently in force to disclose or deliver to any
Person, or permit the disclosure or delivery to any escrow agent or other
Person, of the source code, or any portion or aspect of the source code, or
any proprietary information or algorithm contained in or relating to any
source code, of any Proprietary Asset that is material to the Company taken
as a whole;
(xii) any Contract (not otherwise identified in clauses (i) through
(xi) of this sentence) that is or would be material to any of the Company,
to the business, condition, capitalization or operations of the Company or
to any of the transactions contemplated by this Agreement;
(xiii) any other Contract, if a breach of such Contract could
reasonably be expected as of the date of this Agreement to have a Material
Adverse Effect on the Company; and
(xiv) any indentures, mortgages, promissory notes, loan agreements,
guarantees of amounts in excess of $50,000, letters of credit or other
agreements or instruments of the Company or commitments for the borrowing
or the lending of amounts in excess of $50,000 by the Company or providing
for the creation of any charge, security interest, encumbrance or lien upon
any of the assets of the Company.
(b) Each Company Material Contract is valid and in full force and effect,
and is enforceable by the Company in accordance with its terms, subject to (i)
laws of general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies. To the Company's knowledge, no Person has violated
or breached, or committed any default under, any Company Material Contract.
(c) (i) The Company has not violated or breached, or committed any default
under, any Company Material Contract, and, to the Company's knowledge, no other
Person has violated or breached, or committed any default under, any Company
Material Contract that could reasonably be expected as of the date of this
Agreement to have a Material Adverse Effect on the Company; (ii) to the
Company's knowledge, no event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or could reasonably
be expected to, (A) result in a violation or breach of any of the provisions of
any Company Material Contract, (B) give any Person the right to declare a
default or exercise any remedy under any Company Material Contract, (C) give any
Person the right to a rebate, chargeback, penalty or change in delivery schedule
under any Company Material Contract, (D) give any Person the right to accelerate
the maturity or performance of any Company Material Contract, or (E) give any
Person the right to cancel, terminate or modify any Company Material Contract
that will have a Material Adverse Effect on the Company; (iii) neither the
Company nor any of its Representatives has received any notice or other
communication regarding any actual or possible violation or breach of, or
default under, any Company Material Contract that will have a Material Adverse
Effect on the Company; and (iv) the Company has obtained all necessary export
licenses related to the export of its products and is not, and has not been, in
violation of such export licenses.
(d) There is no Company Material Contract to which any Governmental Body is
a party or under which any Governmental Body has any rights or obligations, or
directly or indirectly benefiting any Governmental Body (including any
subcontract or other Company Material Contract between the Company and any
contractor or subcontractor to any Governmental Body).
(e) No Person is renegotiating, or has a right pursuant to the terms of any
Company Material Contract to renegotiate, any amount paid or payable to the
Company under any Company Material Contract or any other material term or
provision of any Company Material Contract, except for Company Material
Contracts, which are being renegotiated or provide for renegotiation pursuant to
their terms in the ordinary course of the Company's business.
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SECTION 3.11 Liabilities. The Company has no material liabilities
individually or in the aggregate except for (a) liabilities incurred in the
ordinary course of business consistent with past practice, (b) transaction
expenses payable to its accountants, legal and financial advisors incurred in
connection with this Agreement and the Asset Purchase Agreement and (c)
liabilities set forth in the "liabilities" column of the Company's Unaudited
Interim Balance Sheet. The transaction expenses contemplated by Section 3.11(b)
are estimated to be $1,500,000.
SECTION 3.12 Compliance with Legal Requirements. The Company is, and has
at all times been, in compliance with all applicable Legal Requirements, except
where the failure to comply with such Legal Requirements has not had and will
not have a Material Adverse Effect on the Company. The Company has not received
any notice or other communication from any Governmental Body regarding any
actual or possible violation of, or failure to comply with, any Legal
Requirement.
SECTION 3.13 Certain Business Practices. Neither the Company nor any
director, officer, agent or employee of the Company has, on behalf of the
Company, (a) used any funds for unlawful contributions, gifts, entertainment or
other unlawful expenses relating to political activity, (b) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns or violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended, or (c) made any other
unlawful payment.
SECTION 3.14 Governmental Authorizations. The Company holds all
Governmental Authorizations necessary to enable the Company to conduct its
business in the manner in which such business is currently being conducted. All
Governmental Authorizations held by the Company are valid and in full force and
effect. The Company is, and at all times has been, in substantial compliance
with the terms and requirements of such Governmental Authorizations. The Company
has not received any notice or other communication from any Governmental Body
regarding (a) any actual or possible violation of or failure to comply with any
term or requirement of any Governmental Authorization, or (b) any actual or
possible revocation, withdrawal, suspension, cancellation, termination or
modification of any Governmental Authorization.
SECTION 3.15 Tax Matters.
(a) The Company has filed all federal and state income tax returns and all
other material tax returns and reports required to be filed by it. All such
returns are complete and correct in all material respects. The Company and has
paid all taxes shown as due on such returns and all material taxes (as defined
below) for which no return was required to be filed, and the most recent
financial statements contained in the Company SEC Documents and the Company
Unaudited Interim Balance Sheet reflect an adequate reserve for all material
amounts of taxes payable by the Company for all taxable periods and portions
thereof through the date thereof.
(b) The Company shall be responsible for the timely filing (taking into
account any extensions received from the relevant tax authorities) of all tax
returns required by law to be filed by the Company on or prior to the Effective
Time, as well as all non-income tax returns required by law to be filed by the
Company after the Effective Time to the extent that such returns include any
period prior to the Effective Time, (i) such tax returns shall be true, correct
and complete in all material respects and accurately set forth in all material
respects all Items to the extent required to be reflected or included in such
tax returns by applicable federal, state, local or foreign tax laws, regulations
or rules and (ii) all taxes indicated as due and payable on such tax returns
shall be paid by the Company as and when required by law.
(c) The Company has, or by the Effective Time shall have, paid in full or
set up reserves in accordance with United States generally accepted accounting
principles, any and all material taxes in respect of the income, business,
property or operations of the Company (including, without limitation, all
material taxes that the Company is obligated to withhold from amounts paid or
payable to or benefits conferred upon employees, creditors and third parties) or
for which the Company may otherwise be liable for any period or portion thereof
ending prior to or on the Effective Time.
(d) Set forth in Item 3.15 of the Company Disclosure Schedule is a complete
list of income and other tax returns filed by the Company pursuant to the laws
or regulations of any federal, state, local or foreign tax
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authority that have been examined or audited by the IRS or other appropriate
authority during the preceding three (3) years, and a list of all adjustments
resulting from each such examination or audit. Except as set forth in Item 3.15,
all deficiencies proposed as a result of such examinations or audits have been
paid or finally settled and no issue has been raised in any such examination or
audit that, by application of similar principles, reasonably can be expected to
result in the assertion of a material deficiency for any other year not so
examined or audited. No action, suit, investigation, audit, claim or assessment
is pending or to the Company's knowledge (after performing due diligence)
proposed or threatened in writing with respect to a material amount of taxes of
the Company. There are no reasonable grounds for any tax liability beyond
amounts accrued with respect to years that have not been examined or audited,
except to the extent that such tax liability would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company.
(e) There is no agreement or other document extending, or having the effect
of extending, the period of assessment or collection of any material amount of
taxes.
(f) No material liens for taxes exist with respect to any assets or
properties of the Company, except for statutory liens for taxes not yet due.
(g) The Company is not a party to nor is bound by any income tax allocation
or sharing agreement with respect to a material amount of taxes, and the Company
has never been a member of an "affiliated group" within the meaning of section
1504 of the Code.
(h) All material amounts of taxes which the Company is required by law to
withhold or to collect for payment have been duly withheld and collected, and
have been paid or accrued.
(i) No claim has ever been made by an authority in a jurisdiction where the
Company does not file tax returns that it is or may be subject to taxation by
that jurisdiction, except to the extent that being so subject would not
reasonably be expected to have a Material Adverse Effect on the Company.
(j) The Company is not a United States Real Property Holding Corporations
(a "USRPHC") within the meaning of section 897 of the Code and were not USRPHC
on any "determination date" (as defined in sec.1.897-2(c) of the United States
Treasury Regulations promulgated under the Code (the "Treasury Regulations"))
that occurred in the five (5) year period preceding the Closing Date.
(k) The Company has not executed any closing agreements pursuant to section
7121 of the Code or any predecessor provision thereof, or any similar provision
of state or local law.
(l) The Company has not filed any consents pursuant to section 341(f) of
the Code or agreed to have section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as such term is defined in section
341(f)(4) of the Code) owned by the Company.
(m) None of the assets owned by the Company is property that is required to
be treated as owned by any other person pursuant to section 168(f)(8) of the
Internal Revenue Code of 1954, as amended, as in effect immediately prior to the
enactment of the Tax Reform Act of 1986, directly or indirectly secures any
indebtedness, the interest on which is tax-exempt under section 103 of the Code
or is "tax-exempt use property" within the meaning of section 168(h) of the
Code, except to the extent that such treatment would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company.
(n) The Company has disclosed on its federal income tax returns all
positions taken therein that could give rise to a substantial understatement of
federal income tax within the meaning of Code section 6662, except to the extent
that such treatment would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Company.
(o) The Company has not agreed to make any adjustments pursuant to section
481(a) of the Code or any similar provision of state or local law by reason of a
change in accounting method initiated by it or any other relevant party and the
Company has no knowledge that the IRS has proposed any such adjustment or change
in accounting method, nor has any application pending with any governmental or
regulatory authority
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requesting permission for any changes in accounting methods that relate to the
business or assets of the Company. The Company is not required to make any
adjustments pursuant to the section 481(a) or 263A of the Code or any similar
provision of state or local law by reason of a change in accounting method
initiated by it or any other relevant party, except to the extent that any such
adjustment would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on the Company.
(p) There is no contract, agreement, plan or arrangement, including without
limitation the provisions of this Agreement, covering any employee or
independent contractor or former employee or independent contractor of the
Company that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to section 280G of the Code (as
determined without regard to section 280G(b)(4)).
(q) The Company has not participated in (and prior to the Closing Date the
Company will not participate in) an international boycott within the meaning of
section 999 of the Code.
(r) As used in this Agreement, (i) "tax" and "taxes" shall include any
federal, state, local or foreign net income, gross income, gross receipts,
windfall profit, severance, real and personal property, production, sales, use,
transfer, stamp, license, excise, franchise, employment, payroll, withholding,
alternative or add-on minimum or any other tax, custom, duty, governmental fee
or other like assessment or charge of any kind whatsoever, together with any
interest or penalty, or addition to tax imposed by any governmental entity and
(ii) "tax return" shall include any return, report or similar statement required
to be filed with respect to any tax including, without limitation, any
information return, claim for refund, amended return or declaration of estimated
tax.
SECTION 3.16 Employee and Labor Matters; Benefit Plans.
(a) Item 3.16(a) of the Company Disclosure Schedule identifies each salary,
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, termination pay, hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "Plans") sponsored,
maintained, contributed to or required to be contributed to by the Company for
the benefit of any current or former employee of the Company.
(b) The Company does not maintain, sponsor or contribute to, and the
Company has not at any time in the past maintained, sponsored or contributed to,
any employee pension benefit plan (as defined in section 3(2) of the Employee
Retirement Income Security Act of 1973, as amended ("ERISA"), whether or not
excluded from coverage under specific Titles or Merger Subtitles of ERISA) for
the benefit of its employees or former employees (a "Pension Plan"). None of the
Plans identified in Item 3.16(a) of the Company Disclosure Schedule is subject
to Title IV of ERISA or section 412 of the Code.
(c) The Company does not maintain, sponsor or contribute to any: (i)
employee welfare benefit plan (as defined in section 3(1) of ERISA, whether or
not excluded from coverage under specific Titles or Merger Subtitles of ERISA)
for the benefit of any of its employees or former employees (a "Welfare Plan"),
or (ii) self-funded medical, dental or other similar Plan. None of the Plans
identified in Item 3.16(a) of the Company Disclosure Schedule is a
multi-employer plan (within the meaning of section 3(37) of ERISA).
(d) With respect to each Plan, the Company has made available to ScanSoft:
(i) an accurate and complete copy of such Plan (including all amendments
thereto); (ii) an accurate and complete copy of the annual report, if required
under ERISA, with respect to such Plan for the last two (2) years; (iii) an
accurate and complete copy of the most recent summary plan description, together
with each Summary of Material Modifications, if required under ERISA, with
respect to such Plan; (iv) if such Plan is funded through a trust or any third
party funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and complete
copies the most recent financial statements thereof; (v) accurate and complete
copies of all Contracts relating to such Plan, including service provider
agreements, insurance Contracts, minimum premium Contracts, stop-loss
agreements, investment management agreements, subscription and participation
agreements and recordkeeping agreements; and (vi) an accurate and complete copy
of the most recent determination letter received from the Internal Revenue
Service with respect to such Plan (if such Plan is intended to be qualified
under section 401(a) of the Code).
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(e) The Company is not nor has it ever been required to be treated as a
single employer with any other Person under section 4001(b)(1) of ERISA or
section 414(b), (c), (m) or (o) of the Code. The Company has never been a member
of an "affiliated service group" within the meaning of section 414(m) of the
Code. The Company has never made a complete or partial withdrawal from a
multi-employer plan, as such term is defined in section 3(37) of ERISA,
resulting in "withdrawal liability," as such term is defined in section 4201 of
ERISA (without regard to subsequent reduction or waiver of such liability under
either section 4207 or 4208 of ERISA).
(f) The Company does not have any plan or commitment to create any Welfare
Plan or any additional Pension Plan, or to modify or change any existing Pension
Plan (other than to comply with applicable law) in a manner that would affect
any of its employees.
(g) No Plan provides death, medical or health benefits (whether or not
insured) with respect to any current or former employee of the Company after any
such employee's termination of service (other than (i) benefit coverage mandated
by applicable law, including coverage provided pursuant to section 4980B of the
Code, (ii) deferred compensation benefits accrued as liabilities on the Company
Balance Sheet, and (iii) benefits the full cost of which are borne by current or
former employees of the Company (or the employees' beneficiaries)).
(h) With respect to any Plan constituting a group health plan within the
meaning of section 4980B(g)(2) of the Code, to the Company's knowledge, the
provisions of section 4980B of the Code ("COBRA") have been complied with in all
material respects. Item 3.16(h) of the Company Disclosure Schedule describes all
obligations of the Company as of the date of this Agreement under any of the
provisions of COBRA.
(i) Each of the Plans has been operated and administered in all material
respects in accordance with applicable Legal Requirements, including but not
limited to ERISA and the Code.
(j) To the Company's knowledge, each of the Plans intended to be qualified
under section 401(a) of the Code has received a favorable determination from the
Internal Revenue Service or has remaining a period of time in which to file an
application for such determination, and the Company is not aware of any reason
why any such determination letter should be revoked or not issued.
(k) Neither the execution, delivery or performance of this Agreement or the
Merger Agreement, nor the consummation of the Merger thereunder or the
transaction contemplated by this Agreement, or any of the other transactions
contemplated by this Agreement or the Merger Agreement, will result in any
payment (including any bonus, golden parachute or severance payment) to any
current or former employee, consultant, or director of the Company (whether or
not under any Plan), or materially increase the benefits payable under any Plan,
or result in any acceleration of the time of payment or vesting of any such
benefits. If any such payment is disclosed in Item 3.16(k) of the Company
Disclosure Schedule, such reference also states whether or not such payment is
an Assumed Liability for purposes of the Asset Purchase Agreement.
(l) Item 3.16(l) of the Company Disclosure Schedule contains a list of all
employees of the Company as of the date of this Agreement, and correctly
reflects, in all material respects, their base salaries, their targeted annual
bonus amounts, their dates of employment and their positions. The Company is not
a party to any collective bargaining Contract or other Contract with a labor
union involving any of its employees. All of the Company's employees are "at
will" employees under applicable law.
(m) Item 3.16(m) of the Company Disclosure Schedule identifies each
employee who is not fully available to perform work because of disability or
other leave and sets forth the basis of such leave and the anticipated date of
return to full service.
(n) To the Company's knowledge, each Plan complies in all material respects
with all applicable Legal Requirements. To the Company's knowledge, the Company
is in compliance in all material respects with all Contracts relating to
employment, employment practices, wages, bonuses and terms and conditions of
employment, including employee compensation matters.
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(o) The Company has good labor relations, and it has no knowledge of any
facts indicating that (i) the consummation of the Merger pursuant to this
Agreement or the transactions contemplated by the Asset Purchase Agreement or
any other agreement will have a Material Adverse Effect on the labor relations
of the Company, or (ii) except as contemplated in this Agreement or the Asset
Purchase Agreement, any employee intends to terminate his or her employment with
the Company prior to the Closing.
SECTION 3.17 Environmental Matters. The Company is in compliance in all
material respects with all applicable Environmental Laws, which compliance
includes the possession by the Company of all permits and other Governmental
Authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof. The Company has not received any notice or
other communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that it is not in compliance
with any Environmental Law, and, to the Company's knowledge, there are no
circumstances that may prevent or interfere with the compliance by the Company
with any Environmental Law in the future. To the Company's knowledge, no current
or prior owner of any property leased or controlled by the Company has received
any notice or other communication (in writing or otherwise), whether from a
Government Body, citizens group, employee or otherwise, that alleges that such
current or prior owner or the Company is not in compliance with any
Environmental Law. All property that is leased to, controlled by or used by the
Company, and all surface water, groundwater and soil associated with or adjacent
to such property is in clean and healthful condition and is free of any material
environmental contamination of any nature.
SECTION 3.18 Insurance. The Company has delivered to ScanSoft a schedule
of insurance relating to the business, assets or operations of the Company. The
schedule of insurance lists the policies, limits of liability, name of
insurer(s) and broker(s), and expiration dates of each policy. Each such
insurance policy is in full force and effect. The Company has not received any
notice or other communication regarding any actual or possible (a) cancellation
or invalidation of any insurance policy, (b) refusal of any coverage or
rejection of any material claim under any insurance policy, or (c) material
adjustment in the amount of the premiums payable with respect to any insurance
policy. There is no pending claim (including any workers' compensation claim)
under or based upon any insurance policy of the Company; and, to the Company's
knowledge, no event has occurred, and no condition or circumstance exists, that
might (with or without notice or lapse of time) directly or indirectly give rise
to or serve as a basis for any such claim.
SECTION 3.19 Transactions with Affiliates. Except as set forth in the
Company SEC Documents, since the date of the Company's last proxy statement
filed with the SEC, no event has occurred that would be required to be reported
by the Company pursuant to Item 303 of Regulation S-K promulgated by the SEC.
Item 3.19 of the Company Disclosure Schedule identifies each Person who is an
"affiliate" (as that term is used in Rule 145 promulgated under the Securities
Act) of the Company as of the date of this Agreement.
SECTION 3.20 Legal Proceedings; Orders.
(a) There are no pending Legal Proceedings (including, to the Company's
knowledge, any investigation), and no Person has overtly threatened to commence
any Legal Proceeding, except as set forth in Item 3.20(a) of the Company
Disclosure Schedule (which Item 3.20(a) indicates whether or not such Legal
Proceedings are Purchased Assets or Assumed Liabilities): (i) that involves the
Company or any of the assets owned or used by the Company, including, without
limitation, any Proprietary Asset of the Company; or (ii) that challenges, or
that may have the effect of preventing, delaying, making illegal or otherwise
interfering with any of the transactions contemplated by this Agreement or the
Asset Purchase Agreement. To the Company's knowledge, no event has occurred, and
no claim, dispute or other condition or circumstance exists, that will, or that
could reasonably be expected to, give rise to or serve as a basis for the
commencement of any such Legal Proceeding. To the Company's knowledge, no event
has occurred, and no claim, dispute or other condition or circumstance exists,
that will, or that could reasonably be expected to, cause or provide a basis for
a director, officer or other Representative of the Company to seek
indemnification from, or commence a Legal Proceeding against or involving the
Company.
(b) There is no order, writ, injunction, judgment or decree to which the
Company, or any of the assets owned or used by the Company, is subject. To the
Company's knowledge, no officer or other employee of the Company is subject to
any order, writ, injunction, judgment or decree that prohibits such officer or
other
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employee from engaging in or continuing any conduct, activity or practice
relating to the business of the Company.
SECTION 3.21 Authority. The Company has all requisite corporate power and
authority to execute and deliver this Agreement, and, subject to approval by the
stockholders of the Company of the Merger, to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company, and no other corporate action on the part of the
Company is necessary to authorize or execute this Agreement or to consummate the
transactions so contemplated, subject to approval by the stockholders of the
Company of this Agreement and the Merger (if required). This Agreement has been
duly executed and delivered by the Company and (assuming the valid
authorization, execution and delivery of this Agreement by ScanSoft) constitutes
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except that such enforceability (i) may be limited
by bankruptcy, insolvency, moratorium or other similar laws affecting or
relating to the enforcement of creditors' rights generally and (ii) is subject
to general principles of equity.
SECTION 3.22 Management Incentive Payments. Neither the execution and
delivery of this Agreement or the Asset Purchase Agreement nor the consummation
of the transactions contemplated by this Agreement or the Asset Purchase
Agreement will result in or cause any employee or former employee of the Company
to be entitled to any: (a) increase in the amount or value of any compensation,
payment or benefit, (b) early vesting or acceleration of delivery or payment of
any compensation, payment or benefit, or (c) payment of any amount as severance.
SECTION 3.23 Required Vote of Stockholders. The affirmative vote of the
holders of not less than a majority of the outstanding Shares is required to
adopt the plan of merger contained in this Agreement and approve the Merger. No
other vote of the stockholders of the Company is required by law, the
Certificate of Incorporation or Bylaws of the Company as currently in effect or
otherwise to adopt the plan of merger contained in this Agreement and approve
the Merger.
SECTION 3.24 Non-Contravention; Consents. Neither (i) the execution,
delivery or performance of this Agreement, the Asset Purchase Agreement or any
of the other agreements referred to in this Agreement or the Asset Purchase
Agreement, nor (ii) the consummation of any of the transactions contemplated by
this Agreement or the Asset Purchase Agreement, will directly or indirectly
(with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of the certificate of incorporation, bylaws or other charter
or organizational documents of the Company, or (ii) any resolution adopted
by the stockholders, the board of directors or any committee of the board
of directors of the Company;
(b) to the Company's knowledge, contravene, conflict with or result in
a violation of, or give any Governmental Body or other Person the right to
challenge any of the transactions contemplated by this Agreement or the
Asset Purchase Agreement or to exercise any remedy or obtain any relief
under, any Legal Requirement or any order, writ, injunction, judgment or
decree to which the Company, or any of the assets owned or used by the
Company, is subject, except as provided under U.S. antitrust laws,
including the HSR Act, Sherman and Clayton Acts;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by the Company or that otherwise relates to the
business of the Company or to any of the assets owned or used by the
Company;
(d) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Company Material
Contract, or give any Person the right to (i) declare a default or exercise
any remedy under any Company Material Contract, (ii) a rebate, chargeback,
penalty or change in delivery schedule under any Company Material Contract,
(iii) accelerate the maturity or performance
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of any Company Material Contract, or (iv) cancel, terminate or modify any
term of any Company Material Contract; or
(e) result in the imposition or creation of any Encumbrance upon or
with respect to any asset owned or used by the Company (except for minor
liens that will not, in any case or in the aggregate, materially detract
from the value of the assets subject thereto or materially impair the
operations of the Company).
Except as may be required by the Exchange Act, the DGCL, the HSR Act and
the rules of the NASD, the Company was not, is not, nor or will it be required
to make any filing with or give any notice to, or to obtain any Consent from,
any Person in connection with (x) the execution, delivery or performance of this
Agreement or any of the other agreements referred to in this Agreement or (y)
the consummation of any of the transactions contemplated by this Agreement.
SECTION 3.25 Sale of Hardware Business. The Company is in the business of
designing, manufacturing, marketing and selling desktop and flatbed scanners
(the "Hardware Business") and in the business of designing, manufacturing,
marketing and selling software (the "Software Business") and the Company is not
engaged in any other business. The Asset Purchase Agreement discloses all
material liabilities relating to the Hardware Business, which liabilities will
be assumed by Primax (whether actual, contingent or otherwise). The Asset
Purchase Agreement has been duly authorized, executed and delivered by the
Company, and, assuming due authorization, execution and delivery by Primax,
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms. No stockholder approval by the
Company's stockholders is required in connection with the Asset Purchase
Agreement and the transactions contemplated thereby. The Company and, to the
Company's knowledge, Primax, is in full compliance with the terms of the Asset
Purchase Agreement and neither the Company nor, to the Company's knowledge,
Primax intends to terminate the Asset Purchase Agreement.
SECTION 3.26 Brokers. No broker, investment banker, financial advisor or
other person, other than Broadview International LLC ("Broadview") and The
Brenner Group L.L.C., the fees and expenses of which will be paid by the Company
(and are reflected in an agreement between Broadview and the Company and The
Brenner Group L.L.C. and the Company, complete copies of which has been
furnished to ScanSoft), is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company. The fees and expenses of Broadview and The Brenner Group L.L.C. are
estimated to be $850,000.
Other than the foregoing agreements, the Company is not aware of any claim
for payment by the Company of any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the negotiations leading to
this Agreement or the consummation of the transactions contemplated hereby.
SECTION 3.27 [Reserved].
SECTION 3.28 State Takeover Statutes; Charter Provisions. The approval by
the Board of Directors of the Company of the Merger, this Agreement and the
transactions contemplated by this Agreement (including the execution of the
Irrevocable Proxy/Voting Agreement) prior to the execution by the Company's
representatives of such documents rendered inapplicable to the Merger, this
Agreement and the Irrevocable Proxy/Voting Agreement the provisions of section
203 of the DGCL and the provisions of any California takeover laws.
SECTION 3.29 Accuracy of Information.
(a) The financial forecasts for fiscal 1998 and 1999 previously furnished
to ScanSoft, as updated through the date hereof, have been prepared in good
faith, represent the reasonable judgment of the Company's management and are
based on assumptions which the Company believes as of the date hereof are
reasonable. No representation is made, however, as to whether the assumptions on
which the projections are based are true and correct or that events will not
occur which would make such assumptions incorrect. This Agreement (including the
Company Disclosure Schedule) does not (i) contain any representation, warranty
or information that is false or misleading with respect to any material fact, or
(ii) omit to state any material fact necessary in order to make the
representations, warranties and information contained and to be contained
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herein and therein (in the light of the circumstances under which such
representations, warranties and information were or will be made or provided)
not false or misleading.
(b) The Company has provided ScanSoft and ScanSoft's Representatives with
reasonable access to the Company's Representatives, Personnel and assets and to
all existing books, records, Tax Returns, work papers and other documents and
information relating to the Company; and provided ScanSoft and ScanSoft's
Representatives with such copies of the existing books, records, Tax Returns,
work papers and other documents and information relating to the Company, and
with such additional financial, operating and other data and information
regarding the Company, as ScanSoft has requested.
SECTION 3.30 Proxy Statement/Registration Statement. None of the
information (including financial data) supplied or to be supplied by the Company
specifically for inclusion therein or incorporation by reference in (a) the
registration statement on Form S-4 to be filed with the SEC by the Company in
connection with the Merger (including the Proxy Statement constituting a part
thereof) (the "Registration Statement") will, at the time the Registration
Statement becomes effective and (b) the Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to stockholders and at the time
of the Stockholder Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except that no representation or warranty is
made by the Company in connection with any of the foregoing with respect to
statements made based on information supplied in writing by ScanSoft or any of
its representatives specifically for inclusion therein. Each of the Registration
Statement and the Proxy Statement will comply as to form in all material
respects with the requirements of the Securities Act and the Exchange Act, as
appropriate, and the rules and regulations thereunder in effect at the time the
Registration Statement becomes effective or, in the case of the Proxy Statement,
at the date of mailing to stockholders, except that no representation or
warranty is made by the Company in connection with any of the foregoing with
respect to statements made based on information supplied in writing by ScanSoft
or any of its representatives specifically for inclusion therein.
SECTION 3.31 Third Party Standstill Agreements. The Company is not, and
the execution and delivery of this Agreement and the consummation by the Company
of the transactions contemplated by this Agreement will not, conflict with or
result in any violation or breach of any agreement, including, but not limited
to, any standstill, exclusivity or confidentiality agreement, to which the
Company is a party, with respect to the acquisition, sale or other disposition
of the Company or the Company's Software Business.
SECTION 3.32 Irrevocable Proxy/Voting Agreement. All of the persons
and/or entities deemed Affiliates of the Company listed on Exhibit D, who hold
in the aggregate approximately thirty-three percent (33%) of the outstanding
Shares, have agreed in writing to vote for approval of the Merger pursuant to
Irrevocable Proxy/Voting Agreements attached hereto as Exhibit A. The Company
shall use its reasonable efforts to obtain such a written agreement from any
other person as soon as practicable after the date on which such person attains
such status as an Affiliate of the Company.
SECTION 3.33 Board Approval. The Board of Directors of the Company has
unanimously (a) approved this Agreement and the Merger, (b) determined that the
Merger is in the best interests of the stockholders of the Company and is on
terms that are fair to such stockholders and (c) agreed to recommend to the
stockholders of the Company in the Proxy Statement that the stockholders of the
Company approve this Agreement and the Merger.
SECTION 3.34 Shareholder Rights Agreement. The Preferred Shares Rights
Agreement between the Company and U.S. Stock Transfer Corporation, Rights Agent,
dated as of October 23, 1996 (the "Rights Agreement"), has been amended, and
will remain amended (and no replacement plan will be adopted), so as to provide
that none of ScanSoft or its affiliates will become an "Acquiring Person" and
that no "Share Acquisition Date" or "Distribution Date" (as such terms are
defined in the Rights Agreement) will occur as a result of the execution of this
Agreement or the consummation of the Merger pursuant to this Agreement and the
Shareholder Rights Agreement has not otherwise been amended.
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SECTION 3.35 Blue Sky Laws. The Company has complied with the securities
and blue sky laws of all jurisdictions which are applicable to the issuance of
the Company's Common Stock in connection with the Merger.
SECTION 3.36 Sufficiency of Assets. The Company's assets, including,
without limitation, the Software Proprietary Assets, constitute all of the
assets necessary to enable the Company to conduct the Software Business in the
manner in which the Software Business has been and is being conducted.
SECTION 3.37 Software Inventory. The Company's software inventory
consists of a quantity and quality usable and salable in the ordinary course of
business (excluding any changes in the business resulting from the Merger) and
the present quantities of inventory are reasonable in the present circumstances
of the Software Business as currently conducted and as proposed to be conducted
(excluding any changes in the business resulting from the Merger).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SCANSOFT, INC.
Except as set forth in the ScanSoft Disclosure Schedule attached hereto and
delivered to the Company by ScanSoft, ScanSoft represents and warrants to the
Company as of the date of this Agreement as follows:
SECTION 4.1 Due Organization; Subsidiaries; Etc.
(a) ScanSoft has no Subsidiaries and ScanSoft does not own any capital
stock of, or any equity interest of any nature in, any other Entity. ScanSoft
has not agreed nor is it obligated to make, nor is it bound by any Contract
under which it may become obligated to make, any future investment in or capital
contribution to any other Entity. ScanSoft has not at any time been a general
partner of any general partnership, limited partnership or other Entity.
(b) ScanSoft is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority: (i) to conduct its business in the
manner in which its business is currently being conducted; (ii) to own and use
its assets in the manner in which its assets are currently owned and used; and
(iii) to perform its obligations under all Contracts by which it is bound.
(c) ScanSoft has not been required to be qualified, authorized, registered
or licensed to do business as a foreign corporation in any jurisdiction other
than the jurisdictions identified in Item 4.1(c) of the ScanSoft Disclosure
Schedule, except where the failure to be so qualified, authorized, registered or
licensed has not had and will not have a Material Adverse Effect on ScanSoft.
ScanSoft is in good standing as a foreign corporation in each of the
jurisdictions identified in Item 4.1(c) of the ScanSoft Disclosure Schedule.
SECTION 4.2 Certificate of Incorporation and Bylaws. ScanSoft has
delivered to the Company accurate and complete copies of its certificate of
incorporation, bylaws and other charter and organizational documents, including
all amendments thereto. ScanSoft is not in violation of any of the provisions of
its certificate of incorporation or bylaws or equivalent governing instruments.
SECTION 4.3 Capital Structure. The authorized capital stock of ScanSoft
consists of 27,000,000 shares of Common Stock, par value $.001 per share and
23,000,000 shares of Preferred Stock, par value $.001 per share (the "ScanSoft
Preferred Stock"), of which 16,000,000 shares have been designated as Series A
Preferred Stock. As of the close of business on November 20, 1998, (a) 1,000
shares of Common Stock were issued and outstanding, which shares were validly
issued, fully paid and nonassessable and free of preemptive rights, (b) no
shares of Common Stock were held by ScanSoft in its treasury and (c) 16,000,000
shares of Series A Preferred Stock were issued and outstanding. As of the date
of this Agreement, except for outstanding stock options covering not in excess
of 2,742,900 shares of Common Stock under ScanSoft's 1998 Stock Option Plan (the
"ScanSoft Stock Options") with an average exercise price of $0.39, and up to
1,257,100 shares of Common Stock reserved for issuance under ScanSoft's 1998
Stock Option Plan, there are no options, warrants, calls, subscriptions,
convertible securities or other rights or agreements to which
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ScanSoft is a party or by which any of them is bound obligating ScanSoft to
issue, deliver or sell, or cause to be issued, delivered or sold, any shares of
capital stock, or any securities convertible into or exchangeable for shares of
capital stock, of ScanSoft or obligating ScanSoft to grant, extend or enter into
any such option, warrant, call, subscription or other right or agreement, and
there are no other obligations of any kind which would require any person to
sell, pledge, transfer or register any shares of capital stock of ScanSoft. Item
4.3 of the ScanSoft Disclosure Schedule sets forth a true and complete list of
the holders of ScanSoft Stock Options as of November 20, 1998.
As of the date of this Agreement, there are no outstanding contractual
obligations of ScanSoft to repurchase, redeem or otherwise acquire any Shares of
capital stock of ScanSoft.
SECTION 4.4 Financial Statements. The ScanSoft Unaudited Interim Balance
Sheet and the unaudited statement of operations of ScanSoft for the years ended
December 31, 1996 and 1997 and for each of the three quarters ended September
30, 1998 and delivered to the Company fairly present the financial position of
ScanSoft as of the respective dates thereof and the results of operations of
ScanSoft for the periods covered thereby. ScanSoft recognizes revenue in
accordance with Statement of Position 91-1 entitled "Software Revenue
Recognition."
SECTION 4.5 Absence of Changes. Since the date of ScanSoft Unaudited
Interim Balance Sheet:
(a) there has not been any Material Adverse Change in the business,
condition, assets, Liabilities, operations, financial performance or
prospects of ScanSoft, and no event has occurred that could reasonably be
expected to have a Material Adverse Effect on ScanSoft;
(b) there has not been any material loss, damage or destruction
(whether or not covered by insurance) that could reasonably be expected to
have a Material Adverse Effect on ScanSoft;
(c) there has been no amendment to the certificate of incorporation,
bylaws or other charter or organizational documents of ScanSoft, and
ScanSoft has not effected or been a party to any merger, consolidation,
share exchange, business combination, recapitalization, reclassification of
shares, stock split, reverse stock split or similar transaction, other than
the Merger Agreement;
(d) ScanSoft has not (i) received any Takeover Proposal, or (ii)
solicited, initiated, encouraged or induced, or provided any nonpublic
information to or entered into any discussions with any Person for the
purpose of soliciting, initiating, encouraging or inducing, the making or
submission of any Takeover Proposal except as contemplated by this
Agreement;
(e) ScanSoft has not formed any subsidiary or acquired any equity
interest or other interest in any other entity:
(f) ScanSoft has not made any capital expenditures which exceed
$25,000 with respect to any single matter, or $50,000 in the aggregate;
(g) except in the ordinary course of business and consistent with past
practices, ScanSoft has not (i) entered into or become bound by any
ScanSoft Material Contract (as defined in Section 4.10), or (ii) amended or
prematurely terminated, or waived any material right or remedy under, any
ScanSoft Material Contract;
(h) ScanSoft has not (i) acquired, leased or licensed any material
right or other material asset from any other Person, (ii) sold or otherwise
disposed of, or leased or licensed, any material asset to any other Person,
or (iii) waived or relinquished any material right relating to ScanSoft,
except for rights or other assets acquired, leased, licensed or disposed of
in the ordinary course of business and consistent with past practices;
(i) ScanSoft has not written off as uncollectible, or established any
extraordinary reserve with respect to, any account receivable or other
indebtedness in excess of $25,000 with respect to any single matter, or in
excess of $50,000 in the aggregate;
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(j) ScanSoft has not made any pledge or otherwise permitted any
material asset to become subject to any Encumbrance, except for pledges of
immaterial assets made in the ordinary course of business and consistent
with past practices;
(k) ScanSoft has not (i) lent money to any Person, or (ii) incurred or
guaranteed any indebtedness for borrowed money;
(l) ScanSoft has not (i) established or adopted any Plan (as defined
in Section 3.16(a)), (ii) caused or permitted any Plan to be amended in any
material respect, (iii) paid any bonus or made any profit-sharing or
similar payment to, or materially increased the amount of the wages,
salary, commissions, fringe benefits or other compensation or remuneration
payable to, any of its directors, officers or employees, (iv) made any
material change to ScanSoft's severance or termination plans, agreements or
arrangements with any of its employees, except as part of a standard
employment package to any person promoted or hired (but not including the
five most senior officers), or as was required under employment, severance
or termination agreements in effect as of the date of the ScanSoft
Unaudited Interim Balance Sheet, or (v) except for employment agreements in
the ordinary course of business consistent with past practice with
employees other than any executive officer of ScanSoft, any entry by
ScanSoft into any employment, consulting, severance, termination or
indemnification agreement with any such employee or executive officer;
(m) ScanSoft has not made any revaluation of any of its material
assets;
(n) ScanSoft has not made any material change in any of its accounting
methods, principles or practices;
(o) ScanSoft has not made any material election with respect to Taxes;
(p) ScanSoft has not commenced or settled any Legal Proceeding;
(q) ScanSoft has not entered into any material transaction or taken
any other material action that has had, or could reasonably be expected to
have, a Material Adverse Effect on ScanSoft;
(r) ScanSoft has not agreed or committed to take any of the actions
referred to in clauses (c) through (p) above; and
(s) ScanSoft has not taken any other action that occurred prior to the
date hereof that, if it occurred after the date of this Agreement and prior
to the Closing Date, would be prohibited by paragraph (c), (f), (g) or (p)
of Section 5.3 of this Agreement.
SECTION 4.6 Leasehold; Equipment. ScanSoft does not own any real property
or any interest in real property, except for the leaseholds created under the
real property leases identified in Item 4.6 of the ScanSoft Disclosure Schedule.
All such real property is being leased pursuant to lease agreements that are in
full force and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default). Item 4.6 of the ScanSoft Disclosure Schedule
accurately identifies all material items of equipment leased by ScanSoft. All
material items of equipment and other tangible assets owned by or leased to
ScanSoft are adequate for the uses to which they are being put, are in good
condition and repair (ordinary wear and tear excepted).
SECTION 4.7 Title to Assets. ScanSoft owns, and has good, valid and
marketable title to, or in the case of leased properties and assets, valid
leasehold interests in, all of its tangible properties and assets, real,
personal and mixed. All of said assets are owned or leased by ScanSoft free and
clear of any encumbrances, except for (x) any lien for current taxes not yet due
and payable, and (y) minor liens that have arisen in the ordinary course of
business and that do not (in any case or in the aggregate) materially detract
from the value of the assets subject thereto or materially impair the operations
of ScanSoft. Item 4.7 of the ScanSoft Disclosure Schedule sets forth a list of
all material tangible personal property and assets of ScanSoft.
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SECTION 4.8 Receivables; Significant Customers of the Business.
(a) Item 4.8(a) of the ScanSoft Disclosure Schedule provides an accurate
and complete breakdown and aging of all accounts receivable of ScanSoft as of
the date of the ScanSoft Unaudited Interim Balance Sheet. All such accounts
receivable are current, and ScanSoft believes that there is reasonable basis
that such accounts receivable will be collected (net of the allowance of
doubtful accounts set forth on the ScanSoft Unaudited Interim Balance Sheet,
which allowance ScanSoft believes is reasonable).
(b) Item 4.8(b) of the ScanSoft Disclosure Schedule contains an accurate
and complete list as of date of this Agreement of all outstanding loans and
advances made by ScanSoft to any employee, director, consultant or independent
contractor of ScanSoft, other than routine travel or relocation advances made to
employees in the ordinary course of business.
(c) Item 4.8(c) of the ScanSoft Disclosure Schedule sets forth a complete
and accurate list of all Significant Customers of ScanSoft. For purposes of this
Agreement, "Significant Customers" are the twenty-seven customers of ScanSoft
(including without limitation original equipment manufacturers and royalty-
paying customers) that have effected the most purchases from ScanSoft, in dollar
terms, and accounted for the most revenues for ScanSoft, in dollar terms, during
the eight fiscal quarter period ended September 30, 1998. None of ScanSoft's
Significant Customers has canceled or returned or, to ScanSoft's knowledge, is
currently attempting or threatening to cancel or return, any purchases from,
orders to or services provided by ScanSoft. ScanSoft has not received any
material customer complaints concerning its products and/or services.
SECTION 4.9 Proprietary Assets.
(a) Item 4.9(a) of the ScanSoft Disclosure Schedule sets forth a list of
all patents and patent applications, trademarks (whether or not registered),
trademark applications, trade names, fictitious business names, service marks
(whether or not registered), service mark applications, copyrights (whether or
not registered), copyright applications, maskworks, maskwork applications,
computer software, software included in computer programs and proprietary
products of ScanSoft. Item 4.9(a) of the ScanSoft Disclosure Schedule indicates
each Proprietary Asset of ScanSoft registered with any Governmental Body or for
which an application has been filed with any Governmental Body and the names of
the jurisdictions covered by the applicable registration or application.
ScanSoft owns no Proprietary Assets registered with any Governmental Body or for
which an application has been filed with any Governmental Body other than the
Proprietary Assets set forth in Item 4.9(a) of the ScanSoft Disclosure Schedule.
Item 4.9(a) of the ScanSoft Disclosure Schedule identifies and provides a brief
description of each Proprietary Asset licensed to ScanSoft by any Person (except
for any Proprietary Asset that is licensed to ScanSoft under any third party
software license generally available to the public at a cost of less than
$25,000), and identifies the license agreement under which such Proprietary
Asset is being licensed to ScanSoft. ScanSoft has good and marketable title to
all of the Proprietary Assets identified in Items 4.9(a) of the ScanSoft
Disclosure Schedule, free and clear of all liens and other Encumbrances, and has
a right to use all of such Proprietary Assets. To ScanSoft's knowledge, ScanSoft
is not obligated to make any payment after the date of this Agreement to any
Person for the use of any Proprietary Asset. To ScanSoft's knowledge, ScanSoft
has not developed jointly with any other Person any Proprietary Asset with
respect to which such other Person has any rights.
(b) ScanSoft has taken all reasonable and appropriate steps to protect and
preserve all ScanSoft Proprietary Assets that are Trade Secrets. The use,
possession or disclosure by ScanSoft of any Proprietary Assets used in its
business but which are not owned by ScanSoft has been in compliance with the
terms and conditions of a valid and enforceable agreement between ScanSoft and
the owner of such Proprietary Assets, or such use, possession or disclosure is
otherwise lawful under the circumstances. To ScanSoft's knowledge, there has
been no unauthorized disclosures of any Trade Secrets, no unauthorized
disclosures of any Proprietary Assets of any third party by ScanSoft or any of
its respective employees or consultants, and there has been no breach of any
confidentiality or nondisclosure agreements to which ScanSoft is a party.
(c) To ScanSoft's knowledge, none of ScanSoft's Proprietary Assets
infringes or conflicts with any proprietary asset owned or used by any other
Person and ScanSoft is not infringing, misappropriating or
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making any unlawful use of, and ScanSoft has not at any time infringed,
misappropriated or made any unlawful use of, or received any notice or other
communication (in writing or otherwise) of any actual, alleged, possible or
potential infringement, misappropriation or unlawful use of, any Proprietary
Asset owned or used by any other Person. To ScanSoft's knowledge, no other
Person is infringing, misappropriating or making any unlawful use of, and no
Proprietary Asset owned or used by any other Person infringes or conflicts with,
any Proprietary Asset of ScanSoft.
(d) There has not been any claim by any customer or other Person alleging
that any Proprietary Asset of ScanSoft (including each version thereof that has
ever been licensed or otherwise made available by ScanSoft to any Person) does
not conform in all material respects with any specification, documentation,
performance standard, representation or statement made or provided by or on
behalf of ScanSoft. ScanSoft has established adequate reserves on the ScanSoft
Unaudited Interim Balance Sheet to cover all costs that ScanSoft reasonably
anticipates to be associated with any obligations that ScanSoft may have with
respect to the correction or repair of programming errors or other defects in
the Proprietary Assets.
(e) ScanSoft's Proprietary Assets constitute all the Proprietary Assets
necessary to enable ScanSoft to conduct its business in the manner in which such
business has been and is being conducted. ScanSoft has not licensed any of the
Proprietary Assets to any Person on an exclusive basis, and ScanSoft has not
entered into any covenant not to compete or Material Contract limiting its
ability to exploit fully any of its Proprietary Assets (including without
limitation "most favorable pricing" clauses in any Contracts) or to transact
business in any market or geographical area or with any Person.
(f) All current and former employees have executed and delivered to
ScanSoft an agreement (containing no exceptions to or exclusions from the scope
of its coverage) that is substantially identical to the form of confidential
information and invention assignment agreement previously delivered to the
Company. All current and former consultants and independent contractors to
ScanSoft have executed and delivered to ScanSoft an agreement (containing no
exceptions to or exclusions from the scope of its coverage) that is
substantially identical to the form of consultant confidential information and
invention assignment agreement previously delivered to the Company.
SECTION 4.10 Contracts.
(a) Item 4.10 of the ScanSoft Disclosure Schedule identifies each Contract
of ScanSoft that constitutes a "ScanSoft Material Contract." For purposes of
this Agreement, each of the following shall be deemed to constitute a "ScanSoft
Material Contract":
(i) (A) any Contract or outstanding offer relating to the employment
of, or the performance of services by, any employee, (B) any Contract
pursuant to which ScanSoft is required to make any severance, termination
or similar payment, bonus or relocation payment or any other payment (other
than payments in respect of salary) to any current or former employee or
director of ScanSoft, and (C) any Contract or Plan (including, without
limitation, any stock option plan, stock appreciation plan or stock
purchase plan), any of the benefits of which may be increased, or the
vesting of benefits of which may be accelerated;
(ii) any Contract (A) relating to the acquisition, transfer,
development, sharing, license (to or by ScanSoft), use or other
exploitation of any Proprietary Asset (except for any Contract pursuant to
which any Proprietary Asset is licensed to ScanSoft under any third party
software license generally available to the public); or (B) with respect to
the distribution or marketing of any products of ScanSoft, in each case the
absence of which would have a Material Adverse Effect on ScanSoft;
(iii) any Contract which provides for indemnification of any officer,
director, employee or agent of ScanSoft;
(iv) any Contract imposing any material restriction on the right or
ability of ScanSoft (A) to compete in any market or geographic area with
any other Person, (B) to acquire any product or other asset or any services
from any other Person, to sell any product or other asset to or perform any
services
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for any other Person or to transact business or deal in any other manner
with any other Person, or (C) to develop or distribute any technology;
(v) any Contract (A) relating to the acquisition, issuance, voting,
registration, sale or transfer of any securities (other than the issuance
of ScanSoft Common Stock upon the valid exercise of ScanSoft Stock Options,
outstanding as of the date of this Agreement), (B) providing any Person
with any preemptive right, right of participation, right of maintenance or
any similar right with respect to any securities, or (C) providing ScanSoft
with any right of first refusal with respect to, or right to repurchase or
redeem, any securities;
(vi) any Contract requiring that ScanSoft give any notice or provide
any information to any Person prior to accepting any Takeover Proposal;
(vii) any Contract that (A) contemplates or involves payment or
delivery of cash or other consideration in an amount or having a value in
excess of $25,000 per month and (B) has a term of more than ninety (90)
days and that may not be terminated by ScanSoft within ninety (90) days
after the delivery of a termination notice by ScanSoft;
(viii) any Contract that contemplates or involves payment or delivery
of cash or other consideration by ScanSoft in an amount or having a value
in excess of $75,000 in the aggregate;
(ix) any Contract or Plan (including, without limitation, any stock
option plan, stock appreciation plan or stock purchase plan), any of the
benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the execution of this Agreement or the consummation
of any of the transactions contemplated by this Agreement or the value of
any of the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement;
(x) any joint marketing or development Contract currently in force
under which ScanSoft has continuing material obligations to jointly market
any product, technology or service and which may not be canceled without
penalty upon notice of ninety (90) days or less, or any ScanSoft Material
Contract pursuant to which ScanSoft has continuing material obligations to
jointly develop any Proprietary Asset that will not be owned, in whole or
in part, by ScanSoft and which may not be canceled without penalty upon
notice of ninety (90) days or less;
(xi) any Contract currently in force to disclose or deliver to any
Person, or permit the disclosure or delivery to any escrow agent or other
Person, of the source code, or any portion or aspect of the source code, or
any proprietary information or algorithm contained in or relating to any
source code, of any Proprietary Asset that is material to ScanSoft taken as
a whole;
(xii) any Contract (not otherwise identified in clauses (i) through
(xi) of this sentence) that is or would be material to any of ScanSoft, to
the business, condition, capitalization or operations of ScanSoft or to any
of the transactions contemplated by this Agreement;
(xiii) any other Contract, if a breach of such Contract could
reasonably be expected as of the date of this Agreement to have a Material
Adverse Effect on ScanSoft; and
(xiv) any indentures, mortgages, promissory notes, loan agreements,
guarantees of amounts in excess of $50,000, letters of credit or other
agreements or instruments of ScanSoft or commitments for the borrowing or
the lending of amounts in excess of $50,000 by ScanSoft or providing for
the creation of any charge, security interest, encumbrance or lien upon any
of the assets of ScanSoft.
(b) Each ScanSoft Material Contract is valid and in full force and effect,
and is enforceable by ScanSoft in accordance with its terms, subject to (i) laws
of general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies. To ScanSoft's knowledge, no Person has violated or
breached, or committed any default under, any ScanSoft Material Contract.
(c) (i) ScanSoft has not violated or breached, or committed any default
under, any ScanSoft Material Contract, and, to ScanSoft's knowledge, no other
Person has violated or breached, or committed any default
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under, any ScanSoft Material Contract that could reasonably be expected as of
the date of this Agreement to have a Material Adverse Effect on ScanSoft; (ii)
to ScanSoft's knowledge, no event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or could reasonably
be expected to, (A) result in a violation or breach of any of the provisions of
any ScanSoft Material Contract, (B) give any Person the right to declare a
default or exercise any remedy under any ScanSoft Material Contract, (C) give
any Person the right to a rebate, chargeback, penalty or change in delivery
schedule under any ScanSoft Material Contract, (D) give any Person the right to
accelerate the maturity or performance of any ScanSoft Material Contract, or (E)
give any Person the right to cancel, terminate or modify any ScanSoft Material
Contract that will have a Material Adverse Effect on ScanSoft; (iii) neither
ScanSoft nor any of its Representatives has received any notice or other
communication regarding any actual or possible violation or breach of, or
default under, any ScanSoft Material Contract that will have a Material Adverse
Effect on ScanSoft; and (iv) ScanSoft has obtained all necessary export licenses
related to the export of its products and is not, and has not been, in violation
of such export licenses.
(d) There is no ScanSoft Material Contract to which any Governmental Body
is a party or under which any Governmental Body has any rights or obligations,
or directly or indirectly benefiting any Governmental Body (including any
subcontract or other ScanSoft Material Contract between ScanSoft and any
contractor or subcontractor to any Governmental Body).
(e) No Person is renegotiating, or has a right pursuant to the terms of any
ScanSoft Material Contract to renegotiate, any amount paid or payable to
ScanSoft under any ScanSoft Material Contract or any other material term or
provision of any ScanSoft Material Contract, except for ScanSoft Material
Contracts, which are being renegotiated or provide for renegotiation pursuant to
their terms in the ordinary course of ScanSoft's business.
SECTION 4.11 Liabilities. ScanSoft has no material liabilities
individually or in the aggregate except for (a) liabilities incurred in the
ordinary course of business consistent with past practice, (b) transaction
expenses payable to its accountants, legal and financial advisors incurred in
connection with this Agreement and (c) liabilities set forth in the
"liabilities" column of the ScanSoft Unaudited Interim Balance Sheet.
SECTION 4.12 Compliance with Legal Requirements. ScanSoft is, and has at
all times been, in compliance with all applicable Legal Requirements, except
where the failure to comply with such Legal Requirements has not had and will
not have a Material Adverse Effect on ScanSoft. ScanSoft has not received any
notice or other communication from any Governmental Body regarding any actual or
possible violation of, or failure to comply with, any Legal Requirement.
SECTION 4.13 Certain Business Practices. Neither ScanSoft nor any
director, officer, agent or employee of ScanSoft has, on behalf of ScanSoft, (a)
used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (b) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or (c) made any other unlawful
payment.
SECTION 4.14 Governmental Authorizations. ScanSoft holds all Governmental
Authorizations necessary to enable ScanSoft to conduct its business in the
manner in which such business is currently being conducted. All Governmental
Authorizations held by ScanSoft are valid and in full force and effect. ScanSoft
is, and at all times has been, in substantial compliance with the terms and
requirements of such Governmental Authorizations. ScanSoft has not received any
notice or other communication from any Governmental Body regarding (a) any
actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Authorization.
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SECTION 4.15 Tax Matters.
(a) All federal and state income tax returns and all other material tax
returns and reports required to be filed by ScanSoft have been filed. All such
returns are complete and correct in all material respects. All taxes shown as
due on such returns have been paid and all material taxes (as defined below) for
which no return was required to be filed.
(b) ScanSoft shall be responsible for the timely filing (taking into
account any extensions received from the relevant tax authorities) of all tax
returns required by law to be filed by ScanSoft on or prior to the Effective
Time, (i) such tax returns shall be true, correct and complete in all material
respects and accurately set forth in all material respects all Items to the
extent required to be reflected or included in such tax returns by applicable
federal, state, local or foreign tax laws, regulations or rules and (ii) all
taxes indicated as due and payable on such tax returns shall be paid by ScanSoft
as and when required by law.
(c) ScanSoft has, or by the Effective Time shall have, paid in full or set
up reserves in accordance with United States generally accepted accounting
principles, any and all material taxes in respect of the income, business,
property or operations of ScanSoft (including, without limitation, all material
taxes that ScanSoft is obligated to withhold from amounts paid or payable to or
benefits conferred upon employees, creditors and third parties) or for which
ScanSoft may otherwise be liable for any period or portion thereof ending prior
to or on the Effective Time.
(d) Set forth in Item 4.15 of the ScanSoft Disclosure Schedule is a
complete list of income and other tax returns filed by ScanSoft pursuant to the
laws or regulations of any federal, state, local or foreign tax authority that
have been examined or audited by the IRS or other appropriate authority during
the preceding three (3) years, and a list of all adjustments resulting from each
such examination or audit. All deficiencies proposed as a result of such
examinations or audits have been paid or finally settled and no issue has been
raised in any such examination or audit that, by application of similar
principles, reasonably can be expected to result in the assertion of a material
deficiency for any other year not so examined or audited. No action, suit,
investigation, audit, claim or assessment is to ScanSoft's knowledge (after
performing due diligence) pending or proposed or threatened in writing with
respect to a material amount of taxes of ScanSoft. There are no reasonable
grounds for any tax liability beyond amounts accrued with respect to years that
have not been examined or audited, except to the extent that such tax liability
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on ScanSoft.
(e) There is no agreement or other document extending, or having the effect
of extending, the period of assessment or collection of any material amount of
taxes.
(f) No material liens for taxes exist with respect to any assets or
properties of ScanSoft, except for statutory liens for taxes not yet due.
(g) All material amounts of taxes which ScanSoft is required by law to
withhold or to collect for payment have been duly withheld and collected, and
have been paid or accrued.
(h) No claim has ever been made by an authority in a jurisdiction where
ScanSoft does not file tax returns that it is or may be subject to taxation by
that jurisdiction, except to the extent that being so subject would not
reasonably be expected to have a Material Adverse Effect on ScanSoft.
(i) ScanSoft is not a USRPHC (as defined in 3.15(j)) within the meaning of
section 897 of the Code and were not USRPHC on any "determination date" (as
defined in sec. 1.897-2(c) of the Treasury Regulations) that occurred in the
five (5) year period preceding the Closing Date.
(j) ScanSoft has not executed any closing agreements pursuant to section
7121 of the Code or any predecessor provision thereof, or any similar provision
of state or local law.
(k) ScanSoft has not filed any consents pursuant to section 341(f) of the
Code or agreed to have section 341(f)(2) of the Code apply to any disposition of
a subsection (f) asset (as such term is defined in section 341(f)(4) of the
Code) owned by ScanSoft.
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(l) None of the assets owned by ScanSoft is property that is required to be
treated as owned by any other person pursuant to section 168(f)(8) of the
Internal Revenue Code of 1954, as amended, as in effect immediately prior to the
enactment of the Tax Reform Act of 1986 directly or indirectly secures any
indebtedness, the interest on which is tax-exempt under section 103 of the Code
or is "tax-exempt use property" within the meaning of section 168(h) of the
Code, except to the extent that such treatment would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on ScanSoft.
(m) ScanSoft has disclosed on its federal income tax returns all positions
taken therein that could give rise to a substantial understatement of federal
income tax within the meaning of Code section 6662, except to the extent that
such treatment would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on ScanSoft.
(n) ScanSoft has not agreed to make any adjustments pursuant to section
481(a) of the Code or any similar provision of state or local law by reason of a
change in accounting method initiated by it or any other relevant party and
ScanSoft has no knowledge that the IRS has proposed any such adjustment or
change in accounting method, nor has any application pending with any
governmental or regulatory authority requesting permission for any changes in
accounting methods that relate to the business or assets of ScanSoft. ScanSoft
is not required to make any adjustments pursuant to the section 481(a) of the
Code or any similar provision of state or local law by reason of a change in
accounting method initiated by it or any other relevant party, except to the
extent that any such adjustment would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on ScanSoft.
(o) ScanSoft has not filed an election under Rev. Proc. 91-11, 1991-1 C.B.
470, as modified by Rev. Proc. 91-39, 1991-2 C.B. 694, Treas. Reg. sec.
1.1502-20(g) or Rev. Proc. 95-39, 1995-2 C.B. 399.
SECTION 4.16 Employee and Labor Matters; Benefit Plans.
(a) Item 4.16(a) of the ScanSoft Disclosure Schedule identifies each Plan
(as defined in Section 3.16(a)) sponsored, maintained, contributed to or
required to be contributed to by ScanSoft for the benefit of any current or
former employee of ScanSoft.
(b) ScanSoft does not maintain, sponsor or contribute to, and ScanSoft has
not at any time in the past maintained, sponsored or contributed to, any Pension
Plan. None of the Plans identified in Item 4.16(a) of the ScanSoft Disclosure
Schedule is subject to Title IV of ERISA or section 412 of the Code.
(c) ScanSoft does not maintain, sponsor or contribute to any: (i) Welfare
Plan, or (ii) self-funded medical, dental or other similar Plan. None of the
Plans identified in Item 4.16(a) of the ScanSoft Disclosure Schedule is a
multi-employer plan (within the meaning of section 3(37) of ERISA).
(d) With respect to each Plan, ScanSoft has made available to the Company:
(i) an accurate and complete copy of such Plan (including all amendments
thereto); (ii) an accurate and complete copy of the annual report, if required
under ERISA, with respect to such Plan for the last two (2) years; (iii) an
accurate and complete copy of the most recent summary plan description, together
with each Summary of Material Modifications, if required under ERISA, with
respect to such Plan; (iv) if such Plan is funded through a trust or any third
party funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and complete
copies the most recent financial statements thereof; (v) accurate and complete
copies of all Contracts relating to such Plan, including service provider
agreements, insurance Contracts, minimum premium Contracts, stop-loss
agreements, investment management agreements, subscription and participation
agreements and recordkeeping agreements; and (vi) an accurate and complete copy
of the most recent determination letter received from the Internal Revenue
Service with respect to such Plan (if such Plan is intended to be qualified
under section 401(a) of the Code).
(e) ScanSoft is not nor has it ever been required to be treated as a single
employer with any other Person under section 4001(b)(1) of ERISA or section
414(b), (c), (m) or (o) of the Code. ScanSoft has never been a member of an
"affiliated service group" within the meaning of section 414(m) of the Code.
ScanSoft has never made a complete or partial withdrawal from a multi-employer
plan, as such term is defined in section 3(37) of ERISA, resulting in
"withdrawal liability," as such term is defined in section 4201 of ERISA
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(without regard to subsequent reduction or waiver of such liability under either
section 4207 or 4208 of ERISA).
(f) ScanSoft does not have any plan or commitment to create any Welfare
Plan or any additional Pension Plan, or to modify or change any existing Pension
Plan (other than to comply with applicable law) in a manner that would affect
any of its employees.
(g) No Plan provides death, medical or health benefits (whether or not
insured) with respect to any current or former employee of ScanSoft after any
such employee's termination of service (other than (i) benefit coverage mandated
by applicable law, including coverage provided pursuant to section 4980B of the
Code, (ii) deferred compensation benefits accrued as liabilities on the ScanSoft
Unaudited Interim Balance Sheet, and (iii) benefits the full cost of which are
borne by current or former employees of ScanSoft (or the employees'
beneficiaries)).
(h) With respect to any Plan constituting a group health plan within the
meaning of section 4980B(g)(2) of the Code, to ScanSoft's knowledge, the
provisions of COBRA (as defined in Section 3.16(h)) have been complied with in
all material respects. Item 4.16(h) of the ScanSoft Disclosure Schedule
describes all obligations of ScanSoft as of the date of this Agreement under any
of the provisions of COBRA.
(i) Each of the Plans has been operated and administered in all material
respects in accordance with applicable Legal Requirements, including but not
limited to ERISA and the Code.
(j) To ScanSoft's knowledge, each of the Plans intended to be qualified
under section 401(a) of the Code has received a favorable determination from the
Internal Revenue Service or has remaining a period of time in which to file an
application for such determination, and ScanSoft is not aware of any reason why
any such determination letter should be revoked or not issued.
(k) Neither the execution, delivery or performance of this Agreement or the
Merger Agreement, nor the consummation of the Merger thereunder or the
transaction contemplated by this Agreement, or any of the other transactions
contemplated by this Agreement or the Merger Agreement, will result in any
payment (including any bonus, golden parachute or severance payment) to any
current or former employee, consultant, or director of ScanSoft (whether or not
under any Plan), or materially increase the benefits payable under any Plan, or
result in any acceleration of the time of payment or vesting of any such
benefits. If any such payment is disclosed in Item 4.16(k) of the ScanSoft
Disclosure Schedule.
(l) Item 4.16(l) of the ScanSoft Disclosure Schedule contains a list of all
employees of ScanSoft as of the date of this Agreement, and correctly reflects,
in all material respects, their base salaries, their targeted annual bonus
amounts, their dates of employment and their positions. ScanSoft is not a party
to any collective bargaining Contract or other Contract with a labor union
involving any of its employees. All of ScanSoft's employees are "at will"
employees under applicable law.
(m) Item 4.16(m) of the ScanSoft Disclosure Schedule identifies each
employee who is not fully available to perform work because of disability or
other leave and sets forth the basis of such leave and the anticipated date of
return to full service.
(n) To ScanSoft's knowledge, each Plan complies in all material respects
with all applicable Legal Requirements. To ScanSoft's knowledge, ScanSoft is in
compliance in all material respects with all Contracts relating to employment,
employment practices, wages, bonuses and terms and conditions of employment,
including employee compensation matters.
SECTION 4.17 Environmental Matters. ScanSoft is in compliance in all
material respects with all applicable Environmental Laws, which compliance
includes the possession by ScanSoft of all permits and other Governmental
Authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof. ScanSoft has not received any notice or other
communication (in writing or otherwise), whether from a Governmental Body,
citizens group, employee or otherwise, that alleges that it is not in compliance
with any Environmental Law, and, to ScanSoft's knowledge, there are no
circumstances that may prevent or interfere with the compliance by ScanSoft with
any Environmental Law in the future. To
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ScanSoft's knowledge, no current or prior owner of any property leased or
controlled by ScanSoft has received any notice or other communication (in
writing or otherwise), whether from a Government Body, citizens group, employee
or otherwise, that alleges that such current or prior owner or ScanSoft is not
in compliance with any Environmental Law. All property that is leased to,
controlled by or used by ScanSoft, and all surface water, groundwater and soil
associated with or adjacent to such property is in clean and healthful condition
and is free of any material environmental contamination of any nature.
SECTION 4.18 Insurance. ScanSoft has delivered to the Company a schedule
of insurance coverage relating to the business, assets or operations of
ScanSoft. The schedule of insurance lists the coverage and limits of liability.
Such coverage is in full force and effect. ScanSoft has not received any notice
or other communication regarding any actual or possible (a) cancellation or
invalidation of any insurance coverage, (b) refusal of any coverage or rejection
of any material claim under any insurance coverage, or (c) material adjustment
in the amount of the premiums payable with respect to any insurance policy.
There is no pending claim relating solely to ScanSoft (including any workers'
compensation claim) under or based upon any insurance policy of ScanSoft; and,
to ScanSoft's knowledge, no event has occurred, and no condition or circumstance
exists, that might (with or without notice or lapse of time) directly or
indirectly give rise to or serve as a basis for any such claim.
SECTION 4.19 Legal Proceedings; Orders.
(a) There are no pending Legal Proceedings (including, to ScanSoft's
knowledge, any investigation), and no Person has overtly threatened to commence
any Legal Proceeding: (i) that involves ScanSoft or any of the assets owned or
used by ScanSoft, including, without limitation, any Proprietary Asset of
ScanSoft; or (ii) that challenges, or that may have the effect of preventing,
delaying, making illegal or otherwise interfering with any of the transactions
contemplated by this Agreement. To ScanSoft's knowledge, no event has occurred,
and no claim, dispute or other condition or circumstance exists, that will, or
that could reasonably be expected to, give rise to or serve as a basis for the
commencement of any such Legal Proceeding. To ScanSoft's knowledge, no event has
occurred, and no claim, dispute or other condition or circumstance exists, that
will, or that could reasonably be expected to, cause or provide a basis for a
director, officer or other Representative of ScanSoft to seek indemnification
from, or commence a Legal Proceeding against or involving ScanSoft.
(b) There is no order, writ, injunction, judgment or decree to which
ScanSoft, or any of the assets owned or used by ScanSoft, is subject. To
ScanSoft's knowledge, no officer or other employee of ScanSoft is subject to any
order, writ, injunction, judgment or decree that prohibits such officer or other
employee from engaging in or continuing any conduct, activity or practice
relating to the business of ScanSoft.
SECTION 4.20 Authority. ScanSoft has all requisite corporate power and
authority to execute and deliver this Agreement, and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by ScanSoft and the consummation by ScanSoft of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of ScanSoft, and no other corporate action on the part of ScanSoft
is necessary to authorize or execute this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly executed and
delivered by ScanSoft and (assuming the valid authorization, execution and
delivery of this Agreement by the Company) constitutes the valid and binding
obligation of ScanSoft enforceable against ScanSoft in accordance with its
terms, except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to the
enforcement of creditors' rights generally and (ii) is subject to general
principles of equity.
SECTION 4.21 Non-Contravention; Consents. Neither (i) the execution,
delivery or performance of this Agreement or any of the other agreements
referred to in this Agreement, nor (ii) the consummation of any of the
transactions contemplated by this Agreement, will directly or indirectly (with
or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of the certificate of incorporation, bylaws or other charter
or organizational documents of ScanSoft, or (ii) any resolution
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adopted by the sole stockholder, the board of directors or any committee of
the board of directors of ScanSoft;
(b) to ScanSoft's knowledge, contravene, conflict with or result in a
violation of, or give any Governmental Body or other Person the right to
challenge any of the transactions contemplated by this Agreement or to
exercise any remedy or obtain any relief under, any Legal Requirement or
any order, writ, injunction, judgment or decree to which ScanSoft, or any
of the assets owned or used by ScanSoft, is subject, except as provided
under U.S. antitrust laws, including the Hart-Scott-Rodino, Sherman and
Clayton Acts;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by ScanSoft or that otherwise relates to the
business of ScanSoft or to any of the assets owned or used by ScanSoft;
(d) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any ScanSoft Material
Contract, or give any Person the right to (i) declare a default or exercise
any remedy under any ScanSoft Material Contract, (ii) a rebate, chargeback,
penalty or change in delivery schedule under any ScanSoft Material
Contract, (iii) accelerate the maturity or performance of any ScanSoft
Material Contract, or (iv) cancel, terminate or modify any term of any
ScanSoft Material Contract; or
(e) result in the imposition or creation of any Encumbrance upon or
with respect to any asset owned or used by ScanSoft (except for minor liens
that will not, in any case or in the aggregate, materially detract from the
value of the assets subject thereto or materially impair the operations of
ScanSoft).
Except as may be required by the DGCL, ScanSoft was not, is not, nor or
will it be required to make any filing with or give any notice to, or to obtain
any Consent from, any Person in connection with (x) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement or (y) the consummation of any of the transactions contemplated by
this Agreement.
SECTION 4.22 Brokers. No broker, investment banker, financial advisor or
other person, other than Merrill Lynch & Co., is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of ScanSoft. Other than the foregoing, ScanSoft is not
aware of any claim for payment by ScanSoft of any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
thereby.
SECTION 4.23 Accuracy of Information.
(a) The financial forecasts for fiscal 1998 and 1999 previously furnished
to the Company, as updated through the date hereof, have been prepared in good
faith, represent the reasonable judgment of ScanSoft's management and are based
on assumptions which ScanSoft believes as of the date hereof are reasonable. No
representation is made, however, as to whether the assumptions on which the
projections are based are true and correct or that events will not occur which
would make such assumptions incorrect. This Agreement (including the ScanSoft
Disclosure Schedule) does not (i) contain any representation, warranty or
information that is false or misleading with respect to any material fact, or
(ii) omit to state any material fact necessary in order to make the
representations, warranties and information contained and to be contained herein
and therein (in the light of the circumstances under which such representations,
warranties and information were or will be made or provided) not false or
misleading.
(b) ScanSoft has provided the Company and the Company's Representatives
with reasonable access to ScanSoft's Representatives, Personnel and assets and
to all existing books, records, Tax Returns, work papers and other documents and
information relating to ScanSoft; and provided the Company and the Company's
Representatives with such copies of the existing books, records, Tax Returns,
work papers and other documents and information relating to ScanSoft, and with
such additional financial, operating and other data and information regarding
ScanSoft, as the Company has requested.
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SECTION 4.24 Proxy Statement/Registration Statement. None of the
information (including financial data) supplied in writing or to be supplied in
writing by ScanSoft specifically for inclusion therein or incorporation by
reference in (a) the Registration Statement will, at the time the Registration
Statement becomes effective under the Securities Act and (b) the Proxy Statement
and any amendment or supplement thereto will, at the time the date of mailing to
the Company's stockholders and at the time of the Company's Stockholder Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representations or warranty is made by ScanSoft in
connection with any of the foregoing with respect to statements made based on
information supplied by the Company or any of its representatives.
SECTION 4.25 Third Party Standstill Agreements. ScanSoft is not, and the
execution and delivery of this Agreement and the consummation by ScanSoft of the
transactions contemplated by this Agreement will not, conflict with or result in
any violation or breach of any agreement, including, but not limited to, any
standstill, exclusivity or confidentiality agreement, to which ScanSoft is a
party, with respect to the acquisition, sale or other disposition of ScanSoft or
its business.
SECTION 4.26 Sufficiency of Assets. ScanSoft's assets, including, without
limitation, its Proprietary Assets, constitute all of the assets necessary to
enable ScanSoft to conduct its business in the manner in which it has been and
is being conducted.
SECTION 4.27 Board Approval. The Board of Directors of ScanSoft has
approved this Agreement and the Merger and has determined that the Merger is in
the best interests of the stockholder(s) of ScanSoft.
ARTICLE V
CONDUCT PRIOR TO THE EFFECTIVE TIME
SECTION 5.1 Conduct of Business of ScanSoft and the Company. During the
period from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, each of ScanSoft and the
Company agrees (except to the extent expressly contemplated by this Agreement or
as consented to in writing by the other), to carry on its business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted, to pay debts and Taxes when due subject (i) to good faith disputes
over such debts or Taxes and (ii) in the case of Taxes of ScanSoft, to the
Company's consent to the filing of material Tax Returns if applicable, to pay or
perform other obligations when due, and to use all reasonable efforts consistent
with past practice and policies to preserve intact its and its subsidiaries'
present business organization, keep available the services of its and its
subsidiaries' present officers and key employees and preserve its and its
subsidiaries' relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, to the end that its
goodwill and ongoing businesses shall be unimpaired at the Effective Time. Each
of ScanSoft and the Company agrees to promptly notify the other of any event or
occurrence not in the ordinary course of its or its subsidiaries' business, and
of any event which could have a Material Adverse Effect. Without limiting the
foregoing, except as expressly contemplated by this Agreement, neither ScanSoft
nor the Company shall do, cause or permit any of the following, or allow, cause
or permit any of its subsidiaries to do, cause or permit any of the following,
without the prior written consent of the other:
(a) Charter Documents. Except as contemplated in Section 1.5, cause
or permit any amendments to its certificate of incorporation or bylaws;
(b) Dividends; Changes in Capital Stock. Declare or pay any dividends
on or make any other distributions (whether in cash, stock or property) in
respect of any of its capital stock, or split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly,
any shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of
shares in connection with any termination of service to it or its
subsidiaries; provided, however, that ScanSoft may, without the prior
consent of the
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Company, sell outstanding or newly issued shares of its Common or Preferred
Stock provided that the number of shares issued or sold does not exceed 10%
of the total number of shares of capital stock of ScanSoft then
outstanding;
(c) Other. Take, or agree in writing or otherwise to take, any of the
actions described in Sections 5.1(a) and/or (b) above, or any action which
would make any of its representations or warranties contained in this
Agreement untrue or incorrect or prevent it from performing or cause it not
to perform its covenants hereunder.
SECTION 5.2 Conduct of Business of the Company. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, except as expressly contemplated by
this Agreement, the Company shall not do, cause or permit any of the following,
or allow, cause or permit any of its Affiliates to do, cause or permit any of
the following, without the prior written consent of ScanSoft (which shall not be
unreasonably withheld):
(a) Material Contracts. Enter into any material contract or
commitment, or violate, amend or otherwise modify or waive any of the terms
of any of the Company Material Contracts, (including, but not limited to,
the Rights Agreement) other than in the ordinary course of business
consistent with past practice;
(b) Exclusive Rights. Enter into or amend any agreements pursuant to
which any other party is granted exclusive marketing or other exclusive
rights of any type or scope with respect to any of its products or
technology;
(c) Dispositions. Except for the sale of the Hardware Business in
accordance with the terms of the form of Asset Purchase Agreement delivered
to ScanSoft, sell, lease, license or otherwise dispose of or encumber any
of its properties or assets which are material, individually or in the
aggregate, to its business, except in the ordinary course of business
consistent with past practice;
(d) Indebtedness. Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(e) Leases. Enter into operating lease in excess of $25,000;
(f) Payment of Obligations. Pay, discharge or satisfy in an amount in
excess of $100,000 in any one case or $250,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of
business, other than the payment, discharge or satisfaction of liabilities
reflected or reserved against in the Company Financial Statements;
(g) Capital Expenditures. Make any capital expenditures, capital
additions or capital improvements in excess of $25,000 individually or
$200,000 in the aggregate;
(h) Insurance. Materially reduce the amount of any material insurance
coverage provided by existing insurance policies;
(i) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(j) Employee Benefit Plans; New Hires; Pay Increases. Adopt or amend
any employee benefit, stock purchase or option plan, amend any outstanding
option, reprice any outstanding option, or hire any new director level or
officer level employee (except that it may hire a replacement for any
current director level or officer level employee if it first provides
ScanSoft advance notice regarding such hiring decision), pay any special
bonus or special remuneration to any employee or director, or increase the
salaries or wage rates of its employees except pursuant to agreements
outstanding on the date of this Agreement and disclosed in the Company's
Disclosure Schedule;
(k) Management Incentive Arrangement. Grant any incentive, severance
or termination pay (i) to any director or officer or (ii) to any other
employee except (A) payments made pursuant to agreements
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outstanding on the date of this Agreement and disclosed in the Company's
Disclosure Schedule, (B) grants which are made in the ordinary course of
business in accordance with its standard past practice or (C) payments to
employees in consideration for the cancellation of Company Options held by
such employees prior to the Effective Time in such amounts and in such
manner as set forth in the Company's Disclosure Schedule;
(l) Lawsuits. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where it in good faith determines
that failure to commence suit would result in the material impairment of a
valuable aspect of its business, provided that it consults with ScanSoft
prior to the filing of such a suit, or (iii) for a breach of this
Agreement;
(m) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to its business;
(n) Taxes. Other than in the ordinary course of business, make or
change any material election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, file any material Tax Return or any
amendment to a material Tax Return, enter into any closing agreement,
settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(o) Notices. The Company shall give all notices and other information
required to be given to the employees of the Company, any collective
bargaining unit representing any group of employees of the Company, and any
applicable government authority under the WARN Act, the National Labor
Relations Act, the Internal Revenue Code, COBRA, and other applicable law
in connection with the transactions provided for in this Agreement;
(p) Other. Take or agree in writing or otherwise to take, any of the
actions described in Sections 5.2(a) through (o) above, or any action which
would make any of its representations or warranties contained in this
Agreement untrue or incorrect or prevent it from performing or cause it not
to perform its covenants hereunder.
SECTION 5.3 Conduct of Business of ScanSoft. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, except as expressly contemplated by this
Agreement, ScanSoft shall not do, cause or permit any of the following, without
the prior written consent of the Company (which shall not be unreasonably
withheld):
(a) Material Contracts. Enter into any material contract or
commitment, or violate, amend or otherwise modify or waive any of the terms
of any of the ScanSoft Material Contracts, other than in the ordinary
course of business consistent with past practice;
(b) Exclusive Rights. Enter into or amend any agreements pursuant to
which any other party is granted exclusive marketing or other exclusive
rights of any type or scope with respect to any of its products or
technology;
(c) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material, individually
or in the aggregate, to its business, except in the ordinary course of
business consistent with past practice;
(d) Indebtedness. Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(e) Leases. Enter into operating lease in excess of $25,000;
(f) Payment of Obligations. Pay, discharge or satisfy in an amount in
excess of $100,000 in any one case or $250,000 in the aggregate, any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of
business, other than the
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payment, discharge or satisfaction of liabilities reflected or reserved
against in the ScanSoft Financial Statements;
(g) Capital Expenditures. Make any capital expenditures, capital
additions or capital improvements in excess of $50,000 individually or
$200,000 in the aggregate;
(h) Insurance. Materially reduce the amount of any material insurance
coverage provided by existing insurance policies;
(i) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(j) Employee Benefit Plans; New Hires; Pay Increases. Adopt or amend
any employee benefit, stock purchase or option plan, amend any outstanding
option, reprice any outstanding option, or hire any new director level or
officer level employee (except that it may hire a Chief Financial Officer
and a replacement for any current director level or officer level employee
if it first provides the Company advance notice regarding such hiring
decision), pay any special bonus or special remuneration to any employee or
director, or increase the salaries or wage rates of its employees except
pursuant to agreements outstanding on the date of this Agreement and
disclosed in the ScanSoft Disclosure Schedule;
(k) Management Incentive Arrangement. Grant any incentive, severance
or termination pay (i) to any director or officer or (ii) to any other
employee except (A) payments made pursuant to agreements outstanding on the
date of this Agreement and disclosed in the ScanSoft Disclosure Schedule or
(B) grants which are made in the ordinary course of business in accordance
with its standard past practice;
(l) Lawsuits. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where it in good faith determines
that failure to commence suit would result in the material impairment of a
valuable aspect of its business, provided that it consults with the Company
prior to the filing of such a suit, or (iii) for a breach of this
Agreement;
(m) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to its business;
(n) Taxes. Other than in the ordinary course of business, make or
change any material election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, file any material Tax Return or any
amendment to a material Tax Return, enter into any closing agreement,
settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(o) Notices. ScanSoft shall give all notices and other information
required to be given to the employees of ScanSoft, any collective
bargaining unit representing any group of employees of ScanSoft, and any
applicable government authority under the WARN Act, the National Labor
Relations Act, the Internal Revenue Code, COBRA, and other applicable law
in connection with the transactions provided for in this Agreement;
(p) Other. Take or agree in writing or otherwise to take, any of the
actions described in Sections 5.3(a) through (o) above, or any action which
would make any of its representations or warranties contained in this
Agreement untrue or incorrect or prevent it from performing or cause it not
to perform its covenants hereunder.
SECTION 5.4 No Solicitation.
(a) Neither the Company, ScanSoft nor any Representative of the Company or
ScanSoft will, directly or indirectly, solicit, initiate, entertain or encourage
any Takeover Proposal, or participate in any discussions regarding, or furnish
to any person any information with respect to, a Takeover Proposal; provided,
however,
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that prior to the receipt of the Company Stockholder Approval, the Company,
together with its officers, directors and financial advisors, may, to the extent
the Board of Directors of the Company determines, in good faith, after
consultation with outside legal counsel, that it would be a breach of the
Board's fiduciary duties to fail to do so, participate in discussions or
negotiations with and afford access to the properties, books or records of the
Company to any person, entity or group after such person, entity or group has
delivered to the Company in writing an unsolicited Superior Proposal (which
Superior Proposal has not been withdrawn). The Company shall cause each of its
Representatives to promptly inform ScanSoft in writing of the terms of any third
party inquires or proposals involving a Takeover Proposal received by the
Company, identify the name of such third party and provide ScanSoft with a copy
of any such Superior Proposal prior to taking any action permitted in the
proviso of the preceding sentence.
(b) Neither the Board of Directors of the Company nor any committee thereof
shall withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to ScanSoft, the approval or recommendation by such Board of Directors
or such committee of the Merger or this Agreement; provided that, the Board of
Directors may, at any time prior to the receipt of the Company Stockholder
Approval, (i) modify or withdraw such recommendation if the Board of Directors
of the Company determines in good faith that an unsolicited Takeover Proposal is
a Superior Proposal (as hereinafter defined) and, after consultation with
outside counsel, that it would be a breach of its fiduciary responsibilities to
not so modify or withdraw such recommendation, or (ii) approve or recommend, or
propose publicly to approve or recommend, such Superior Proposal if the Board of
Directors of the Company determines in good faith after consulting with outside
counsel that it would be a breach of its fiduciary responsibilities to not
approve or recommend such Superior Proposal.
SECTION 5.5 Third Party Standstill Agreements and Rights
Agreement. During the period from the date of this Agreement through the
Effective Time, the Company shall not terminate, amend, modify or waive any
provision of any confidentiality or standstill agreement to which the Company is
a party (other than any involving ScanSoft) or, except as set forth in Section
3.34, redeem, amend, modify or waive the Rights or any provision of the Rights
Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Reasonable Efforts and Further Assurances. Each of the
parties to this Agreement shall use its commercially reasonable efforts to
effectuate the transactions contemplated hereby and to fulfill and cause to be
fulfilled each party's obligations under this Agreement and the conditions to
closing under this Agreement. Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
SECTION 6.2 Consents; Cooperation.
(a) Each of the Company and ScanSoft shall use its commercially reasonable
efforts to promptly (i) obtain from any Governmental Body any consents,
licenses, permits, waivers, approvals, authorizations or orders required to be
obtained or made by the Company or ScanSoft or any of their subsidiaries in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the transactions contemplated hereunder, including those
required under the HSR Act, and (ii) make all necessary filings, and thereafter
make any other required submissions, with respect to this Agreement and the
Merger required under the Securities Act and the Exchange Act and any other
applicable federal, state or foreign securities laws.
(b) Each of the Company and ScanSoft shall use its commercially reasonable
efforts to resolve such objections, if any, as may be asserted by any
Governmental Body with respect to the transactions contemplated by this
Agreement under the Antitrust Laws. In connection therewith, if any
administrative or judicial action or proceeding is instituted (or threatened to
be instituted) challenging any transaction contemplated by this Agreement as
violative of any Antitrust Law, each of the Company and ScanSoft shall cooperate
and use all commercially reasonable efforts to contest and resist any such
action or proceeding and
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to have vacated, lifted, reversed, or overturned any Order, that is in effect
and that prohibits, prevents, or restricts consummation of the Merger or any
such other transactions, unless by mutual agreement the Company and ScanSoft
decide that litigation is not in their respective best interests. The parties
hereto will consult and cooperate with one another, and consider in good faith
the views of one another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to any Antitrust Laws. Subject to the provisions of Section
8.1(a)(i) and notwithstanding the provisions of the immediately preceding
sentence, it is expressly understood and agreed that neither the Company nor
ScanSoft shall have no obligation to litigate or contest any administrative or
judicial action or proceeding or any Order beyond April 30, 1999. Each of the
Company and ScanSoft shall use all commercially reasonable efforts to take such
action as may be required to cause the expiration of the notice periods under
the HSR or other Antitrust Laws with respect to such transactions as promptly as
possible after the execution of this Agreement.
(c) Notwithstanding anything to the contrary in Section 6.2(a) or (b), (i)
the Company shall not be required to divest any of its business, product lines
or assets, or to take or agree to take any other action or agree to any
limitation that could reasonably be expected to have a Material Adverse Effect
on the Company or of the Company combined with the Surviving Corporation after
the Effective Time or (ii) nor shall ScanSoft be required to divest any of its
business, product lines or assets, or to take or agree to take any other action
or agree to any limitation that could reasonably be expected to have a Material
Adverse Effect on ScanSoft.
(d) From the date of this Agreement until the earlier of the Effective Time
or the termination of this Agreement, each party shall promptly notify the other
party in writing of any pending or, to the knowledge of such party, threatened
action, proceeding or investigation by any Governmental Body or any other person
(i) challenging or seeking material damages in connection with this Agreement or
the transactions contemplated hereunder or (ii) seeking to restrain or prohibit
the consummation of the Merger or the transactions contemplated hereunder or
otherwise limit the right of the Company to own or operate all or any portion of
the businesses or assets of ScanSoft.
(e) Each of the Company and ScanSoft shall give or cause to be given any
required notices to third parties, and use its commercially reasonable efforts
to obtain all consents, waivers and approvals from third parties (i) necessary,
proper or advisable to consummate the transactions contemplated hereunder, (ii)
disclosed or required to be disclosed in the ScanSoft Disclosure Schedule or the
Company Disclosure Schedule, or (iii) required to prevent a Material Adverse
Effect on ScanSoft or the Company from occurring prior or after the Effective
Time. In the event that the Company or ScanSoft shall fail to obtain any third
party consent, waiver or approval described in this Section 6.2(e), it shall use
its commercially reasonable efforts, and shall take any such actions reasonably
requested by the other party, to minimize any adverse effect upon the Company
and ScanSoft and their respective businesses resulting (or which could
reasonably be expected to result after the Effective Time) from the failure to
obtain such consent, waiver or approval.
(f) Each of the Company and ScanSoft will take all commercially reasonable
actions necessary to comply promptly with all legal requirements which may be
imposed on them with respect to the consummation of the transactions
contemplated by this Agreement and will promptly cooperate with and furnish
information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Body or other person,
required to be obtained or made in connection with the taking of any action
contemplated by this Agreement.
SECTION 6.3 Taxes.
(a) For the later of (i) seven (7) years following the effective date of
the Merger or (ii) the full period of the statute of limitations, including any
extensions, the Company grants to Xerox Corporation ("Xerox") and its
representatives, as Xerox reasonably requests, access to the employees and
records and documents of the Company, and the right to make copies of same, as
may be necessary or useful in connection with
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ScanSoft's continuing requirements for information concerning preparation of
financial accounts or tax returns, in connection with any tax audit, legal
proceedings, or otherwise. The Company and ScanSoft shall retain all books,
records, returns, schedules, documents and all material papers or relevant items
of information for periods prior to the effective date of the Merger relating to
the federal, state, foreign or other income tax liability of the Company and
ScanSoft for the later of (A) seven (7) years or (B) the full period of the
applicable statute of limitations, including any extension thereof.
(b) Xerox and the Company shall enter into a tax sharing agreement covering
California franchise taxes which, among other things, shall acknowledge Xerox's
status as "key corporation" of Xerox's unitary group for California franchise
tax purposes and shall provide for computation of the Company's reimbursement of
Xerox with respect to such taxes on a stand-alone, separate company return
basis, provided that the terms of such agreement shall be mutually satisfactory
to both parties.
(c) ScanSoft shall be responsible for paying, shall promptly discharge when
due any sales or use, transfer, excise or similar tax arising from, imposed on
or attributable to the Merger transaction.
SECTION 6.4 Access to Information.
(a) ScanSoft shall afford the Company and its accountants, counsel and
other representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of ScanSoft's properties, books,
contracts, commitments and records, and (ii) all other information concerning
the business, properties and personnel of ScanSoft as the Company may reasonably
request. ScanSoft agrees to provide to the Company and its accountants, counsel
and other representatives copies of internal financial statements promptly upon
request. The Company shall afford ScanSoft and its accountants, counsel and
other representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (A) all of the Company's properties,
books, contracts, commitments and records, and (B) all other information
concerning the business, properties and personnel of the Company as ScanSoft may
reasonably request. The Company agrees to provide to ScanSoft and its
accountants, counsel and other representatives copies of internal financial
statements promptly upon request.
(b) Subject to compliance with applicable law, from the date hereof until
the Effective Time, each of the Company and ScanSoft shall confer on a regular
and frequent basis with one or more representatives of the other party to report
operational matters of materiality and the general status of ongoing operations.
(c) No information or knowledge obtained in any investigation pursuant to
this Section 6.4 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Merger.
SECTION 6.5 Confidentiality. The parties acknowledge that the Company and
ScanSoft have previously executed a non-disclosure agreement (the
"Confidentiality Agreement"), which Confidentiality Agreement shall continue in
full force and effect in accordance with its terms.
SECTION 6.6 Public Disclosure. Unless otherwise permitted by this
Agreement, the Company and ScanSoft shall consult with each other before issuing
any press release or otherwise making any public statement or making any other
public (or non-confidential) disclosure (whether or not in response to an
inquiry) regarding the terms of this Agreement and the transactions contemplated
hereby, and neither shall issue any such press release or make any such
statement or disclosure without the prior approval of the other (which approval
shall not be unreasonably withheld), except as may be required by law or by
obligations pursuant to any listing agreement with any national securities
exchange or with the NASD.
SECTION 6.7 FIRPTA. ScanSoft shall, prior to the Closing Date, provide
the Company with a properly executed Foreign Investment in Real Property Tax Act
of 1980 ("FIRPTA") Notification Letter, which shall state that shares of capital
stock of ScanSoft do not constitute "United States real property interests"
under section 897(c) of the Code, for purposes of satisfying the Company's
obligations under Treasury Regulation section 1.1445-2(c)(3). In addition,
simultaneously with delivery of such Notification Letter, ScanSoft shall have
provided to the Company, as agent for ScanSoft, a form of notice to the Internal
Revenue Service in accordance with the requirements of Treasury Regulation
section 1.897-2(h)(2) along
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with written authorization for the Company to deliver such notice form to the
Internal Revenue Service on behalf of ScanSoft upon the Closing of the Merger.
SECTION 6.8 Blue Sky Laws. The Company shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Surviving Corporation Common Stock
in connection with the Merger. ScanSoft shall use its reasonable efforts to
assist the Company as may be necessary to comply with the securities and blue
sky laws of all jurisdictions which are applicable in connection with the
issuance of the Surviving Corporation Common Stock in connection with the
Merger.
SECTION 6.9 Stockholder Approval.
(a) The Company will duly call and hold a meeting of its stockholders for
the purpose of approving the Merger and the other transactions contemplated by
the Agreement on the terms and conditions set forth in this Agreement and the
Certificate of Merger, and in connection therewith will comply fully with the
pertinent provisions of the applicable federal and state laws relating to the
calling and holding of such meetings of stockholders for such purpose. It is
contemplated that such stockholders meeting will take place on or before
February 28, 1998 or as soon as practicable thereafter.
(b) The Company shall, as soon as is reasonably practicable, prepare and
file an information statement for use in connection with the solicitation of
proxies from the stockholders of the Company with respect to approval of the
Merger (the "Proxy Statement") with the SEC on a confidential basis. The Company
shall prepare and file the Registration Statement with the SEC as soon as is
reasonably practicable following clearance of the Proxy Statement by the SEC and
shall use all reasonable efforts to have the Registration Statement declared
effective by the SEC as promptly as practicable and to maintain the
effectiveness of the Registration Statement through the Effective Time. The
Company shall use all reasonable efforts to mail at the earliest practicable
date to the Company's stockholders the Proxy Statement, which shall include all
information required under applicable law to be furnished to the Company's
stockholders in connection with the Merger and the transactions contemplated
thereby.
(c) Each party shall cooperate with the other party to the best of its
ability in the preparation of the Registration Statement and Proxy Statement. In
this regard, each party from time to time will furnish to the other party, and
be responsible for, all information regarding such party required for the proper
preparation of such Registration Statement and Proxy Statement and shall
promptly furnish the other party with information with respect to any event as a
result of which the Registration Statement and Proxy Statement, if such
information were not disclosed therein, would include an untrue statement of a
material fact relating to it or omit a material fact required to be included
therein or necessary to make the statements therein relating to it not
misleading; and will not at any time make any filing with the SEC that shall not
have been previously submitted to the other party a reasonable time prior to the
filing or as to which such other party shall reasonably object or which is not
in compliance with the Securities Act and the rules and regulations thereunder.
Neither party shall distribute or use such Proxy Statement other than for
internal review unless the other party shall have consented in writing to the
information set forth in such document relating to it and until such documents
have been filed with the SEC. The Proxy Statement shall include the
recommendation of the Board of Directors of both parties in favor of the Merger.
The Company shall use its reasonable efforts to solicit from shareholders of the
Company proxies in favor of the Merger and shall take all other action necessary
or advisable to secure the vote or consent of its stockholders required by
Delaware Law to effect the Merger.
SECTION 6.10 Maintenance of Indemnification Obligations.
(a) Subject to and following the Effective Time, the Surviving Corporation
shall, and the Company and ScanSoft shall cause the Surviving Corporation to,
indemnify and hold harmless the Company's Indemnified Parties (as defined below)
to the extent provided in the Bylaws or Certificate of Incorporation of the
Company and as provided in any indemnification agreements between the Company
and the Company's Indemnified Parties, which agreements shall survive the
Merger, in each case as in effect as of the date of this Agreement. The
Surviving Corporation shall, and the Company and ScanSoft shall cause the
Surviving Corporation to,
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keep in effect such provisions and agreements, which shall not be amended except
as required by applicable law or to make changes permitted by Delaware Law that
would enlarge the rights to indemnification available to the Company's
Indemnified Parties and changes to provide for exculpation of director and
officer liability to the fullest extent permitted by Delaware Law. For purposes
of this Section 6.10, the "Company's Indemnified Parties" shall mean the
individuals who were officers, directors, employees and agents of the Company on
or prior to the Effective Time.
(b) Subject to and following the Effective Time, the Surviving Corporation
shall be jointly and severally obligated to pay the reasonable expenses,
including reasonable attorney's fees, that may be incurred by any the Company's
Indemnified Party in enforcing the rights provided in this Section 6.10 and
shall make any advances of such expenses to the Company's Indemnified Party that
would be available under the Bylaws or Certificate of Incorporation of the
Company (in each case as in effect as of the date of this Agreement) with regard
to the advancement of indemnifiable expenses, subject to the undertaking of such
party to repay such advances in the event that it is ultimately determined that
such party is not entitled to indemnification.
(c) The provisions of this Section 6.10 shall be in addition to any other
rights available to the Company and the Company's Indemnified Parties, including
rights under indemnification agreements between the Company and the Company's
Indemnified Parties, shall survive the Effective Time of the Merger, and are
expressly intended for the benefit of the Company's Indemnified Parties.
(d) Subject to and following the Effective Time, the Surviving Corporation
shall, and the Company shall cause the Surviving Corporation to, use its
reasonable efforts to maintain in effect for a period of six (6) years following
the Effective Time directors' and officers' tail liability insurance covering
the officers and directors of the Company who terminate or resign their
positions after the date hereof but on or prior to the Effective Time and with
at least the same coverage as under the Company's current directors' and
officers' liability insurance; provided, however, that the Surviving Corporation
shall not be required to pay aggregate premiums for such tail coverage in excess
of $250,000.
SECTION 6.11 Listing of Additional Shares. Prior to the Effective Time,
the Company shall file with the Nasdaq National Market a Notification Form for
the Listing of Additional Shares with respect to the shares of Surviving
Corporation Common Stock to be issued in connection with the Merger.
SECTION 6.12 Voting Agreement. Prior to the Effective Time, Xerox, the
Company and the Affiliates of the Company listed on Exhibit D shall enter into a
Voting Agreement in substantially the form of Exhibit E attached hereto. As of
the Effective Time, the Board of Directors of the Company shall be increased to
include seven (7) members.
SECTION 6.13 [Reserved].
SECTION 6.14 Fees and Expenses.
(a) The Company shall pay to ScanSoft by wire transfer a termination fee in
an amount equal to $1,700,000 if this Agreement is terminated pursuant to (X)
Section 8.1(c)(iii) or (Y) Section 8.1(b)(iii) if the Board of Directors of the
Company or any Committee thereof has withdrawn or modified or proposed publicly
to withdraw or modify the approval or recommendation by such Board of Directors
or such Committee of the Merger or this Agreement.
(b) Except as set forth above, all fees and expenses incurred in connection
with the Merger, this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such fees or expenses, whether or not the Merger
is consummated; provided, however, that all filing fees related to compliance
with the HSR Act in connection with the transactions contemplated hereby shall
be borne equally by ScanSoft and the Company.
SECTION 6.15 State Takeover Laws. If any "fair price" or "control share
acquisition" statute or other similar statute or regulation shall become
applicable to the transactions contemplated hereby, the Company and its Board of
Directors shall use reasonable efforts to grant such approvals and take such
actions as are necessary so that the transactions contemplated hereby may be
consummated as promptly as practicable on
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the terms contemplated hereby and otherwise act to minimize the effects of any
such statute or regulation on the transactions contemplated hereby.
SECTION 6.16 Notification of Certain Matters. ScanSoft shall give prompt
notice to the Company after ScanSoft has knowledge, and the Company shall give
prompt notice to ScanSoft after the Company has knowledge, of: (i) the
occurrence, or non-occurrence of any event the occurrence, or non-occurrence, of
which would be reasonably likely to cause (x) any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect,
and (ii) the failure of the Company or ScanSoft to comply with in any material
respect or satisfy in any material respect any covenant, condition or agreement
of such entity to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 6.16 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
SECTION 6.17 Cash Merger Consideration. ScanSoft shall deposit or shall
cause to be deposited with the Exchange Agent on or prior to the Election Date
an amount in cash equal to $10,500,000 and the Company shall cause to be
deposited with the Exchange Agent on or prior to the Election Date an amount in
cash equal to the Excess Company Net Book Value.
SECTION 6.18 Tax Agreement. As of the Closing Date the Tax Agreement
between ScanSoft and Xerox shall be canceled and any obligation or duty
thereunder shall be canceled and/or forgiven.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1 Conditions to Obligations of Each Party to Effect the
Merger. The respective obligations of each party to this Agreement to
consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction on or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing, by
agreement of all the parties hereto:
(a) Stockholder Approval. This Agreement and the Merger shall have
been duly approved and adopted by the requisite vote of the stockholders of
the Company.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other ruling,
decree or order issued by any court of competent jurisdiction or other
legal or regulatory restraint or prohibition preventing the consummation of
the Merger or the sale of the Hardware Business pursuant to the Asset
Purchase Agreement shall be in effect, nor shall any Legal Proceeding be
commenced which seeks to rescind the sale of the Hardware Business and
which is reasonably likely to succeed on the merits nor shall any
proceeding brought by Governmental Body, seeking any of the foregoing be
pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use
its reasonable diligent efforts to have such injunction or other order
lifted.
(c) Governmental Approval. ScanSoft and the Company shall have timely
obtained from each Governmental Body all approvals, waivers, permits,
authorizations, consents and registrations, if any, necessary for
consummation of or in connection with the Merger and the several
transactions contemplated hereby, including, without limitation, such
approvals, waivers, permits, authorizations, consents and registrations, as
may be required under HSR, under the Securities Act and under any state
securities laws upon terms and conditions that are not reasonably likely to
have a Material Adverse Effect on the Company. The waiting period
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated.
SECTION 7.2 Additional Conditions to Obligations of ScanSoft. The
obligations of ScanSoft to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the
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satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by ScanSoft:
(a) Representations, Warranties and Covenants. (i) Each of the
representations and warranties of the Company in this Agreement that is
expressly qualified by a reference to materiality shall have been and shall
be true and correct in all respects as so qualified, and each of the
representations and warranties of the Company in this Agreement that is not
so qualified shall have been and shall be true and correct in all material
respects, (X) on the date of this Agreement and (Y) on and as of the
Closing Date as though such representation or warranty had been made on and
as of such time (except that those representations and warranties which
address matters only as of a particular date shall remain accurate as of
such date); provided, however, that, for purposes of this Section
7.2(a)(i)(Y), any inaccuracies in such representations and warranties will
be disregarded if the circumstances giving rise to all such inaccuracies
(considered collectively) do not constitute, and are not reasonably
expected to result in, a Material Adverse Effect on the Company, and (ii)
the Company shall have substantially performed and complied with the
covenants, obligations and conditions contained in Sections 6.1, 6.2, 6.4,
6.6, 6.7, 6.9, 6.11, 6.12, 6.14, 6.15 and 6.16 of this Agreement required
to be performed and complied with by it as of the Effective Time. ScanSoft
shall have received a certificate signed on behalf of the Company by its
Chief Executive Officer and Chief Financial Officer to such effect.
(b) Certificates of the Company.
(i) Compliance Certificate of the Company. ScanSoft shall have
been provided with a certificate executed on behalf of the Company by
its Chief Executive Officer or its Chief Financial Officer to the effect
that, as of the Effective Time, each of the conditions set forth in
Section 7.2(a) above has been satisfied with respect to the Company.
(ii) Certificate of Secretary of the Company. ScanSoft shall have
been provided with a certificate executed by the Secretary or Assistant
Secretary of the Company certifying:
(A) Resolutions duly adopted by the Board of Directors and the
stockholders of the Company authorizing the execution of this
Agreement and the execution, performance and delivery of all
agreements, documents and transactions contemplated hereby;
(B) The Certificate of Incorporation and Bylaws of the Company,
as in effect immediately prior to the Effective Time, including all
amendments thereto; and
(C) The incumbency of the officers of the Company executing this
Agreement and all agreements and documents contemplated hereby.
(c) Consents Under Agreements. The Company shall have obtained the
consent or approval of each Person whose consent or approval shall be
required in order to consummate the transactions contemplated by this
Agreement under any agreement to which the Company or any of its
Subsidiaries is a party, except those for which the failure to obtain such
consent or approval, individually or in the aggregate, is not reasonably
likely to have a Material Adverse Effect on the Company or is not
reasonably likely to materially adversely affect the ability of the Company
to consummate the transactions contemplated by this Agreement.
(d) Nasdaq National Market Listing. The Shares shall not have been
delisted from the Nasdaq National Market. The Company shall have filed with
the Nasdaq National Market a Notification Form for Listing of Additional
Shares with respect to the shares of Surviving Corporation Common Stock to
be issued in connection with the Merger, and Nasdaq shall have acknowledged
receipt thereof.
(e) Environmental Assessment. The results of any environmental
assessment of the Company requested by ScanSoft shall not reveal any issues
which would have, or would be reasonably likely to have, a Material Adverse
Effect on the Company or the Surviving Corporation.
(f) Sale of Hardware Business. The sale of the Hardware Business
shall have been consummated in accordance with the terms of the form of
Asset Purchase Agreement provided to ScanSoft or pursuant
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to an asset purchase agreement between the Company and a third-party other
than Primax ("Substitute Acquiror") provided that the Substitute Acquiror
has assumed substantially all of the liabilities that Primax would have
assumed pursuant to the terms of the Asset Purchase Agreement.
(g) Voting Agreement. The Voting Agreement shall have been duly
executed by the Affiliates of the Company listed on Exhibit D and delivered
to ScanSoft.
(h) Line of Credit. The Company shall have paid off all outstanding
balances under that certain Loan and Security Agreement dated June 26, 1997
between the Company and Silicon Valley Bank.
(i) Registration Rights Agreement. The Company shall have executed
and delivered to ScanSoft the Registration Rights Agreement in the form of
Exhibit F hereto.
(j) Services Agreement. The Company shall have executed and delivered
the Services Agreement referenced in Section 6.15 of the Asset Purchase
Agreement.
SECTION 7.3 Additional Conditions to the Obligations of the Company. The
obligations of the Company to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by the Company:
(a) Representations, Warranties and Covenants. (i) Each of the
representations and warranties of ScanSoft in this Agreement that is
expressly qualified by a reference to materiality shall have been and shall
be true and correct in all respects as so qualified, and each of the
representations and warranties of ScanSoft in this Agreement that is not so
qualified shall have been and shall be true and correct in all material
respects, (X) on the Closing Date and (Y) on and as of the Closing Date as
though such representation or warranty had been made on and as of such time
(except that those representations and warranties which address matters
only as of a particular date shall remain accurate as of such date);
provided, however, that, for the purposes of this Section 7.3(a)(i)(Y), any
inaccuracies in such representations and warranties will be disregarded if
the circumstances giving rise to all such inaccuracies (considered
collectively) do not constitute, and are not reasonably expected to result
in, a Material Adverse Effect on ScanSoft, and (ii) ScanSoft shall have
substantially performed and complied with all covenants, obligations and
conditions of this Agreement required to be performed and complied with the
covenants, obligations and conditions contained in Sections 6.1, 6.2, 6.4,
6.6, 6.7, 6.9, 6.11, 6.12, 6.14, 6.15 and 6.16 of this Agreement required
to be performed or complied with by it as of the Effective Time. The
Company shall have received a certificate signed on behalf of ScanSoft by
the President of ScanSoft to such effect.
(b) Certificates of ScanSoft.
(i) Compliance Certificate of ScanSoft. The Company shall have
been provided with a certificate executed on behalf of ScanSoft by its
President to the effect that, as of the Effective Time, each of the
conditions set forth in Section 7.3(a) above has been satisfied.
(ii) Certificate of Secretary or Assistant Secretary of
ScanSoft. The Company shall have been provided with a certificate
executed by the Secretary or Assistant Secretary of ScanSoft certifying:
(A) Resolutions duly adopted by the Board of Directors and the
sole stockholder of ScanSoft authorizing the execution of this
Agreement and the execution, performance and delivery of all
agreements, documents and transactions contemplated hereby;
(B) The certificate of incorporation and bylaws of ScanSoft, as
in effect immediately prior to the Effective Time, including all
amendments thereto; and
(C) The incumbency of the officers of ScanSoft executing this
Agreement and all agreements and documents contemplated hereby.
(c) FIRPTA Certificate. ScanSoft shall, prior to the Closing Date,
provide the Company with a properly executed FIRPTA Notification Letter and
a form of notice to the Internal Revenue Service in
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accordance with the requirements of Treasury Regulation section
1.897-2(h)(2) along with written authorization for the Company to deliver
such notice form to the Internal Revenue Service on behalf of ScanSoft upon
the Closing of the Merger, as set forth in Section 5.6 above.
(d) Consents Under Agreements. ScanSoft shall have obtained the
consent or approval of each person whose consent or approval shall be
required in order to consummate the transactions contemplated by this
Agreement under any agreement to which ScanSoft or any of its Subsidiaries
is a party, except those for which failure to obtain such consents and
approvals, individually or in the aggregate, is not reasonably likely to
have a Material Adverse Effect on the Company or is not reasonably likely
to materially adversely affect the ability of ScanSoft to consummate the
transactions contemplated by this Agreement.
ARTICLE VIII
TERMINATION AND AMENDMENT
SECTION 8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after Company Stockholder
Approval, by written notice from the terminating party to the non-terminating
party:
(a) by the mutual written consent of the Company and ScanSoft
(b) by either ScanSoft or the Company:
(i) Notwithstanding the provisions of Section 6.2(b), if the Merger
shall not have been consummated by April 30, 1999, unless extended by
the mutual written consent of ScanSoft and the Company; provided that
the terminating party shall not have breached in any material respect
its obligations under this Agreement in any manner that shall have
proximately contributed to the failure to consummate the Merger by April
30, 1999;
(ii) if any court or Governmental Body of competent jurisdiction
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree or
ruling or other action shall have become final and nonappealable;
provided, however, that the right to terminate this Agreement pursuant
to this Section 8.1(a)(ii) shall not be available to any party who has
not used its reasonable efforts to cause such order to be lifted;
(iii) the approval of the Company's stockholders required by
Section 7.1(a) shall not have been obtained at the Stockholder Meeting
or any adjournment thereof;
(c) by ScanSoft if:
(i) (A) any of the representations or warranties of the Company set
forth in this Agreement that is expressly qualified by a reference to
materiality shall not have been or shall not be true and correct in all
respects as so qualified or any such representations or warranties that
are not so qualified shall not have been or shall not be true and
correct in any material respect (X) on the date of this Agreement and
(Y) on the Closing Date (provided, however, that, for purposes of this
Section 8.1(c)(i)(A)(Y) any inaccuracies in such representations and
warranties will be disregarded if the circumstances giving rise to all
such inaccuracies (considered collectively) do not constitute, and are
not reasonably expected to result in, a Material Adverse Effect on the
Company), or (B) the Company shall have failed to substantially perform
any obligation or comply with any agreement or covenant of the Company
to be performed or complied with by it under Sections 6.1, 6.2, 6.4,
6.6, 6.7, 6.9, 6.11, 6.12, 6.14, 6.15 and 6.16 of this Agreement and, in
the case of (A) such untruth or incorrectness cannot be or has not been
cured within twenty (20) days after the giving of written notice to the
Company, and, in the case of (B) such failure cannot be or has not been
cured within twenty (20) days after the giving of written notice to the
Company;
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(ii) the Company shall have failed to satisfy any condition set
forth in Sections 7.1 or 7.2 and ScanSoft shall not have waived such
condition;
(iii) the Board of Directors of the Company or any committee
thereof shall have failed to recommend, withdrawn, modified or publicly
announced in a manner adverse to ScanSoft its approval or recommendation
of the Merger or this Agreement;
(d) by the Company, if:
(i) (A) any of the representations or warranties of ScanSoft set
forth in this Agreement that is expressly qualified by a reference to
materiality shall not have been or shall not be true and correct in all
respects as so qualified or any such representations or warranties that
are not so qualified shall not have been or shall not be true and
correct in any material respect (X) on the date of this Agreement and
(Y) on the Closing Date (provided, however, that, for purposes of this
Section 8.1(d)(i)(A)(Y), any inaccuracies in such representations and
warranties will be disregarded if the circumstances giving rise to all
such inaccuracies (considered collectively) do not constitute, and are
not reasonably expected to result in, a Material Adverse Effect on
ScanSoft), or (B) ScanSoft shall have failed to substantially perform
any obligation or comply with any agreement or covenant of ScanSoft to
be performed or complied with by it under Sections 6.1, 6.2, 6.4, 6.6,
6.7, 6.9, 6.11, 6.12, 6.14, 6.15 and 6.16 of this Agreement and, in the
case of (A) such untruth or incorrectness cannot be or has not been
cured within twenty (20) days after the giving of written notice to
ScanSoft, and, in the case of (B) such failure cannot be or has not been
cured within twenty (20) days after the giving of written notice to
ScanSoft;
(ii) ScanSoft shall have failed to satisfy any condition set forth
in Section 7.1 or 7.3 and the Company shall not have waived such
condition.
SECTION 8.2 Effect of Termination. In the event of a termination of this
Agreement by either the Company or ScanSoft as provided in Section 8.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of ScanSoft, or the Company or their respective officers
or directors, except with respect to Section 6.5, Section 6.14, this Section 8.2
and Article IX; provided, however, that nothing herein shall relieve any party
from liability for any breach hereof.
SECTION 8.3 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Board of Directors at
any time before or after obtaining Company Stockholder Approval, but after
Company Stockholder Approval no amendment shall be made which by law requires
further approval by the stockholders of the Company without obtaining such
further approval. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
SECTION 8.4 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Board of
Directors may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto or (c) waive compliance with
any of the agreements or conditions contained herein. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if set
forth in a written instrument signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations and Warranties and
Agreements. None of the representations and warranties in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Effective
Time except that the agreements set forth in Article II, Sections 6.3, 6.5 and
6.10 and Article IX shall survive the Effective Time.
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SECTION 9.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given when delivered personally, one day after
being delivered to an overnight courier or when telecopied (with a confirmatory
copy sent by overnight courier) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to ScanSoft, to:
ScanSoft, Inc.
9 Centennial Drive
Peabody, MA 01960
Attn: Paul A. Ricci
Michael Tivnan
with a copy to:
Xerox Corporation
800 Long Ridge Road
Stamford, CT 06904-1600
Attn: Roy Larson, Esq.
and to:
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
Attn: Katharine A. Martin, Esq.
(b) if to the Company, to:
Visioneer, Inc.
34800 Campus Drive
Fremont, CA 94555
Attn: J. Larry Smart
with a copy to:
The Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attn: Joshua Green, Esq.
SECTION 9.3 Interpretation. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." Capitalized terms not defined in
this Agreement shall have the meanings ascribed to them in Annex A hereto.
SECTION 9.4 Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
SECTION 9.5 Entire Agreement; No Third-Party Beneficiaries. Except for
the Confidentiality Agreement referred to in Section 6.5, the Company Disclosure
Schedule and the ScanSoft Disclosure Schedule, this Agreement constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof;
provided, however, that it is expressly agreed that the transactions
contemplated by this Agreement do not violate any provision of the
Confidentiality Agreement. This Agreement, except for the provisions of Section
6.10, is not intended to confer upon any person other than the parties hereto
any rights or remedies hereunder.
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SECTION 9.6 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 9.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties, except that
ScanSoft may assign, in its sole discretion, any of or all of its rights,
interests and obligations under this Agreement to ScanSoft (in the case of
ScanSoft) or to any affiliate of ScanSoft, but no such assignment shall relieve
ScanSoft of any of its obligations hereunder. Subject to the preceding sentence,
this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
SECTION 9.8 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions contemplated hereby are not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated by this Agreement may be consummated as
originally contemplated to the fullest extent possible.
SECTION 9.9 Enforcement of This Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, such remedy being in addition to any
other remedy to which any party is entitled at law or in equity.
IN WITNESS WHEREOF, ScanSoft and the Company have caused this Agreement to
be signed by their respective officers thereunto duly authorized all as of the
date first written above.
SCANSOFT, INC.
By /s/ PAUL A. RICCI
------------------------------------
Paul A. Ricci
Chairman of the
Board of Directors
VISIONEER, INC.
By /s/ J. LARRY SMART
------------------------------------
J. Larry Smart
President and
Chief Executive Officer
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ANNEX A
GLOSSARY OF DEFINED TERMS
"Antitrust Laws" shall include the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, the Sherman Act, as amended, the Clayton Act, as
amended, the Federal Trade Commission Act, as amended, and any other federal,
state or foreign statutes, rules, regulations, orders or decrees that are
designed to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or restraint of trade.
"Asset Purchase Agreement" shall mean the Asset Purchase Agreement by and
among the Company, Primax V Acquisition Corp., a California corporation and
Primax Electronics Ltd., a corporation organized under the laws of Taiwan
(collectively, "Primax"), in the form delivered to ScanSoft and pursuant to
which the Company has agreed to sell substantially all of the Company's assets
relating to the Hardware Business and certain additional specified assets.
"Code" means the U.S. Internal Revenue Code of 1986, as amended.
"Company Disclosure Schedule" shall mean the disclosure schedule delivered
to ScanSoft by the Company.
"Company Financial Statements" as defined in Section 3.4.
"Company Material Contract" as defined in Section 3.10.
"Company Preferred Stock" as defined in Section 3.3.
"Company Stock Options" as defined in Section 3.3.
"Consent" shall mean any approval, consent, ratification, permission,
waiver or authorization (including any Governmental Authorization).
"Contract" shall mean any written, oral or other agreement, contract,
subcontract, lease, understanding, instrument, note, warranty, insurance policy,
benefit plan or legally binding commitment or undertaking of any nature.
"Encumbrance" shall mean any lien, pledge, hypothecation, charge, mortgage,
security interest, encumbrance, claim, infringement, interference, option, right
of first refusal, preemptive right, community property interest or restriction
of any nature (including any restriction on the voting of any security, any
restriction on the transfer of any security or other asset, any restriction on
the receipt of any income derived from any asset, any restriction on the use of
any asset and any restriction on the possession, exercise or transfer of any
other attribute of ownership of any asset).
"Entity" shall mean any corporation (including any nonprofit corporation),
general partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity).
"Environmental Law" shall mean any federal, state, local or foreign Legal
Requirement relating to pollution or protection of human health or the
environment (including ambient air, surface water, ground water, land surface or
subsurface strata), including any law or regulation relating to emissions,
discharges, releases or threatened releases of Materials of Environmental
Concern, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Materials of
Environmental Concern.
"Governmental Authorization" shall mean any: (a) permit, license,
certificate, franchise, permission, clearance, registration, qualification or
authorization issued, granted, given or otherwise made available by or under the
authority of any Governmental Body or pursuant to any Legal Requirement; or (b)
right under any Contract with any Governmental Body.
"Governmental Body" shall mean any: (a) nation, state, commonwealth,
province, territory, county, municipality, district or other jurisdiction of any
nature; (b) federal, state, local, municipal, foreign or other government; or
(c) governmental or quasi-governmental authority of any nature (including any
governmental
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division, department, agency, commission, instrumentality, official,
organization, unit, body or Entity and any court of other tribunal).
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Include," "includes" or "including" shall be deemed to be followed by the
words "without limitation."
"IRS" shall mean the United States Internal Revenue Service.
"Knowledge" shall mean the actual knowledge of any officer of the Company,
in the case of the Company, or any officer of ScanSoft, in the case of ScanSoft.
"Legal Proceeding" shall mean any action, suit, litigation, arbitration,
proceeding (including any civil, criminal, administrative, investigative or
appellate proceeding), hearing, inquiry, audit, examination or investigation
commenced, brought, conducted or heard by or before, or otherwise involving, any
court or other Governmental Body or any arbitrator or arbitration panel.
"Legal Requirement" shall mean any federal, state, local, municipal,
foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body.
"Liability" shall mean any debt, obligation, duty or liability of any
nature (including any unknown, undisclosed, unmatured, unaccrued, unasserted,
contingent, indirect, conditional, implied, vicarious, derivative, joint,
several or secondary liability) relating to any business or activity of Seller,
regardless of whether such debt, obligation, duty or liability would be required
to be disclosed on a balance sheet prepared in accordance with GAAP and
regardless of whether such debt, obligation, duty or liability is immediately
due and payable.
"Material Adverse Change" or "Material Adverse Effect" means, when used in
connection with the Company or ScanSoft, as the case may be, any change or
effect that is materially adverse to the business, financial condition, assets,
properties, operations or results of operations of such entity which will
prevent (or would reasonably be expected to prevent) the fundamental and basic
operation of such business after giving effect to the Merger contemplated by
this Agreement; provided, however, that any of the following shall not
constitute a "Material Adverse Change" or "Material Adverse Effect" on or with
respect to such entity: (a) any adverse change, event or effect that is
demonstrated to be directly caused by conditions affecting the United States
economy generally or the economy of any nation or region in which such entity or
any of its Subsidiaries conducts business that is material to the business of
such entity and its Subsidiaries, taken as a whole, which does not have a
disproportionate effect on the Company or ScanSoft, as the case may be, (b) any
adverse change, event or effect that is demonstrated to be directly caused by
conditions generally affecting the personal imaging software industry which does
not have a disproportionate effect on the Company or ScanSoft, as the case may
be. Notwithstanding anything herein to the contrary, the parties expressly agree
any of the following shall constitute a "Material Adverse Change" or "Material
Adverse Effect" with respect to the Company: (W) the Company's revenues are less
than $2,316,000 in any complete fiscal quarter ending on a date after the date
of this Agreement and prior to the Closing Date (including, without limitation,
the fourth quarter of fiscal 1998) and preceding the fiscal quarter in which the
Closing Date occurs; (X) any Legal Proceeding which would be reasonably likely
to result in expenses, damages and/or other liability to Surviving Corporation
in excess of one and one-half times the amount of the coverage provided under
the Company's current directors and officers liability insurance as determined
by an independent arbiter to be mutually agreed upon by the Company and
ScanSoft; (Y) the completion of any environmental assessment of the Company
which concludes that it would be reasonably likely that the Surviving
Corporation would incur expenses, damages, remediation costs and/or other
liability in excess of $3,500,000, exclusive of any insurance coverage; or (Z)
the Company Net Book Value is $4,500,000 or less.
"Materials of Environmental Concern" shall include chemicals, pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum products and any
other substance that is now or hereafter regulated by any Environmental Law or
that is otherwise a danger to health, reproduction or the environment.
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"Order" includes any decree, judgment, injunction or other order, whether
temporary, preliminary or permanent.
"Person" shall mean any individual, Entity or Governmental Body.
"Plan" shall mean any salary, bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance pay, termination pay,
hospitalization, medical, life or other insurance, supplemental unemployment
benefits, profit-sharing, pension or retirement plan, program or agreement.
"Proprietary Asset" shall mean any: (a) patent, patent application,
trademark (whether registered or unregistered), trademark application, trade
name, fictitious business name, service mark (whether registered or
unregistered), service mark application, copyright (whether registered or
unregistered), copyright application, maskwork, maskwork application, trade
secret, know-how, customer list, franchise, system, computer software, computer
program (in source and executable form), algorithm, invention, design,
blueprint, engineering drawing, proprietary product, technology, proprietary
right or other intellectual property right or intangible asset in any
jurisdiction in the world; or (b) right to use or exploit any of the foregoing
in any jurisdiction in the world.
"Purchased Assets" shall mean the assets expected to be purchased by Primax
pursuant to the Asset Purchase Agreement.
"Representative" shall mean any director, employee, stockholder, or agent.
"ScanSoft Disclosure Schedule" shall mean the disclosure schedule delivered
to the Company by ScanSoft.
"ScanSoft Material Contract" as defined in Section 4.9.
"ScanSoft Preferred Stock" as defined in Section 4.3.
"ScanSoft Stock Options" as defined in Section 4.3.
"SEC Documents" shall mean all publicly available registration statements,
proxy statements and other statements, reports, schedules, forms and other
documents filed by the Company with the SEC.
"Significant Customers" as defined in Sections 3.8 and 4.7 as applicable.
"Software Assets" shall mean all of the Company's rights, title and
interest in and to all of the assets, properties and business owned, held or
used by the Company relating solely to the Software Business.
"Subsidiary" of any person shall mean another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, fifty percent
(50%) or more of the equity interests of which) is owned directly or indirectly
by such first person.
"Superior Proposal" means any unsolicited written proposal determined by
the Board of Directors of the Company in good faith, after consultation with
outside legal counsel, to be a bona fide proposal and made by a third party to
acquire, directly or indirectly, for consideration consisting of cash, property
and/or securities, more than fifty percent (50%) of the combined voting power of
the shares of Common Stock then outstanding or all or substantially all the
assets of the Company and otherwise on terms which the Board of Directors of the
Company determines in its good faith judgment to be more favorable to the
Company's stockholders than the Merger, after consultation with outside counsel
and receipt of a written opinion of a financial advisor of nationally recognized
reputation that the terms of such written proposal are more favorable from a
financial point of view than the Merger.
"Takeover Proposal" shall mean any proposals or offers from any third party
relating to an acquisition of a company or any acquisition of a material portion
of the assets or stock of a company, whether through a merger, consolidation,
stock purchase, purchase of all or substantially all of its assets, or
acquisition of all or substantially all of its stock or other similar
transaction.
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"Tax Return" shall include any return, report or similar statement required
to be filed with respect to any tax including, without limitation, any
information return, claim for refund, amended return or declaration of estimated
tax.
"Trade Secrets" shall mean Proprietary Assets that are not otherwise
protected by patents, copyright or maskwork registrations and that are not
publicly known.
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ANNEX B
Protective Provisions. The Corporation shall not without first obtaining
the approval (by vote or written consent, as provided by law) of the holders of
at least sixty-six and two-thirds percent (66 2/3%) of the then outstanding
shares of Common Stock, voting together as a separate class:
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate
with any other corporation (other than a wholly-owned subsidiary
corporation) or effect any other transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of
the Corporation is disposed of, provided that this provision shall not
apply to a merger effected exclusively for the purpose of changing the
domicile of the Corporation;
(b) authorize or issue, or obligate itself to issue, any other equity
security, including any other security convertible into or exercisable for
any equity security, having a preference over, or being on a parity with,
the Series B Preferred Stock with respect to voting, dividends, conversion
or upon liquidation;
(c) alter or change the rights, preferences or privileges of the
shares of Series B Preferred Stock so as to adversely affect them;
(d) increase or decrease (other than by conversion) the total number
of authorized shares of Series B Preferred Stock;
(e) redeem, purchase or otherwise acquire (or pay into or set aside
for a sinking fund for such purpose) any share or shares of Common Stock or
Preferred Stock, provided however, that this restriction shall not apply to
the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for this
corporation or any subsidiary pursuant to agreements under which this
corporation has the option to repurchase such shares at cost or at cost
upon the occurrence of certain events, such as the termination of
employment;
(f) declare or pay any dividends on its Common or Preferred Stock; or
(g) amend the Corporation's Bylaws.
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EXHIBIT A
IRREVOCABLE PROXY/VOTING AGREEMENT
THIS IRREVOCABLE PROXY/VOTING AGREEMENT (this "Agreement") dated as of
December , 1998, among SCANSOFT, INC., a Delaware corporation ("ScanSoft"), on
the one hand, and certain stockholders of VISIONEER, INC., a Delaware
corporation ("Visioneer"), listed on Schedule A hereto (each a "Stockholder"
and, collectively, the "Stockholders"), on the other hand,
WITNESSETH:
WHEREAS, ScanSoft and Visioneer propose to enter into an Agreement and Plan
of Merger dated as of the date hereof (as the same may be amended or
supplemented, the "Merger Agreement"; capitalized terms used but not defined
herein shall have the meanings set forth in the Merger Agreement) providing that
ScanSoft shall merge with and into Visioneer (the "Merger") upon the terms and
subject to the conditions set forth in the Merger Agreement;
WHEREAS, each Stockholder owns beneficially or of record the number of
shares of Visioneer Common Stock, par value $0.001 per share, of Visioneer (the
"Visioneer Common Stock") set forth opposite its name on Schedule A attached
hereto (the "Subject Shares");
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, ScanSoft has required that each Stockholder enter into this
Agreement.
NOW, THEREFORE, to induce ScanSoft to enter into, and in consideration of
its entering into, the Merger Agreement, and in consideration of the premises
and the representations, warranties and agreements contained herein, the parties
agree as follows:
1. Representations and Warranties of Each Stockholder. Each
Stockholder hereby, severally and not jointly, represents and warrants to
ScanSoft as of the date hereof in respect of itself as follows:
(a) Authority. The Stockholder has all requisite power and
authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by the Stockholder and constitutes a
valid and binding obligation of the Stockholder enforceable in
accordance with its terms, except that such enforceability (i) may be
limited by bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to the enforcement of creditors' rights generally
and (ii) is subject to general principles of equity. The execution and
delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby and compliance with the terms hereof
will not, conflict with, or result in any violation of, or default (with
or without notice or lapse of time or both) under any provision of, any
trust agreement, loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
franchise, license, judgment, order, notice, decree, statute, law,
ordinance, rule or regulation applicable to the Stockholder or to the
Stockholder's property or assets the effect of which, in any case, would
be material and adverse to the ability of the Stockholder to consummate
the transactions contemplated hereby or to comply with the terms hereof.
(b) The Subject Shares. The Stockholder is the record and
beneficial owner of and has the sole right to vote the Subject Shares
set forth opposite such Stockholder's name on Schedule A attached
hereto. None of such Subject Shares is subject to any voting trust or
other agreement, arrangement or restriction, except as contemplated by
this Agreement.
2. Covenants of Each Stockholder. Until the termination of this
Agreement in accordance with Section 6, each Stockholder, severally and not
jointly, agrees as follows:
(a) Vote for the Merger. At any meeting of stockholders of
Visioneer called to vote upon the Merger and the Merger Agreement or at
any adjournment thereof or in any other circumstances
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upon which a vote, consent or other approval (including by written
consent) with respect to the Merger and the Merger Agreement is sought,
the Stockholder shall vote (or cause to be voted), or execute a written
consent in respect of, the Subject Shares in favor of the Merger, the
adoption by Visioneer of the Merger Agreement and the approval of the
terms thereof and each of the other transactions contemplated by the
Merger Agreement. Each Stockholder hereby waives any appraisal rights
granted pursuant to Section 262 of the General Corporation Law of the
State of Delaware (the "DGCL") (or any successor provision) to which it
may otherwise be entitled as a result of the Merger or the other
transactions contemplated by the Merger Agreement.
(b) Vote Against Alternative Proposals. At any meeting of
stockholders of Visioneer or at any adjournment thereof or in any other
circumstances upon which the stockholders' vote, consent or other
approval is sought, the Stockholders shall be present (in person or by
proxy) and shall vote (or cause to be voted) the Subject Shares against
(i) any merger agreement or merger (other than the Merger Agreement and
the Merger), consolidation, combination, sale of substantial assets
(other than the Asset Purchase Agreement), reorganization,
recapitalization, dissolution, liquidation or winding up of or involving
Visioneer or (ii) any amendment of Visioneer's certificate of
incorporation or by-laws or other proposal or transaction involving
Visioneer or any of its subsidiaries, which amendment or other proposal
or transaction would in any manner impede, frustrate, prevent, delay or
nullify the Merger, the Merger Agreement or any of the other
transactions contemplated by the Merger Agreement or change in any
manner the voting rights of any class of capital stock of Visioneer.
Each Stockholder further agrees not to commit or agree to take any
action inconsistent with the foregoing.
(c) No Transfer of Subject Shares. Each Stockholder agrees not to
(i) convert, transfer, sell, pledge, assign or otherwise dispose of
(including by gift) (collectively, "Transfer"), or enter into any
contract, option or other arrangement (including any profit sharing
arrangement) with respect to the Transfer of, any of the Subject Shares
to any person other than pursuant to the terms of the Merger or (ii)
enter into any voting arrangement, whether by proxy, power-of-attorney,
voting agreement, voting trust or otherwise. Notwithstanding the
foregoing, each Stockholder may Transfer Subject Shares if the proposed
transferee agrees to be bound by all of the terms of this Agreement and
delivers a written instrument to ScanSoft evidencing such agreement
prior to the date of the proposed Transfer.
(d) No Solicitation. During the terms of this Agreement, each
Stockholder shall not, nor shall they permit any of their Affiliates or
any director, officer, employee, investment banker, attorney or other
advisor or representative of any of the foregoing to, (i) directly or
indirectly, solicit, initiate or knowingly encourage the submission of,
any Takeover Proposal (as defined in the Merger Agreement) related to or
involving Visioneer or (ii) except as set forth in Section 8 of this
Agreement, directly or indirectly participate in any discussions or
negotiations regarding, or furnish to any person any information with
respect to, or knowingly take any other action to facilitate any
inquires or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Takeover Proposal related to or
involving Visioneer.
3. Grant of Irrevocable Proxy.
(a) Existing Proxies Revoked. Each Stockholder hereby represents
that any proxies heretofore given in respect of the Subject Shares are
not irrevocable, and that any such proxies are hereby revoked.
(b) Grant of Irrevocable Proxy to ScanSoft. Each Stockholder
hereby agrees that, in the event Stockholder shall fail to comply with
the provisions of Sections 2(a) and 2(b) hereof, as determined by
ScanSoft in its sole discretion, such failure shall result, without any
further action by Stockholder, in the irrevocable appointment of
ScanSoft, and any person or persons who may hereafter be designated by
ScanSoft as permitted under applicable law, and each of such person(s)
individually, as the Stockholder's proxy and attorney-in-fact (with full
power of substitution), for and in the name, place and stead of the
Stockholder, to vote the Subject Shares, or grant a consent
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or approval in respect of such Subject Shares, in favor of or against,
as the case may be, the matters set forth in Sections 2(a) and 2(b). The
proxy granted hereby shall terminate upon any termination of this
Agreement in accordance with its terms.
(c) Affirmations. Each Stockholder hereby affirms that any
irrevocable proxy granted pursuant to Section 3(b) will be given in
connection with the execution of the Merger Agreement, and that such
irrevocable proxy will be given to secure the performance of the duties
of the Stockholders under this Agreement. If so granted, the
Stockholders hereby ratify and confirm all that such irrevocable proxy
may lawfully do or cause to be done by virtue thereof. This proxy and
power of attorney is irrevocable and coupled with an interest and is
intended to be irrevocable in accordance with the provisions of Section
212(e) of the DGCL.
4. Further Assurances. Each Stockholder will, from time to time,
execute and deliver, or cause to be executed and delivered, such additional
or further consents, documents and other instruments as ScanSoft may
reasonably request for the purpose of effectively carrying out the
transactions contemplated by this Agreement.
5. Assignment. Except as provided herein, neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
6. Termination. This Agreement shall terminate as follows: (i) if
the transactions contemplated by the Merger Agreement are consummated, this
Agreement shall terminate upon the Effective Time of the Merger; (ii) if
the transactions contemplated by the Merger Agreement are not consummated,
and the Merger Agreement is terminated in accordance with Section 8.1(a),
Section 8.1(b)(i), Section 8.1(b)(ii), Section 8.1(c)(i), Section
8.1(c)(ii), Section 8.1(d)(i) or Section 8.1(d)(ii) thereof, this Agreement
shall terminate as of the date of termination of the Merger Agreement;
(iii) if the transactions contemplated by the Merger Agreement are not
consummated, and the Merger Agreement is terminated in accordance with
Section 8.1(b)(iii) or Section 8.1(c)(iii) thereof, this Agreement shall
terminate upon the six (6) month anniversary of the date of termination of
the Merger Agreement; or (iv) notwithstanding anything in this Section 6 to
the contrary, if the Company receives and publicly announces any Takeover
Proposal prior to the date of termination of the Merger Agreement and the
transactions contemplated by the Merger Agreement are not consummated and
the Merger Agreement is terminated for any reason, this Agreement shall
terminate upon the later of (A) the six (6) month anniversary of the date
of termination of the Merger Agreement or (B) one month following the date
of the stockholder vote or consent taken in connection with such Takeover
Proposal.
7. General Provisions.
(a) Amendments. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(b) Notice. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by overnight courier (providing
proof of delivery) to ScanSoft in accordance with the notification
provision contained in the Merger Agreement and to the Stockholders at
their respective addresses set forth on the books of Visioneer (or at
such other address for a party as shall be specified by like notice).
(c) Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section to this Agreement unless
otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Wherever the words "include",
"includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation".
(d) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more of the
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counterparts have been signed by each of the parties hereto and
delivered to the other parties, it being understood that each party need
not sign the same counterpart.
(e) Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) (i)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to
the subject matter hereof and (ii) is not intended to confer upon any
person other than the parties hereto, any rights or remedies hereunder.
(f) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware
regardless of the laws that might otherwise govern under applicable
principles of conflicts of law thereof.
(g) Severability. If any term, provision, covenant or restriction
herein, or the application thereof to any circumstance, shall, to any
extent, be held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions herein and the application thereof to any other
circumstances, shall remain in full force and effect, shall not in any
way be affected, impaired or invalidated, and shall be enforced to the
fullest extent permitted by law, and the parties hereto shall reasonably
negotiate in good faith a substitute term or provision that comes as
close as possible to the invalidated and unenforceable term or
provision, and that puts each party in a position as nearly comparable
as possible to the position each such party would have been in but for
the finding of invalidity or unenforceability, while remaining valid and
enforceable.
8. Stockholder Representatives. Each Stockholder signs solely in its
capacity as the record holder and/or beneficial owner of such Stockholder's
Subject Shares and nothing contained herein shall limit or affect any
actions taken by any officer, director, partner, trustee, affiliate or
representative of a Stockholder who is or becomes an officer or a director
of Visioneer or serves Visioneer in any other fiduciary capacity in his or
her capacity as an officer, director or other fiduciary of Visioneer and
none of such actions in such capacity shall be deemed to constitute a
breach of this Agreement.
9. Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any
court of the United States located in the State of Delaware or in a
Delaware state court, this being in addition to any other remedy to which
they are entitled at law or in equity. In addition, each of the parties
hereto (i) consents to submit such party to the personal jurisdiction of
any Federal court located in the State of Delaware or any Delaware state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated hereby, (ii) agrees that such party will not
attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, (iii) agrees that such party will
not bring any action relating to this Agreement or the transactions
contemplated hereby in any court other than a Federal court sitting in the
state of Delaware or a Delaware state court, (iv) waives any right to trial
by jury with respect to any claim or proceeding related to or arising out
of this Agreement or any of the transactions contemplated hereby, and (v)
appoints The Corporation Trust Company as such party's agent for service of
process in the state of Delaware.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first written above.
SCANSOFT, INC.
By
--------------------------------------
Title:
--------------------------------------
STOCKHOLDERS:
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
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
MORGAN STANLEY VENTURE CAPITAL FUND
II, LP
By: Morgan Stanley Venture Partners
II, L.P.
Its General Partner
By: Morgan Stanley Venture Capital II,
Inc.
Managing General Partner
By
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
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MORGAN STANLEY VENTURE CAPITAL FUND
II, C.V.
By: Morgan Stanley Venture Partners
II, L.P.
Its Investment General Partner
By: Morgan Stanley Venture Capital II,
Inc.
Managing General Partner
--------------------------------------
MORGAN STANLEY VENTURE
INVESTORS, L.P.
By: Morgan Stanley Venture Partners
II, L.P.
Its General Partner
By: Morgan Stanley Venture Capital II,
Inc.
Managing General Partner
--------------------------------------
PARVEST U.S. PARTNERS II, C.V.
By
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
PARTECH INTERNATIONAL VENTURES C.V.
By
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
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U.S. GROWTH FUND PARTNERS C.V.
By
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
DOUBLE BLACK DIAMOND I LLC
By
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
ALMANORI LIMITED
By
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
MULTINVEST LLC
By
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
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VINCENT WORMS
By
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
THOMAS G. McKINLEY
By
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
BVI VENTURE MANAGERS
By
--------------------------------------
Print Name:
--------------------------------------
Title:
--------------------------------------
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SCHEDULE A
STOCKHOLDERS
Technology Venture Investors-IV
As nominee for
Technology Venture Investors-4 L.P.
TVI Partners-4, L.P., and
TVI Affiliates-4, L.P.
2480 Sand Hill Road
Suite 101
Menlo Park, CA 94025
Fax Number: 650-854-4187
Morgan Stanley Venture Capital Fund II, LP
Morgan Stanley Venture Capital Fund II, C.V.
Morgan Stanley Venture Investors, L.P.
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 C.V.
U.S. Growth Fund Partners C.V.
Double Black Diamond I LLC
Almanori Limited
Multinvest LLC
Vincent Worms
Thomas G. McKinley
BVI Venture Managers
101 California Street, Suite 3150
San Francisco, CA 94111
Fax Number: 415-788-6763
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EXHIBIT B
CERTIFICATE OF DESIGNATION OF RIGHTS AND PREFERENCES
OF SERIES B PREFERRED STOCK OF VISIONEER
A. Rights Preferences and Restrictions of Series B Preferred Stock. The
Series B Preferred Stock shall have the voting power, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, as follows:
1. Dividend Provisions.
(a) The holders of shares of Series B Preferred Stock shall be entitled to
receive dividends, out of any assets legally available therefor, prior and in
preference to any declaration or payment of any dividend (payable other than in
Common Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, shares of Common Stock of
this corporation) on the Common Stock of this corporation, at the rate of $0.065
per share of Series B Preferred Stock per annum (as determined on a per annum
basis and an as converted basis for the Series B Preferred Stock) whenever funds
are legally available therefor, payable when, as and if declared by the Board of
Directors. Such dividends shall be non-cumulative. Unless full dividends on the
Series B Preferred Stock for the then current dividend period shall have been
paid or declared and a sum sufficient for the payment thereof set apart: (i) no
dividend whatsoever (other than a dividend payable solely in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
corporation) shall be paid or declared, and no distribution shall be made, on
any Common Stock. Dividends, if declared, must be declared and paid with respect
to all series of Preferred Stock contemporaneously, and if less than full
dividends are declared, the same percentage of the dividend rate will be payable
to each series of Preferred Stock.
(b) After payment of such dividends, any additional dividends or
distributions shall be distributed among all holders of Common Stock and all
holders of Series B Preferred Stock in proportion to the number of shares of
Common Stock which would be held by each such holder if all shares of Series B
Preferred Stock were converted to Common Stock at the then effective conversion
rate.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of this
corporation, either voluntary or involuntary, the holders of Series B Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets of this corporation to the holders of Common Stock by
reason of their ownership thereof, an amount per share equal to (i) $1.30 for
each outstanding share of Series B Preferred Stock (the "Original Series B Issue
Price") plus an amount equal to all declared but unpaid dividends on each such
share. If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series B Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of this corporation
legally available for distribution shall be distributed ratably among the
holders of the Series B Preferred Stock in proportion to the product of the
liquidation preference of each such share and the number of such shares owned by
each such holder.
(b) After the distribution described in section (a) above has been paid,
the remaining assets of this corporation available for distribution to
stockholders shall be distributed among the holders of Common Stock pro rata
based on the number of shares of Common Stock held by each.
3. No Redemption. No holder of Series B Preferred Stock shall have any
right to require the corporation or any "related person" (within the meaning of
section 351(g)(3)(B) of the Internal Revenue Code) to redeem or purchase any
shares of Series B Preferred Stock. Similarly, neither the corporation nor any
such related person shall have any right or option to redeem or purchase any
shares of Series B Preferred Stock from any holder thereof.
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4. Conversion. The holders of Series B Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert; Automatic Conversion.
(i) Subject to subsection (c), each share of Series B Preferred Stock
shall be convertible, at the option of the holder thereof, during the
periods specified in Section 4(a)(ii) below, at the office of this
corporation or any transfer agent for the Series B Preferred Stock, into
such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Original Series B Issue Price by the Conversion
Price applicable to such shares in effect on the date the certificate for
such share is surrendered for conversion. The initial Conversion Price per
share for shares of Series B Preferred Stock shall be the Original Series B
Issue Price; provided, however, that the Conversion Price for shares of
Series B Preferred Stock shall be subject to adjustment as set forth in
subsection 4(c) below.
(ii) The shares of Series B Preferred Stock shall not be convertible
into Common Stock prior to , 2001; provided, however, that
notwithstanding the foregoing, each share of Series B Preferred Stock shall
be convertible into Common Stock, at the option of the holder thereof, at
any time after the date on which such holder owns directly or indirectly a
number of outstanding shares of Common Stock of this corporation that
represents less than 30.0% of the total number of shares of Common Stock
outstanding immediately prior to conversion of such share; and provided
further, however, that such holder shall not be entitled to convert any
share of Series B Preferred Stock pursuant to this Section 4(a)(ii) if the
conversion of such share to Common Stock would result in such holder owning
directly or indirectly a number of outstanding shares of Common Stock of
this corporation that represents more than 45.0% of the total number of
shares of Common Stock outstanding immediately after the conversion of such
share.
(iii) At any time after , 2001 **[the date two years after
the Closing Date]**, upon the written consent of the holders of at least
66 2/3% of the then outstanding shares of Series B Preferred Stock, each
share of Series B Preferred Stock shall automatically and immediately be
converted into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the Original Series B Issue Price by the
Conversion Price applicable to such shares in effect on the date the
certificate for such share is surrendered for conversion. The initial
Conversion Price per share for shares of Series B Preferred Stock shall be
the Original Series B Issue Price; provided, however, that the Conversion
Price for shares of Series B Preferred Stock shall be subject to adjustment
as set forth in subsection 4(c) below.
(b) Mechanics of Conversion. Before any holder of shares of Series B
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of this corporation or of any transfer agent for
such Series B Preferred Stock, and shall give written notice by mail, postage
prepaid, to this corporation at its principal corporate office, of the election
to convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. This
corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series B Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series B Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Series B Preferred Stock for
conversion, be conditioned upon the closing with the underwriter(s) of the sale
of securities pursuant to such offering, in which event the person(s) entitled
to receive the Common Stock issuable upon such conversion of shares of Series B
Preferred Stock shall not be deemed to have converted such shares of Series B
Preferred Stock until immediately prior to the closing of such sale of
securities.
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(c) Conversion Price Adjustments of Series B Preferred Stock. The
Conversion Price of the Series B Preferred Stock shall be subject to adjustment
from time to time as follows:
(i) In the event this corporation should at any time or from time to
time after the date upon which any shares of Series B Preferred Stock were
initially issued (a "Purchase Date") fix a record date for the effectuation
of a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or
other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock
(hereinafter referred to as "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of Common Stock
or the Common Stock Equivalents (including the additional shares of Common
Stock issuable upon conversion or exercise thereof), then as of such record
date (or the date of such dividend distribution split or subdivision if no
record date is fixed), the Conversion Price of the Series B Preferred Stock
shall be appropriately decreased so that the number of shares of Common
Stock issuable on conversion of each share of each such series shall be
increased in proportion to such increase of outstanding shares.
(ii) If the number of shares of Common Stock outstanding at any time
after a Purchase Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series B Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock
issuable on conversion of each share of each such series shall be decreased
in proportion to such decrease in outstanding shares.
(d) Other Distributions. In the event this corporation shall declare a
distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection 4(c)(i), then, in each such
case for the purpose of this subsection 4(d), the holders of Series B Preferred
Stock shall be entitled to a proportionate share of any such distribution as
though they were the holders of the number of shares of Common Stock of this
corporation into which their shares of Series B Preferred Stock are convertible
as of the record date fixed for the determination of the holders of Common Stock
of this corporation entitled to receive such distribution.
(e) Recapitalization. If at any time or from time to time there shall be a
recapitalization of the Common Stock (other than a subdivision, combination or
merger or sale of assets transaction provided for elsewhere in this Section 4 or
Section 5), provision shall be made so that the holders of Series B Preferred
Stock shall thereafter be entitled to receive upon conversion of their Series B
Preferred Stock, the number of shares of stock or other securities or property
of this corporation or otherwise, to which a holder of Common Stock deliverable
upon conversion would have been entitled on such recapitalization. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this Section 4 with respect to the rights of the holders of Series B
Preferred Stock after the recapitalization to the end that the provisions of
this Section 4 (including adjustment of the Conversion Price then in effect and
the number of shares purchasable upon conversion of the Series B Preferred
Stock) shall be applicable after that event as nearly equivalent as may be
practicable.
(f) No Impairment. This corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series B Preferred Stock against impairment.
(g) Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon conversion of any share
or shares of Series B Preferred Stock. All shares of Common Stock
(including fractions thereof) issuable upon such conversion shall be
aggregated for purposes of determining whether the conversion would result
in the issuance of any
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<PAGE> 190
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of a fraction of a share of Common Stock, the
corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market
value of such fraction on the date of conversion (as determined in good
faith by the Board of Directors).
(ii) Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Series B Preferred Stock pursuant to this Section 4,
this corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each holder of Series B Preferred Stock, a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. This corporation shall, upon the
written request at any time of any holder of Series B Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting
forth (A) such adjustment and readjustment, (B) the Conversion Price for
Series B Preferred Stock at the time in effect, and (C) the number of
shares of Common Stock and the amount, if any, of other property which at
the time would be received upon the conversion of a share of Series B
Preferred Stock.
(h) Notices of Record Date. In the event of any taking by this corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, this corporation shall
mail to each holder of Series B Preferred Stock, at least 20 days prior to the
date specified therein, a notice specifying the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right.
(i) Reservation of Stock Issuable Upon Conversion. This corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Series B Preferred Stock such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series B Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Series B Preferred Stock, in
addition to such other remedies as shall be available to the holder of Series B
Preferred Stock, this corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
(j) Notices. Any notice required by the provisions of this Section 4 to be
given to the holders of shares of any series of Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of this corporation.
5. Merger, Consolidation or Reorganization.
(a) A consolidation, merger or other reorganization of this corporation
with or into another corporation or other entity or person in which this
corporation shall not be the continuing or surviving entity of such merger,
consolidation or reorganization, or the sale of all or substantially all of this
corporation's properties and assets to any other person, or any transaction or
series of related transactions by this corporation in which an excess of 50% of
this corporation's voting power is transferred shall be deemed to be a
liquidation for all purposes of Section 2 hereof, unless this corporation's
stockholders of record immediately prior to such merger, consolidation,
reorganization, sale or transaction are holders of more than 50% of the voting
equity securities of the surviving corporation.
(b) In the event the requirements of subsection 5(a) are not complied with,
this corporation shall forthwith either:
(i) cause such closing to be postponed until such time as the
requirements of this Section 5 have been complied with, or
AB-4
<PAGE> 191
(ii) cancel such transaction, in which event the rights, preferences
and privileges of the holders of the Series B Preferred Stock shall revert
to and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in subsection
5(c) hereof.
(c) This corporation shall give each holder of record of Series B Preferred
Stock written notice of such impending transaction not later than 20 days prior
to the stockholders' meeting called to approve such transaction, or 20 days
prior to the closing of such transaction, whichever is earlier, and shall also
notify such holders in writing of the final approval of such transaction. The
first of such notices shall describe the material terms and conditions of the
impending transaction and the provisions of this Section 5, and this corporation
shall thereafter give such holders prompt notice of any material changes. The
transaction shall in no event take place earlier than 20 days after this
corporation has given the first notice provided for herein or earlier than ten
days after this corporation has given notice of any material changes provided
for herein; provided, however, that such periods may be shortened upon the
written consent of the holders of a majority of the shares of the Series B
Preferred Stock then outstanding.
6. Voting Rights.
The holders of Series B Preferred Stock shall not be entitled to vote on
any matters except as expressly provided in Section 242(b)(2) of the Delaware
General Corporation Law. In such event, the holder of each share of Series B
Preferred Stock shall have the right to one vote for each share of Common Stock
into which such Series B Preferred Stock could then be converted. In all cases
any fractional share, determined on an aggregate as-converted basis, shall be
rounded to the nearest whole share (with one-half being rounded upward). If the
Series B Preferred Stockholders are entitled to vote, such holders shall be
entitled, notwithstanding any provision hereof, to notice in accordance with the
bylaws of this corporation of any stockholders' meeting that is called to
consider a matter as to which the Series B Preferred Stockholders would be
entitled to vote.
7. Status of Converted Stock. In the event any shares of Series B
Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so
converted shall be canceled and shall not be issuable by this corporation.
8. No Preemptive Rights. The holders of the Series B Preferred Stock
shall not have any preemptive rights.
AB-5
<PAGE> 192
EXHIBIT C
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT.
------------------------
VISIONEER, INC.
COMMON STOCK PURCHASE WARRANT
------------------------
This certifies that, for good and valuable consideration, Visioneer, Inc.,
a Delaware corporation (the "Company"), grants to Xerox Corporation, a New York
corporation ("Xerox" or the "Warrantholder"), the right to subscribe for and
purchase from the Company the number of fully paid and nonassessable shares (the
"Warrant Shares") of the Company's Common Stock, $0.001 par value (the "Common
Stock") specified herein, at the purchase price per share (the "Exercise Price")
determined as set forth herein, exercisable, subject to the restrictions set
forth herein, during the period (the "Exercise Period") commencing on the date
hereof and ending on , 200 [THE TENTH ANNIVERSARY OF THE DATE
HEREOF], all subject to the terms, conditions and adjustments herein set forth.
This Warrant is issued in connection with and pursuant to that certain Agreement
and Plan of Merger (the "Merger Agreement"), dated as of December , 1998, by
and between the Company and ScanSoft, Inc., a Delaware corporation ("ScanSoft").
Capitalized terms used herein not otherwise defined herein shall have the
meanings assigned to them in the Merger Agreement.
1. Exercise of Warrant.
1.1 Duration and Exercise of Warrant.
(a) Cash Exercise. This Warrant may be exercised by the Warrantholder by
(i) the surrender of this Warrant to the Company, with a duly executed Exercise
Form specifying the number of Warrant Shares to be purchased, during normal
business hours on any Business Day during the Exercise Period and (ii) the
delivery of payment to the Company, for the account of the Company, by wire
transfer of immediately available funds to a bank account specified by the
Company or by certified or bank cashier's check, of the Exercise Price for the
number of Warrant Shares specified in the Exercise Form in lawful money of the
United States of America. The Company agrees that such Warrant Shares shall be
deemed to be issued to the Warrantholder as the record holder of such Warrant
Shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for the Warrant Shares as aforesaid. A stock
certificate or certificates for the Warrant Shares specified in the Exercise
Form shall be delivered to the Warrantholder as promptly as practicable. If this
Warrant shall have been exercised only in part, the Company shall, at the time
of delivery of the stock certificate or certificates, deliver to the
Warrantholder a new Warrant evidencing the rights to purchase the remaining
Warrant Shares, which new Warrant shall in all other respects be identical with
this Warrant. No adjustments shall be made on Warrant Shares issuable on the
exercise of this Warrant for any cash dividends paid or payable to holders of
record of Common Stock prior to the date as of which the Warrantholder shall be
deemed to be the record holder of such Warrant Shares.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to
Section 1.1(a), this Warrant may be exercised by the Warrantholder by the
surrender of this Warrant to the Company, with a duly executed Exercise Form
marked to reflect Net Issue Exercise and specifying the number of Warrant Shares
to be
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<PAGE> 193
purchased, during normal business hours on any Business Day during the Exercise
Period. The Company agrees that such Warrant Shares shall be deemed to be issued
to the Warrantholder as the record holder of such Warrant Shares as of the close
of business on the date on which this Warrant shall have been surrendered as
aforesaid. Upon such exercise, the Warrantholder shall be entitled to receive
shares equal to the value of this Warrant (or the portion hereof being
exercised) computed as of the date of surrender of this Warrant to the Company
using the following formula:
X = Y X (A - B)
--------------
A
<TABLE>
<C> <C> <S>
Where X = the number of shares of Common Stock to be issued to
Warrantholder under this Section 1.1(b);
Y = the number of shares of Common Stock otherwise purchasable
under this Warrant (at the date of such calculation);
A = the fair market value of one share of Common Stock (at the
date of such calculation);
B = the Exercise Price (as adjusted to the date of such
calculation).
</TABLE>
(c) Fair Market Value. For purposes of Section 1.1(b) "fair market value"
of one share of Common Stock shall mean:
(i) the average closing price per share of the Common Stock on the
principal national securities exchange on which the Common Stock is listed
or admitted to trading for the ten (10) Trading Day period ending three (3)
Trading Days prior to the date of exercise, or,
(ii) if not listed or traded on any such exchange, the average last
reported sales price per share of the Common Stock on the Nasdaq National
Market or The Nasdaq SmallCap Market (collectively, "Nasdaq") for the ten
(10) Trading Day period ending three (3) Trading Days prior to the date of
exercise, or,
(iii) if not listed or traded on any such exchange or Nasdaq, the
average of the mean of the bid and asked prices per share of the Common
Stock as reported in the OTC Bulletin Board or, if not so reported, in the
"pink sheets" published by the National Quotation Bureau, Inc. for the ten
(10) Trading Day period ending three (3) Trading Days prior to the date of
exercise, or,
(iv) if such quotations are not available, the fair market value per
share of the Common Stock on the date such notice was received by the
Company as reasonably determined by the Board of Directors of the Company.
1.2 Number of Warrant Shares. Subject to the limitations on
exercisability set forth in Section 1.4, upon the termination of any Assumed
ScanSoft Option, this Warrant shall entitle the Warrantholder to purchase that
number of Warrant Shares equal to the number of shares of Common Stock subject
to such Assumed ScanSoft Options that remain unexercised at the termination of
such Assumed ScanSoft Option (whether such option shares were vested or
unvested). Accordingly, if all Assumed ScanSoft Options terminate without being
exercised, the Warrantholder would be entitled to purchase an aggregate of
shares of Common Stock, as such number shall be adjusted from
time to time prior to the termination of each Assumed ScanSoft Option pursuant
to the terms thereof and after such termination pursuant to Section 6 hereof. As
this Warrant becomes exercisable for Warrant Shares pursuant to the provisions
of this Section, the Warrantholder may exercise this Warrant at any time and
from time to time for such number of Warrant Shares as is then presently
exercisable in accordance with the terms of this Section and Section 1.4 hereof.
1.3 Exercise Price. The Exercise Price shall be equal to the exercise
price of the Assumed ScanSoft Options, as determined pursuant to Section 2.2(a)
of the Merger Agreement. From and after the Effective
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<PAGE> 194
Time of the Merger, the Exercise Price shall be adjusted prior to the
termination of each Assumed ScanSoft Option in accordance with the terms thereof
and after such termination in accordance with Section 6 hereof.
1.4 Term of Warrant and Exercisability.
(a) Term of Warrant. This Warrant shall terminate on ,
200[9] [THE TENTH ANNIVERSARY OF THE INITIAL WARRANT ISSUANCE DATE].
(b) Exercisability. This Warrant shall be exercisable in whole or in part
during the Exercise Period; provided, however, that the Warrantholder may not
exercise this Warrant to purchase Warrant Shares prior to ,
200[1] [THE 2ND ANNIVERSARY OF THE INITIAL WARRANT ISSUANCE DATE] unless,
immediately after such exercise, the Warrantholder owns directly or indirectly a
number of outstanding shares of Common Stock that represents less than 45.0% of
the total number of shares of Common Stock outstanding immediately after such
exercise.
1.5 Payment of Taxes. The issuance of certificates for Warrant Shares
shall be made without charge to the Warrantholder for any stock transfer or
other issuance tax in respect thereto; provided, however, that the Warrantholder
shall be required to pay any and all taxes which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
1.6 Information. Upon receipt of a written request from a Warrantholder,
the Company agrees to deliver promptly to such Warrantholder a copy of its
current publicly available financial statements and to provide such other
publicly available information concerning the Company as such Warrantholder may
reasonably request (if electronic access to such information via EDGAR is not
then generally available to the public) in order to assist the Warrantholder in
evaluating the merits and risks of exercising the Warrant and to make an
informed investment decision in connection with such exercise.
2. Restrictions on Transfer; Restrictive Legends.
2.1 Restrictions on Transfer; Compliance with Securities Laws. This
Warrant and the Warrant Shares issued upon the exercise of the Warrant may not
be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and transferee
(including the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if such are requested by the Company).
The Warrantholder, by acceptance hereof, acknowledges that this Warrant and the
Warrant Shares to be issued upon exercise hereof are being acquired solely for
the Warrantholder's own account and not as a nominee for any other party, and
for investment, and that the Warrantholder will not offer, sell or otherwise
dispose of any Warrant Shares to be issued upon exercise hereof except under
circumstances that will not result in a violation of the Securities Act or any
state securities laws. Upon exercise of this Warrant, the Warrantholder shall,
if requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the Warrant Shares so purchased are being acquired solely for the
Warrantholder's own account and not as a nominee for any other party, for
investment, and not with a view toward distribution or resale.
2.2 Restrictive Legends. This Warrant shall (and each Warrant issued upon
transfer in whole or in part of this Warrant pursuant to this Section 2 or
issued in substitution for this Warrant pursuant to Section 4 shall) be stamped
or otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
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<PAGE> 195
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of any Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT."
Notwithstanding the foregoing, the Warrantholder may require the Company to
issue a stock certificate for Warrant Shares without a legend if (i) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (ii) the Warrantholder has received an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
3. Reservation and Registration of Shares, Etc.
The Company covenants and agrees that all Warrant Shares which are issuable
upon the exercise of this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens, security interests,
charges and other encumbrances with respect to the issue thereof, other than
taxes in respect of any transfer occurring contemporaneously with such issue.
The Company further covenants and agrees that, during the Exercise Period, the
Company will at all times have authorized and reserved, and keep available free
from preemptive rights, a sufficient number of shares of Common Stock to provide
for the exercise of the rights represented by this Warrant and will, at its
expense, upon each such reservation of shares, procure such listing of such
shares of Common Stock (subject to issuance or notice of issuance) as then may
be required on all stock exchanges on which the Common Stock is then listed or
on Nasdaq.
4. Exchange, Loss or Destruction of Warrant.
Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant and, in the case of loss, theft
or destruction, of such bond or indemnification as the Company may require, and,
in the case of such mutilation, upon surrender and cancellation of this Warrant,
the Company will execute and deliver a new Warrant of like tenor. The term
"Warrant" as used in this Agreement shall be deemed to include any Warrants
issued in substitution or exchange for this Warrant.
5. Ownership of Warrant.
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary.
6. Certain Adjustments.
6.1 Adjustments. As provided in Sections 1.2 and 1.3 hereof, after the
termination of each Assumed ScanSoft Option, the number of Warrant Shares
purchasable upon the exercise of this Warrant that relate to such terminated
Assumed ScanSoft Option and the Exercise Price shall be subject to adjustment as
follows:
(a) Stock Dividends. If at any time prior to the exercise of this
Warrant in full (i) the Company shall fix a record date for the issuance of
any stock dividend payable in shares of Common Stock or (ii) the number of
shares of Common Stock shall have been increased by a subdivision or
split-up of shares of Common Stock, then, on the record date fixed for the
determination of holders of Common Stock entitled to receive such dividend
or immediately after the effective date of subdivision or split-up, as the
case may be, the number of shares of Common Stock to be delivered upon
exercise of this Warrant will be increased so that the Warrantholder will
be entitled to receive the number of shares of Common Stock that such
Warrantholder would have owned immediately following such action had this
Warrant been exercised immediately prior thereto, and the Exercise Price
will be adjusted as provided below in paragraph (f).
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(b) Combination of Stock. If at any time prior to the exercise of
this Warrant in full the number of shares of Common Stock outstanding shall
have been decreased by a combination of the outstanding shares of Common
Stock, then, immediately after the effective date of such combination, the
number of shares of Common Stock to be delivered upon exercise of this
Warrant will be decreased so that the Warrantholder thereafter will be
entitled to receive the number of shares of Common Stock that such
Warrantholder would have owned immediately following such action had this
Warrant been exercised immediately prior thereto, and the Exercise Price
will be adjusted as provided below in paragraph (f).
(c) Reorganization, Etc. If at any time prior to the exercise of this
Warrant in full any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation of the Company
with or merger of the Company with or into any other person or any sale,
lease or other transfer of all or substantially all of the assets of the
Company to any other person, shall be effected in such a way that the
holders of Common Stock shall be entitled to receive stock, other
securities or assets (whether such stock, other securities or assets are
issued or distributed by the Company or another person) with respect to or
in exchange for Common Stock, then, upon exercise of this Warrant the
Warrantholder shall have the right to receive the kind and amount of stock,
other securities or assets receivable upon such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer by
a holder of the number of shares of Common Stock that such Warrantholder
would have been entitled to receive upon exercise of this Warrant had this
Warrant been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer,
subject to adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 6.
(d) Fractional Shares. No fractional shares of Common Stock or scrip
shall be issued to any Warrantholder in connection with the exercise of
this Warrant. Instead of any fractional shares of Common Stock that would
otherwise be issuable to such Warrantholder, the Company will pay to such
Warrantholder a cash adjustment in respect of such fractional interest in
an amount equal to that fractional interest of the fair market value of one
share of Common Stock as of the date of exercise.
(e) Carryover. Notwithstanding any other provision of this Section 6,
no adjustment shall be made to the number of shares of Common Stock to be
delivered to the Warrantholder (or to the Exercise Price) if such
adjustment represents less than 1% of the number of shares to be so
delivered, but any lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment which
together with any adjustments so carried forward shall amount to 1% or more
of the number of shares to be so delivered.
(f) Exercise Price Adjustment. Whenever the number of Warrant Shares
purchasable upon the exercise of the Warrant is adjusted, as herein
provided, the Exercise Price payable upon the exercise of this Warrant
shall be adjusted by multiplying such Exercise Price immediately prior to
such adjustment by a fraction, of which the numerator shall be the number
of Warrant Shares purchasable upon the exercise of the Warrant immediately
prior to such adjustment, and of which the denominator shall be the number
of Warrant Shares purchasable immediately thereafter.
(g) No Duplicate Adjustments. Notwithstanding anything else to the
contrary contained herein, in no event will an adjustment be made under the
provisions of this Section 6 to the number of Warrant Shares issuable upon
exercise of this Warrant or the Exercise Price for any event if an
adjustment having substantially the same effect to the Warrantholder as any
adjustment that otherwise would be made under the provisions of this
Section 6 is made by the Company for any such event to the number of shares
of Common Stock (or other securities) issuable upon exercise of this
Warrant.
6.2 No Adjustment for Dividends. Except as provided in Section 1 hereof
or Section 6.1 hereof, no adjustment in respect of any dividends shall be made
during the term of the Warrant or upon the exercise of this Warrant.
6.3 Notice of Adjustment. Whenever the number of Warrant Shares or the
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of the
chief financial
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officer of the Company setting forth the number of Warrant Shares and the
Exercise Price of such Warrant Shares after such adjustment, setting forth a
brief statement of the facts requiring such adjustment and setting forth the
computation by which such adjustment was made.
7. Notices of Corporate Action.
In the event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of
Control, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, the Company will mail to the Warrantholder a
notice specifying (i) the date or expected date on which any such record is
to be taken for the purpose of such dividend, distribution or right and the
amount and character of any such dividend, distribution or right, (ii) the
date or expected date on which any such reorganization, reclassification,
recapitalization, Change of Control, dissolution, liquidation or winding-up
is to take place and the time, if any such time is to be fixed, as of which
the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
the securities or other property deliverable upon such reorganization,
reclassification, recapitalization, Change of Control, dissolution,
liquidation or winding-up and (iii) that in the event of a Change of
Control, the Warrants are exercisable immediately prior to the consummation
of such Change of Control. Such notice shall be mailed at least 20 days
prior to the date therein specified, in the case of any date referred to in
the foregoing subdivision (i), and at least 20 days prior to the date
therein specified, in the case of the date referred to in the foregoing
subdivision (ii).
8. Definitions.
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
Assumed ScanSoft Options: the ScanSoft Options (as such term is defined in
the Merger Agreement) assumed by the Company pursuant to Section 2.2(a) of the
Merger Agreement.
Business Day: any day other than a Saturday, Sunday or a day on which
national banks are authorized by law to close in the City of New York, State of
New York.
Change of Control: shall mean (i) the consolidation of the Company with or
merger of the Company with or into any other person in which the Company is not
the surviving corporation, (ii) the sale of all or substantially all of the
assets of the Company to any other person or (iii) any sale or transfer of any
capital stock of the Company after the date of this Warrant, following which 50%
of the combined voting power of the Company becomes beneficially owned by one
person or group (other than the Warrantholder) acting together. For purposes of
this definition of Change of Control, "group" shall have the meaning as such
term is used in Section 13(d)(1) under the Exchange Act.
Company: Visioneer, Inc., a Delaware corporation.
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
successor federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time. Reference to a particular
section of the Securities Exchange Act of 1934, as amended, shall include a
reference to a comparable section, if any, of any successor federal statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit A.
Exercise Price: the meaning specified on the cover of this Warrant, as
such price may be adjusted pursuant to Section 1 or Section 6 hereof.
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Nasdaq: the meaning specified in Section 1.1(c)(ii).
SEC: the Securities and Exchange Commission or any other federal agency at
the time administering the Securities Act or the Exchange Act, whichever is the
relevant statute for the particular purpose.
Securities Act: the Securities Act of 1933, as amended, or any successor
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section of
the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
Trading Day: any day other than a day on which securities are not traded,
listed or reported on the principal securities exchange or securities market on
which the Common Stock is traded, listed or reported.
Warrantholder: the meaning specified on the cover of this Warrant.
Warrant Shares: the meaning specified on the cover of this Warrant,
subject to the provisions of Section 1 or Section 6 hereof.
9. Miscellaneous.
9.1 Entire Agreement. This Warrant constitutes the entire agreement
between the Company and the Warrantholder with respect to this Warrant.
9.2 Binding Effects; Benefits. This Warrant shall inure to the benefit of
and shall be binding upon the Company and the Warrantholder and their respective
successors. Nothing in this Warrant, expressed or implied, is intended to or
shall confer on any person other than the Company and the Warrantholder, or
their respective successors, any rights, remedies, obligations or liabilities
under or by reason of this Warrant.
9.3 Amendments and Waivers. This Warrant may not be modified or amended
except by an instrument or instruments in writing signed by the Company and the
Warrantholder. Either the Company or the Warrantholder may, by an instrument in
writing, waive compliance by the other party with any term or provision of this
Warrant on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
9.4 Section and Other Headings. The section and other headings contained
in this Warrant are for reference purposes only and shall not be deemed to be a
part of this Warrant or to affect the meaning or interpretation of this Warrant.
9.5 Further Assurances. Each of the Company and the Warrantholder shall
do and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Agreement.
9.6 Notices. All notices and other communications required or permitted
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by United States mail, postage
prepaid, or by facsimile (with electronic confirmation of successful
transmission) to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
(a) if to the Company, addressed to:
Visioneer, Inc.
----------------------------------------------------------------
----------------------------------------------------------------
Attention: President and Chief Executive Officer
Telecopier:
---------------------------------------------------
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<PAGE> 199
(b) if to the Warrantholder, addressed to:
Xerox Corporation
-----------------------------------------------------------------
-----------------------------------------------------------------
Attention:
-----------------------------------------------------
Telecopier:
----------------------------------------------------
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
9.7 Separability. Any term or provision of this Warrant which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
9.8 Governing Law. This Warrant shall be deemed to be a contract made
under the laws of the State of Delaware (irrespective of its choice of law
principles).
9.9 No Rights or Liabilities as Stockholder. Nothing contained in this
Warrant shall be determined as conferring upon the Warrantholder any rights as a
stockholder of the Company or as imposing any liabilities on the Warrantholder
to purchase any securities whether such liabilities are asserted by the Company
or by creditors or stockholders of the Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Dated:
- ------------ , 199[9].
VISIONEER, INC.
By:
--------------------------------------
Title:
--------------------------------------
AC-8
<PAGE> 200
EXHIBIT A
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT.
EXERCISE FORM
(TO BE EXECUTED UPON EXERCISE OF THIS WARRANT)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
[ ] herewith tenders payment for of the Warrant Shares to
the order of Visioneer, Inc. in the amount of $ in accordance
with the terms of this Warrant; or
[ ] herewith tenders this Warrant for Warrant Shares
pursuant to the Net Issue Exercise provisions of Section 1.1(b) of the
Warrant.
The undersigned requests that a certificate (or certificates) for such
Warrant Shares be registered in the name of the undersigned and that such
certificate (or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired solely for the account
of the undersigned and not as a nominee for any other party, or for investment,
and that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: ____________________.
Signature
--------------------------------------
--------------------------------------
(Print Name)
--------------------------------------
(Street Address)
--------------------------------------
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder.
AC-9
<PAGE> 201
EXHIBIT D
AFFILIATES
Technology Venture Investors-IV
As nominee for
Technology Venture Investors-4 L.P.
TVI Partners-4, L.P.
TVI Affiliates-4, L.P.
2480 Sand Hill Road
Suite 101
Menlo Park, CA 94025
Fax Number: 650-854-4187
Morgan Stanley Venture Capital Fund II, LP
Morgan Stanley Venture Capital Fund II, C.V.
Morgan Stanley Venture Investors, L.P.
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 C.V.
U.S. Growth Fund Partners C.V.
Double Black Diamond I LLC
Almanori Limited
Multinvest LLC
Vincent Worms
Thomas G. McKinley
BVI Venture Managers
101 California Street, Suite 3150
San Francisco, CA 94111
Fax Number: 415-788-6763
AD-1
<PAGE> 202
EXHIBIT E
VISIONEER, INC.
VOTING AGREEMENT
This Voting Agreement (the "Agreement") is made as of the day of
, 1999, by and among Visioneer, Inc., a Delaware corporation (the
"Company"), Xerox Corporation, a New York corporation ("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
(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
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<PAGE> 203
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 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 (20%) 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.
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<PAGE> 204
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 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]
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<PAGE> 205
The parties hereto have executed this Voting Agreement as of the date first
written above.
COMPANY:
VISIONEER, INC.
By:
--------------------------------------
Larry Smart, President
Address: 3400 Campus Drive
Fremont, CA 94555
Fax Number: (510-608-0300)
XEROX CORPORATION
By:
--------------------------------------
Name:
--------------------------------------
(print)
Title:
--------------------------------------
Address: 800 Long Ridge Road
Stamford, CT 06904-1600
Fax Number: (203) 968-4566
SIGNATURE PAGE TO VOTING AGREEMENT
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<PAGE> 206
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:
- -------------------------------------------------
General Partner
MORGAN STANLEY VENTURE CAPITAL
FUND II, L.P.
By:
- -------------------------------------------------
Name:
- -------------------------------------------------
(print)
Title:
- -------------------------------------------------
MORGAN STANLEY VENTURE CAPITAL
FUND II, C.V.
By:
- -------------------------------------------------
Name:
- -------------------------------------------------
(print)
Title:
- -------------------------------------------------
MORGAN STANLEY VENTURE
INVESTORS, L.P.
By:
- -------------------------------------------------
Name:
- -------------------------------------------------
(print)
Title:
- -------------------------------------------------
AE-5
<PAGE> 207
PARVEST U.S. PARTNERS II, C.V.
By:
- -------------------------------------------------
Name:
- -------------------------------------------------
(print)
Title:
- -------------------------------------------------
PARTECH INTERNATIONAL VENTURES C.V.
By:
- -------------------------------------------------
Name:
- -------------------------------------------------
(print)
Title:
- -------------------------------------------------
U.S. GROWTH FUND PARTNERS C.V.
By:
- -------------------------------------------------
Name:
- -------------------------------------------------
(print)
Title:
- -------------------------------------------------
DOUBLE BLACK DIAMOND I LLC
By:
- -------------------------------------------------
Name:
- -------------------------------------------------
(print)
Title:
- -------------------------------------------------
AE-6
<PAGE> 208
ALMANORI LIMITED
By:
- -------------------------------------------------
Name:
- -------------------------------------------------
(print)
Title:
- -------------------------------------------------
MULTINVEST LLC
By:
- -------------------------------------------------
Name:
- -------------------------------------------------
(print)
Title:
- -------------------------------------------------
VINCENT WORMS
By:
- -------------------------------------------------
Name:
- -------------------------------------------------
(print)
Title:
- -------------------------------------------------
THOMAS G. McKINLEY
By:
- -------------------------------------------------
Name:
- -------------------------------------------------
(print)
Title:
- -------------------------------------------------
AE-7
<PAGE> 209
BVI VENTURE MANAGERS
By:
- -------------------------------------------------
Name:
- -------------------------------------------------
(print)
Title:
- -------------------------------------------------
AE-8
<PAGE> 210
EXHIBIT A
CURRENT HOLDERS
NAME/ADDRESS/FAX NO.
Technology Venture Investors-IV
As nominee for
Technology Venture Investors-4 L.P.
TVI Partners-4, L.P. and
TVI Affiliates-4, L.P.
2480 Sand Hill Road
Suite 101
Menlo Park, CA 94025
Fax Number: 650-854-4187
Morgan Stanley Venture Capital Fund II, LP
Morgan Stanley Venture Capital Fund II, C.V.
Morgan Stanley Venture Investors, L.P.
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
Vincent Worms
Thomas G. McKinley
BVI Venture Managers
101 California Street, Suite 3150
San Francisco, CA 94111
Fax Number: 415-788-6763
AE-9
<PAGE> 211
EXHIBIT F
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of the
th day of , 1998 by and among VISIONEER, INC., a Delaware
corporation (the "Company") and XEROX CORPORATION, a New York corporation
("Xerox").
WHEREAS, the Company and ScanSoft, Inc., a Delaware corporation and wholly
owned subsidiary of Xerox ("ScanSoft"), have entered into that certain Agreement
and Plan of Merger (the "Merger Agreement") of December , 1998, whereby Xerox
will receive (i) shares (the "Shares") of Company common stock, $0.001 par value
(the "Common Stock"); (ii) shares of Convertible Preferred Stock of the Company
(the "Preferred Stock"); and (iii) a Warrant (the "Warrant") to purchase shares
of Common Stock (the "Warrant Shares"); and
WHEREAS, the Company and Xerox desire to provide for the rights of Xerox
with respect to the registration of the Shares, the shares of Common Stock
issuable upon conversion of the Preferred Stock into Common Stock (the
"Preferred Shares") and the Warrant Shares and certain other matters according
to the terms of this Agreement.
NOW THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights.
1.1 Definitions.
(a) The term "Commission" means the Securities and Exchange
Commission or any other federal agency at the time administering the
Securities Act.
(b) The term "Exchange Act" means the Securities Exchange Act of
1934, as amended, or any similar successor federal statute and the rules
and regulations thereunder, all as the same shall be in effect from time
to time.
(c) The term "Holder" means Xerox, as a holder of Registrable
Securities, and any holder of Registrable Securities to whom the
registration rights conferred by this Agreement have been transferred in
accordance with Section 1.9 hereof;
(d) The term "Other Holders" shall mean persons who are holders of
record of equity securities of the Company who subsequent to the date
hereof acquire more than 5% of the outstanding shares of Common Stock
pursuant to a transaction with the Company and to whom the Company
grants registration rights pursuant to a written agreement in connection
with such transaction.
(e) The terms "register," "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement
or similar document in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement
or document by the Commission.
(f) The term "Registrable Securities" means (i) the Shares, the
Preferred Shares and the Warrant Shares, and (ii) Common Stock or
Preferred Stock, as the case may be, issued as (or issuable upon the
conversion or exercise of any warrant, right or other security that is
issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, such Common Stock or Preferred Stock,
excluding in all cases, however, any Common Stock or Preferred Stock
sold by a person in a transaction in which such person's registration
rights are not assigned; provided, however, that any Shares, Preferred
Shares, Warrant Shares or other securities referred to above that have
been sold to the public pursuant to a registered public offering or Rule
144 under the Securities Act shall cease to be Registrable Securities.
(g) The term "Securities Act" means the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to
time.
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1.2 Request for Registration.
(a) If the Company shall receive a written request from the Holders
of at least 30% of the Registrable Securities then outstanding that the
Company file a registration statement under the Securities Act covering
the registration of at least 10% of the Registrable Securities then
outstanding (as such number may be appropriately adjusted for stock
splits, combinations, and the like) or such lesser amount of shares as
shall constitute all of the Registrable Securities then outstanding,
then the Company shall, within ten days of the receipt thereof, give
written notice of such request to all other Holders of Registrable
Securities and shall, subject to the limitations of subsection 1.2(b),
use all reasonable commercial efforts to effect as soon as practicable
the registration under the Securities Act of all Registrable Securities
that the Holders request to be registered within 20 days of the mailing
of such notice by the Company in accordance with Section 2.2.
(b) If the Holders of Registrable Securities initiating the
registration request pursuant to subsection 1.2(a) ("Initiating
Holders") intend to distribute the Registrable Securities covered by
their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to this Section 1.2 and
the Company shall include such information in the written notice
referred to in subsection 1.2(a). The underwriter or underwriters shall
be selected by a majority in interest of the Initiating Holders and
shall be reasonably acceptable to the Company. In such event, the right
of any such Holder to include such Holder's Registrable Securities in
such registration shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting (unless otherwise mutually agreed by a
majority in interest of the Initiating Holders and such Holder) to the
extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall (together with the Company as
provided in Section 1.4(e)) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 1.2,
if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities that would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Securities that may be
included in the underwriting shall be allocated among all Holders
thereof, including the Initiating Holders, in proportion (as nearly as
practicable) to the amount of Registrable Securities owned by each
Holder; provided, however, that the number of shares of Registrable
Securities to be included in such underwriting shall not be reduced
unless all other securities are first entirely excluded from the
underwriting.
(c) If the Company is qualified to use Form S-3 (or any comparable
successor form or forms) at the time any registration statement is to be
filed pursuant to this Section 1.2, such registration statement shall be
filed on Form S-3. If the Company is not qualified to use Form S-3 at
the time any registration statement is to be filed pursuant to this
Section 1.2, such registration statement shall be filed on Form S-1 (or
any comparable successor form or forms). The Company shall be obligated
to effect up to two registrations per twelve month period on Form S-3.
The Company shall be obligated to effect an aggregate of two
registrations pursuant to this Section 1.2 on Form S-1; provided,
however that if all or any portion of the Warrant is exercised, the
Company shall be obligated to effect one additional registration
pursuant to this Section 1.2 on Form S-1.
(d) Notwithstanding the foregoing, if the Company shall furnish to
the Initiating Holders a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of
Directors of the Company it would be seriously detrimental to the
Company for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, the
Company shall have the right to defer such filing for a period of not
more than 60 days after receipt of the request of the Initiating Holders
(or, if the Company is engaged or has fixed plans to engage in a
registered public offering as to which the Holders may include
Registrable Securities pursuant to Section 1.3, not more than 180 days
after the effective date of such offering);
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provided, however, that the Company may not utilize this right more than
once in any 12-month period.
1.3 Company Registration.
(a) If (but without any obligation to do so) the Company proposes
to register (including for this purpose a registration effected by the
Company for stockholders other than the Holders) any of its stock or
other securities under the Securities Act in connection with the public
offering of such securities solely for cash (other than a registration
relating solely to the sale of securities to participants in a Company
stock plan, or a registration on any form which does not include
substantially the same information as would be required to be included
in a registration statement covering the sale of the Registrable
Securities), the Company shall, at such time, promptly give each Holder
written notice of such registration. Upon the written request of each
Holder given within 20 days after the mailing of such notice by the
Company, the Company shall, subject to the provisions of subsection
1.3(b), cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be
registered.
(b) In connection with any offering involving an underwriting of
shares being issued by the Company, the Company shall not be required
under this Section 1.3 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in
such quantity as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company. If the total
amount of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of
securities that the underwriters reasonably believe compatible with the
success of the offering, then the Company will include in such
registration (i) first, if the registration pursuant to this Section 1.3
was initiated by Other Holders exercising demand registration rights,
100% of the securities such Other Holders propose to sell (except to the
extent the terms of such Other Holders' registration rights provide
otherwise); (ii) second, 100% of the securities the Company proposes to
sell for its own account; (iii) third, to the extent that the number of
securities which such Other Holders exercising demand registration
rights and the Company propose to sell is less than the number of
securities which the Company has been advised can be sold in such
offering without having the adverse effect referred to above, such
number of Registrable Securities which the Holders have requested to be
included in such registration pursuant to Section 1.3 hereof and which,
in the opinion of such managing underwriter(s), can be sold without
having the adverse effect referred to above; and (iv) fourth, to the
extent that the number of securities which are to be included in such
registration pursuant to clauses (i), (ii) and (iii) is, in the
aggregate, less than the number of securities which the Company has been
advised can be sold in such offering without having the adverse effect
referred to above, such number of other securities requested to be
included in the offering for the account of any Other Holders which, in
the opinion of such managing underwriter(s), can be sold without having
the adverse effect referred to above.
1.4 Obligations of the Company.
Whenever required under this Section 1 to effect the registration of
any Registrable Securities, the Company shall, as expeditiously as
reasonably possible:
(a) Prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use all reasonable
efforts to cause such registration statement to become effective, and,
upon the request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration statement
effective for a period (the "Effectiveness Period") of up to 120 days or
until the distribution contemplated by the registration statement has
been completed. In the event that, in the judgment of the Company, it is
advisable to suspend use of the prospectus relating to such registration
statement for a discrete period of time (a "Deferral Period") due to
pending material corporate developments or similar material events that
have not yet been publicly disclosed and as to which the Company
believes public disclosure will be prejudicial to the
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Company, the Company shall deliver a certified resolution of the Board
of Directors of the Company, signed by a duly authorized officer of the
Company, to each Holder, to the effect of the foregoing and, upon
receipt of such certificate, such Holders agree not to dispose of such
Holders' Registrable Securities covered by such registration or
prospectus (other than in transactions exempt from the registration
requirements under the Securities Act); provided, however, that such
Deferral Period shall be no longer than 75 days. The Effectiveness
Period shall be extended for a period of time equal to such Deferral
Period.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement.
(c) Furnish to the Holders of the Registrable Securities covered by
such registration statement such numbers of copies of a prospectus,
including a preliminary prospectus, and any amendment or supplement
thereto and a reasonable number of copies of the then-effective
registration statement and any post-effective amendment thereto, all in
conformity with the requirements of the Securities Act, and such other
documents as they may reasonably request in order to facilitate the
disposition of such Registrable Securities.
(d) Use all reasonable commercial efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders thereof; provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to
do business or to file a general consent to service of process in any
such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each
Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and at
the request of any such Holder prepare and furnish to such Holder a
reasonable number of copies of a supplement or an amendment to such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of any Holder requesting registration
of Registrable Securities pursuant to this Section 1, on the date that
such Registrable Securities are delivered to the underwriters for sale
in connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, or, if such securities
are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes
effective, (i) an opinion, dated such date, of the counsel representing
the Company for the purposes of such registration, in form and substance
as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) in the case
of an underwritten public offering a letter dated such date, from the
independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering,
addressed to the underwriters.
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(h) Cause all Registrable Securities covered by the registration
statement to be listed on each securities exchange or automated
quotation system on which shares of Common Stock are then listed. If any
of such shares are not so listed, the Company shall cause such shares to
be listed on the securities exchange or automated quotation system as
may be reasonably requested by the Holders of a majority of the
Registrable Securities being registered.
(i) Permit a single firm of counsel designated as selling
stockholders' counsel by the holders of a majority in interest of the
Registrable Securities to review, at the Holders' expense, the
registration statement and all amendments and supplements thereto a
reasonable period of time prior to their filing with the Commission and
state authorities, and shall not file any document in a form to which
such counsel reasonably objects.
(j) Cause the Company's officers, directors and independent
certified public accountants to supply all information reasonably
requested by a representative of any Holder of Registrable Securities,
and any attorney or accountant retained by such Holder, in connection
with such registration; provided, however, that such representatives,
attorneys or accountants of the Holders enter into a confidentiality
agreement, in form and substance reasonably satisfactory to the Company,
prior to the release or disclosure of any such information.
1.5 Obligations of the Holders.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Agreement that the selling
Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to effect
the registration of the Registrable Securities. The Company shall have
no obligation with respect to any registration requested pursuant to
Section 1.2 of this Agreement if the number of shares of Registrable
Securities to be included in the requested registration does not equal
or exceed the number of shares required to trigger the Company's
obligation to initiate such registration as specified in subsection
1.2(a) above.
(b) Upon the receipt by a Holder of any notice from the Company of
(i) the existence of any fact or the happening of any event as a result
of which the prospectus included in a registration statement filed
pursuant to the terms hereof, as such registration statement is then in
effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading, (ii) the issuance by the Commission of
any stop order or injunction suspending or enjoining the use or the
effectiveness of such registration statement or the initiation of any
proceedings for that purpose, or the taking of any similar action by the
securities regulators of any state or other jurisdiction, or (iii) the
request by the Commission or any other federal or state governmental
agency for amendments or supplements to such registration statement or
related prospectus or for additional information related thereto, such
Holder shall forthwith discontinue disposition of such Holder's
Registrable Securities covered by such registration or prospectus (other
than in transactions exempt from the registration requirements under the
Securities Act) until such Holder's receipt of the supplemented or
amended prospectus or until such Holder is advised in writing by the
Company that the use of the applicable prospectus may be resumed. In
such a case, the Effectiveness Period shall be extended by the number of
days from and including the date of the giving of such notice to and
including the date when each Holder shall have received a copy of the
supplemented or amended prospectus or when such Holder is advised in
writing by the Company that the use of the applicable prospectus may be
resumed. The Company shall use all reasonable commercial efforts to
limit the duration of any discontinuance of disposition of Registrable
Securities pursuant to this section.
1.6 Expenses.
(a) Except as set forth herein, the Company shall bear and pay all
expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the
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registrations pursuant to Section 1.2 and 1.3 hereof, including (without
limitation) all registration, filing and qualification fees, printers'
and accounting fees relating or apportionable thereto, fees and
disbursements of counsel for the Company, blue sky fees and expenses,
including fees and disbursements of counsel related to all blue sky
matters, fees and expenses of listing any Registrable Securities on any
securities exchange or automated quotation system on which shares of
Common Stock are then listed, the expenses of providing materials
pursuant to Section 1.4 hereof, but excluding stock transfer taxes that
may be payable by the selling Holders, and all underwriting discounts
and commissions relating to Registrable Securities covered by such
registration, which shall be borne by the Holders.
(b) Notwithstanding subsection 1.6(a), the Company shall not be
required to pay for any expenses of any registration proceeding begun
pursuant to Section 1.2 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered (in which case all participating Holders
shall bear such expenses), unless the Holders of a majority of the
Registrable Securities agree to forfeit their right to one demand
registration pursuant to Section 1.2; provided, however, that if such
withdrawal occurs prior to the date the registration statement shall
have become effective and as of the time of such withdrawal, such
Holders have learned of a material adverse change in the business,
properties, results of operations or financial condition of the Company
from that known to such Holders at the time of their request and have
withdrawn the request with reasonable promptness following disclosure by
the Company of such material adverse change, then the Holders shall not
be required to pay any of such expenses and shall retain their rights
pursuant to Section 1.2.
1.7 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Section 1.
1.8 Indemnification.
In the event any Registrable Securities are included in a registration
statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder of such Registrable Securities, the officers
and directors of each such Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of the Securities Act or
the Exchange Act, against any losses, claims, damages or liabilities
(joint or several) to which they may become subject under the Securities
Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements,
omissions or violations (collectively, a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements
thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the
statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law; and the
Company will reimburse each such Holder, officer or director,
underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this subsection
1.8(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that
it arises out of or is based upon a Violation that occurs in reliance
upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, officer,
director, underwriter or controlling person.
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(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of
its officers who have signed the registration statement, each person, if
any, who controls the Company within the meaning of the Securities Act,
any underwriter and any other Holder selling securities in such
registration statement or any of its directors or officers or any person
who controls such Holder, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such
director, officer, controlling person, or underwriter or controlling
person, or other such Holder or director, officer or controlling person
may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in
connection with such registration; and each such Holder will reimburse
any legal or other expenses reasonably incurred by the Company or any
such director, officer, controlling person, underwriter or controlling
person, other Holder, officer, director, or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided, that, in no event shall
any indemnity under this subsection 1.8(b) exceed the net proceeds from
the sale of the Registrable Securities received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section
1.8, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party (together with all other
indemnified parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the
fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 1.8 to the extent the
indemnifying party was actually damaged or suffered any loss or incurred
any additional expense as a result thereof, but the omission so to
deliver written notice to the indemnifying party will not relieve it of
any liability that it may have to any indemnified party otherwise than
under this Section 1.8. An indemnifying party shall not, without the
prior written consent of the indemnified parties, settle, compromise or
consent to the entry of any judgment with respect to any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder by such indemnified parties
(whether or not the indemnified parties are actual or potential parties
to such claim or action) unless such settlement, compromise or consent
includes a release of such indemnified party reasonably acceptable to
such indemnified party from all liability arising out of such claim,
action, suit or proceeding.
(d) If the indemnification provided for in this Section 1.8 is held
by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such
loss, liability, claim, damage, or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on
the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability,
claim,
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damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
(f) The obligations of the Company and Holders under this Section
1.8 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and
otherwise.
1.9 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may
be transferred or assigned by a Holder, in whole or in part, without any
prior written consent of the Company, to (a) a wholly-owned subsidiary of
the Holder or a successor to substantially all the business or assets of
the Holder or (b) a transferee or assignee of 10% or more of the then
outstanding Registrable Securities; provided that the Company is, within a
reasonable time after such transfer or assignment, furnished with written
notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being
transferred or assigned; and provided, further, that the transferee or
assignee of such rights assumes in writing the obligations of such Holder
under this Section 1.
1.10 Reports Under the Exchange Act. With a view to making available
to the Holders the benefits of Rule 144 under the Securities Act and any
other rule or regulation of the Commission that may at any time permit a
Holder to sell securities of the Company to the public without
registration, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times after the date hereof;
(b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule
144, the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company and (iii) such other information
as may be reasonably requested in availing any Holder of any rule or
regulation of the Commission which permits the selling of any such
securities without registration.
1.11 Limitations on Subsequent Registration Rights. From and after
the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder
of any securities of the Company that would allow such holder or
prospective holder to have registration rights superior or pari passu to
those granted pursuant to Sections 1.2 and 1.3 above.
1.12 "Market Stand-Off" Agreement. If requested by the Company or
the representative of the underwriters of Common Stock (or other
securities) of the Company, each Holder shall agree that it will not sell
or otherwise transfer or dispose (other than to donees who agree to be
similarly bound) of any Registrable Securities (other than Registrable
Securities to be sold pursuant to the registration statement described
below) for a period of time specified by the representative of the
underwriters not to exceed 90 days, following the effective date of a
registration statement of the Company filed under the Securities
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Act, provided that all executive officers and directors of the Company and
all other persons with registration rights (whether or not pursuant to this
Agreement) enter into similar agreements.
1.13 Termination of Registration Rights. The Company's obligations
pursuant to this Agreement shall terminate as to any Holder of Registrable
Securities on the date on which the Holder can sell all of such Holder's
Registrable Securities pursuant to Rule 144 under the Securities Act during
any 90-day period.
2. Miscellaneous.
2.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted 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 permitted assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.
2.2 Notices. Unless otherwise provided, any notice, request, demand
or other communication required or permitted under this Agreement shall be
given in writing and shall be deemed effectively given upon personal
delivery to the party to be notified, or when sent by telecopier (with
receipt confirmed and promptly confirmed by personal delivery, U.S. first
class mail, or courier), or overnight courier service, or upon deposit with
the United States Post Office, by registered or certified mail, postage
prepaid and addressed as follows (or at such other address as a party may
designate by notice to the other):
If to the Company: Visioneer, Inc.
--------------------------------------
--------------------------------------
--------------------------------------
Attention: President and Chief
Executive Officer
Telecopier:
---------------------------
If to Xerox: Xerox Corporation
--------------------------------------
--------------------------------------
--------------------------------------
Attention:
----------------------------
Telecopier:
---------------------------
2.3 Severability. If one or more provisions of this Agreement are
held to be unenforceable, invalid or void by a court of competent
jurisdiction, such provision shall be excluded from this Agreement and the
balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
2.4 Entire Agreement; Amendments.
(a) This Agreement contains the entire understanding of the parties
with respect to the matters covered herein and supersedes all prior
agreements and understandings, written or oral, between the parties
relating to the subject matter hereof.
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(b) Any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Holders of a majority of
the Registrable Securities then outstanding. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each
Holder of any Registrable Securities then outstanding, each future
Holder of all such Registrable Securities, and the Company. No waiver of
any default with respect to any provision, condition or requirement
hereof shall be deemed to be a continuing waiver in the future thereof
or a waiver of any other provision, condition or requirement hereof; nor
shall any delay or omission of either party to exercise any right
hereunder in any manner impair the exercise of any such right accruing
to it thereafter.
2.5 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Delaware (irrespective of its choice of law
principles).
2.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.7 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. Any reference in this Agreement
to a statutory provision or rule or regulation promulgated thereunder shall
be deemed to include any similar successor statutory provision or rule or
regulation promulgated thereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
VISIONEER, INC.
By
--------------------------------------
Name
--------------------------------------
Title
--------------------------------------
XEROX CORPORATION
By
--------------------------------------
Name
--------------------------------------
Title
--------------------------------------
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ANNEX B
IRREVOCABLE PROXY/VOTING AGREEMENT
THIS IRREVOCABLE PROXY/VOTING AGREEMENT (this "Agreement") dated as of
December 2, 1998, among SCANSOFT, INC., a Delaware corporation ("ScanSoft"), on
the one hand, and certain stockholders of VISIONEER, INC., a Delaware
corporation ("Visioneer"), listed on Schedule A hereto (each a "Stockholder"
and, collectively, the "Stockholders"), on the other hand,
WITNESSETH:
WHEREAS, ScanSoft and Visioneer propose to enter into an Agreement and Plan
of Merger dated as of the date hereof (as the same may be amended or
supplemented, the "Merger Agreement"; capitalized terms used but not defined
herein shall have the meanings set forth in the Merger Agreement) providing that
ScanSoft shall merge with and into Visioneer (the "Merger") upon the terms and
subject to the conditions set forth in the Merger Agreement;
WHEREAS, each Stockholder owns beneficially or of record the number of
shares of Visioneer Common Stock, par value $0.001 per share, of Visioneer (the
"Visioneer Common Stock") set forth opposite its name on Schedule A attached
hereto (the "Subject Shares");
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, ScanSoft has required that each Stockholder enter into this
Agreement.
NOW, THEREFORE, to induce ScanSoft to enter into, and in consideration of
its entering into, the Merger Agreement, and in consideration of the premises
and the representations, warranties and agreements contained herein, the parties
agree as follows:
1. Representations and Warranties of Each Stockholder. Each
Stockholder hereby, severally and not jointly, represents and warrants to
ScanSoft as of the date hereof in respect of itself as follows:
(a) Authority. The Stockholder has all requisite power and
authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by the Stockholder and constitutes a
valid and binding obligation of the Stockholder enforceable in
accordance with its terms, except that such enforceability (i) may be
limited by bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to the enforcement of creditors' rights generally
and (ii) is subject to general principles of equity. The execution and
delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby and compliance with the terms hereof
will not, conflict with, or result in any violation of, or default (with
or without notice or lapse of time or both) under any provision of, any
trust agreement, loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
franchise, license, judgment, order, notice, decree, statute, law,
ordinance, rule or regulation applicable to the Stockholder or to the
Stockholder's property or assets the effect of which, in any case, would
be material and adverse to the ability of the Stockholder to consummate
the transactions contemplated hereby or to comply with the terms hereof.
(b) The Subject Shares. The Stockholder is the record and
beneficial owner of and has the sole right to vote the Subject Shares
set forth opposite such Stockholder's name on Schedule A attached
hereto. None of such Subject Shares is subject to any voting trust or
other agreement, arrangement or restriction, except as contemplated by
this Agreement.
2. Covenants of Each Stockholder. Until the termination of this
Agreement in accordance with Section 6, each Stockholder, severally and not
jointly, agrees as follows:
(a) Vote for the Merger. At any meeting of stockholders of
Visioneer called to vote upon the Merger and the Merger Agreement or at
any adjournment thereof or in any other circumstances
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upon which a vote, consent or other approval (including by written
consent) with respect to the Merger and the Merger Agreement is sought,
the Stockholder shall vote (or cause to be voted), or execute a written
consent in respect of, the Subject Shares in favor of the Merger, the
adoption by Visioneer of the Merger Agreement and the approval of the
terms thereof and each of the other transactions contemplated by the
Merger Agreement. Each Stockholder hereby waives any appraisal rights
granted pursuant to Section 262 of the General Corporation Law of the
State of Delaware (the "DGCL") (or any successor provision) to which it
may otherwise be entitled as a result of the Merger or the other
transactions contemplated by the Merger Agreement.
(b) Vote Against Alternative Proposals. At any meeting of
stockholders of Visioneer or at any adjournment thereof or in any other
circumstances upon which the stockholders' vote, consent or other
approval is sought, the Stockholders shall be present (in person or by
proxy) and shall vote (or cause to be voted) the Subject Shares against
(i) any merger agreement or merger (other than the Merger Agreement and
the Merger), consolidation, combination, sale of substantial assets
(other than the Asset Purchase Agreement), reorganization,
recapitalization, dissolution, liquidation or winding up of or involving
Visioneer or (ii) any amendment of Visioneer's certificate of
incorporation or by-laws or other proposal or transaction involving
Visioneer or any of its subsidiaries, which amendment or other proposal
or transaction would in any manner impede, frustrate, prevent, delay or
nullify the Merger, the Merger Agreement or any of the other
transactions contemplated by the Merger Agreement or change in any
manner the voting rights of any class of capital stock of Visioneer.
Each Stockholder further agrees not to commit or agree to take any
action inconsistent with the foregoing.
(c) No Transfer of Subject Shares. Each Stockholder agrees not to
(i) convert, transfer, sell, pledge, assign or otherwise dispose of
(including by gift) (collectively, "Transfer"), or enter into any
contract, option or other arrangement (including any profit sharing
arrangement) with respect to the Transfer of, any of the Subject Shares
to any person other than pursuant to the terms of the Merger or (ii)
enter into any voting arrangement, whether by proxy, power-of-attorney,
voting agreement, voting trust or otherwise. Notwithstanding the
foregoing, each Stockholder may Transfer Subject Shares if the proposed
transferee agrees to be bound by all of the terms of this Agreement and
delivers a written instrument to ScanSoft evidencing such agreement
prior to the date of the proposed Transfer.
(d) No Solicitation. During the terms of this Agreement, each
Stockholder shall not, nor shall they permit any of their Affiliates or
any director, officer, employee, investment banker, attorney or other
advisor or representative of any of the foregoing to, (i) directly or
indirectly, solicit, initiate or knowingly encourage the submission of,
any Takeover Proposal (as defined in the Merger Agreement) related to or
involving Visioneer or (ii) except as set forth in Section 8 of this
Agreement, directly or indirectly participate in any discussions or
negotiations regarding, or furnish to any person any information with
respect to, or knowingly take any other action to facilitate any
inquires or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Takeover Proposal related to or
involving Visioneer.
3. Grant of Irrevocable Proxy.
(a) Existing Proxies Revoked. Each Stockholder hereby represents
that any proxies heretofore given in respect of the Subject Shares are
not irrevocable, and that any such proxies are hereby revoked.
(b) Grant of Irrevocable Proxy to ScanSoft. Each Stockholder
hereby agrees that, in the event Stockholder shall fail to comply with
the provisions of Sections 2(a) and 2(b) hereof, as determined by
ScanSoft in its sole discretion, such failure shall result, without any
further action by Stockholder, in the irrevocable appointment of
ScanSoft, and any person or persons who may hereafter be designated by
ScanSoft as permitted under applicable law, and each of such person(s)
individually, as the Stockholder's proxy and attorney-in-fact (with full
power of substitution), for and in the name, place and stead of the
Stockholder, to vote the Subject Shares, or grant a consent
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or approval in respect of such Subject Shares, in favor of or against,
as the case may be, the matters set forth in Sections 2(a) and 2(b). The
proxy granted hereby shall terminate upon any termination of this
Agreement in accordance with its terms.
(c) Affirmations. Each Stockholder hereby affirms that any
irrevocable proxy granted pursuant to Section 3(b) will be given in
connection with the execution of the Merger Agreement, and that such
irrevocable proxy will be given to secure the performance of the duties
of the Stockholders under this Agreement. If so granted, the
Stockholders hereby ratify and confirm all that such irrevocable proxy
may lawfully do or cause to be done by virtue thereof. This proxy and
power of attorney is irrevocable and coupled with an interest and is
intended to be irrevocable in accordance with the provisions of Section
212(e) of the DGCL.
4. Further Assurances. Each Stockholder will, from time to time,
execute and deliver, or cause to be executed and delivered, such additional
or further consents, documents and other instruments as ScanSoft may
reasonably request for the purpose of effectively carrying out the
transactions contemplated by this Agreement.
5. Assignment. Except as provided herein, neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
6. Termination. This Agreement shall terminate as follows: (i) if
the transactions contemplated by the Merger Agreement are consummated, this
Agreement shall terminate upon the Effective Time of the Merger; (ii) if
the transactions contemplated by the Merger Agreement are not consummated,
and the Merger Agreement is terminated in accordance with Section 8.1(a),
Section 8.1(b)(i), Section 8.1(b)(ii), Section 8.1(c)(i), Section
8.1(c)(ii), Section 8.1(d)(i) or Section 8.1(d)(ii) thereof, this Agreement
shall terminate as of the date of termination of the Merger Agreement;
(iii) if the transactions contemplated by the Merger Agreement are not
consummated, and the Merger Agreement is terminated in accordance with
Section 8.1(b)(iii) or Section 8.1(c)(iii) thereof, this Agreement shall
terminate upon the six (6) month anniversary of the date of termination of
the Merger Agreement; or (iv) notwithstanding anything in this Section 6 to
the contrary, if the Company receives and publicly announces any Takeover
Proposal prior to the date of termination of the Merger Agreement and the
transactions contemplated by the Merger Agreement are not consummated and
the Merger Agreement is terminated for any reason, this Agreement shall
terminate upon the later of (A) the six (6) month anniversary of the date
of termination of the Merger Agreement or (B) one month following the date
of the stockholder vote or consent taken in connection with such Takeover
Proposal.
7. General Provisions.
(a) Amendments. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
(b) Notice. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by overnight courier (providing
proof of delivery) to ScanSoft in accordance with the notification
provision contained in the Merger Agreement and to the Stockholders at
their respective addresses set forth on the books of Visioneer (or at
such other address for a party as shall be specified by like notice).
(c) Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section to this Agreement unless
otherwise indicated. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Wherever the words "include,"
"includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation."
(d) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more of the
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counterparts have been signed by each of the parties hereto and
delivered to the other parties, it being understood that each party need
not sign the same counterpart.
(e) Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) (i)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to
the subject matter hereof and (ii) is not intended to confer upon any
person other than the parties hereto, any rights or remedies hereunder.
(f) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware
regardless of the laws that might otherwise govern under applicable
principles of conflicts of law thereof.
(g) Severability. If any term, provision, covenant or restriction
herein, or the application thereof to any circumstance, shall, to any
extent, be held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions herein and the application thereof to any other
circumstances, shall remain in full force and effect, shall not in any
way be affected, impaired or invalidated, and shall be enforced to the
fullest extent permitted by law, and the parties hereto shall reasonably
negotiate in good faith a substitute term or provision that comes as
close as possible to the invalidated and unenforceable term or
provision, and that puts each party in a position as nearly comparable
as possible to the position each such party would have been in but for
the finding of invalidity or unenforceability, while remaining valid and
enforceable.
8. Stockholder Representatives. Each Stockholder signs solely in its
capacity as the record holder and/or beneficial owner of such Stockholder's
Subject Shares and nothing contained herein shall limit or affect any
actions taken by any officer, director, partner, trustee, affiliate or
representative of a Stockholder who is or becomes an officer or a director
of Visioneer or serves Visioneer in any other fiduciary capacity in his or
her capacity as an officer, director or other fiduciary of Visioneer and
none of such actions in such capacity shall be deemed to constitute a
breach of this Agreement.
9. Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any
court of the United States located in the State of Delaware or in a
Delaware state court, this being in addition to any other remedy to which
they are entitled at law or in equity. In addition, each of the parties
hereto (i) consents to submit such party to the personal jurisdiction of
any Federal court located in the State of Delaware or any Delaware state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated hereby, (ii) agrees that such party will not
attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court, (iii) agrees that such party will
not bring any action relating to this Agreement or the transactions
contemplated hereby in any court other than a Federal court sitting in the
state of Delaware or a Delaware state court, (iv) waives any right to trial
by jury with respect to any claim or proceeding related to or arising out
of this Agreement or any of the transactions contemplated hereby, and (v)
appoints The Corporation Trust Company as such party's agent for service of
process in the state of Delaware.
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IN WITNESS WHEREOF, this Agreement has been executed and delivered as of
the date first written above.
SCANSOFT, INC.
By /s/ PAUL A. RICCI
------------------------------------
Title: Chairman
-----------------------------------
STOCKHOLDERS:
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
------------------------------------
Print Name: David Marquardt
-------------------------------
Title: General Partner
-----------------------------------
MORGAN STANLEY VENTURE CAPITAL FUND
II, LP
By: Morgan Stanley Venture Partners
II, L.P.
Its General Partner
By: Morgan Stanley Venture Capital II,
Inc.
Managing General Partner
By /s/ WILLIAM J. HARDING
------------------------------------
Print Name: William J. Harding
-------------------------------
Title:
-----------------------------------
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MORGAN STANLEY VENTURE CAPITAL FUND
II, C.V.
By: Morgan Stanley Venture Partners
II, L.P.
Its General Managing Partner
By /s/ WILLIAM J. HARDING
------------------------------------
Print Name: William J. Harding
-------------------------------
Title:
-----------------------------------
MORGAN STANLEY VENTURE INVESTORS, L.P.
By: Morgan Stanley Venture Capital II,
Inc.
Managing General Partner
By /s/ WILLIAM J. HARDING
------------------------------------
Print Name: William J. Harding
-------------------------------
Title:
-----------------------------------
PARVEST U.S. PARTNERS II, C.V.
By /s/ VINCENT WORMS
------------------------------------
Print Name: Vincent Worms
-------------------------------
Title: General Partner
-----------------------------------
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PARTECH INTERNATIONAL VENTURES C.V.
By /s/ VINCENT WORMS
-----------------------------------
Print Name: Vincent Worms
-------------------------------
Title: General Partner
-----------------------------------
U.S. GROWTH FUND PARTNERS C.V.
By /s/ VINCENT WORMS
------------------------------------
Print Name: Vincent Worms
-------------------------------
Title: General Partner
-----------------------------------
DOUBLE BLACK DIAMOND I LLC
By /s/ VINCENT WORMS
------------------------------------
Print Name: Vincent Worms
-------------------------------
Title: Managing Member
-----------------------------------
ALMANORI LIMITED
By /s/ VINCENT WORMS
------------------------------------
Print Name: Vincent Worms
-------------------------------
Title: Director
-----------------------------------
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MULTINVEST LLC
By /s/ VINCENT WORMS
-----------------------------------
Print Name: Vincent Worms
-------------------------------
Title: Managing Member
-----------------------------------
VINCENT WORMS
By /s/ VINCENT WORMS
------------------------------------
Print Name: Vincent Worms
-------------------------------
Title: Self
-----------------------------------
THOMAS G. MCKINLEY
By /s/ VINCENT WORMS
------------------------------------
Print Name: Vincent Worms
-------------------------------
Title: Attorney-in-fact
-----------------------------------
BVI VENTURE MANAGERS
By /s/ VINCENT WORMS
------------------------------------
Print Name: Vincent Worms
-------------------------------
Title: Director
-----------------------------------
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EXHIBIT A
STOCKHOLDERS
Technology Venture Investors-IV
As nominee for
Technology Venture Investors-4 L.P.
TVI Partners-4, L.P., and
TVI Affiliates-4, L.P.
2480 Sand Hill Road
Suite 101
Menlo Park, CA 94025
Fax Number: 650-854-4187
Morgan Stanley Venture Capital Fund II, LP
Morgan Stanley Venture Capital Fund II, C.V.
Morgan Stanley Venture Investors, L.P.
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 Venture C.V.
U.S. Growth Fund Partners C.V.
Double Black Diamond I LLC
Almanori Limited
Multinvest LLC
Vincent Worms
Thomas G. McKinley
BVI Venture Managers
101 California Street, Suite 3150
San Francisco, CA 94111
Fax Number: 415-788-6763
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<PAGE> 230
ANNEX C
November 25, 1998
CONFIDENTIAL
Board of Directors
Visioneer, Inc.
34800 Campus Drive
Fremont, CA 94555
Dear Members of the Board:
We understand that Visioneer, Inc. ("Visioneer") and ScanSoft, Inc.
("ScanSoft"), a subsidiary of Xerox Corporation ("Xerox"), propose to enter into
an Agreement and Plan of Merger (the "Agreement") pursuant to which, through the
merger of ScanSoft and Visioneer (the "Merger") with Visioneer surviving as the
surviving corporation (as such, the "Surviving Corporation"), the shares of
Visioneer common stock ("Visioneer Common Stock") outstanding immediately prior
to the Merger will be converted as follows: (i) 5,079,000 shares will be
converted into the right to receive $2.06 per share in cash ("Cash
Consideration") and (ii) each remaining share will be converted into the right
to receive one share of common stock of the Surviving Corporation ("Surviving
Corporation Common Stock") ("Stock Consideration"), subject to pro-rata
adjustment in the manner provided in the Agreement (in aggregate, the
"Consideration"). Upon consummation of the Merger, former holders of the
Visioneer Common Stock will own approximately 46.2% of the total number of
shares of Surviving Corporation Common Stock outstanding immediately following
the Merger on a fully-diluted basis, and the remainder (i.e., 53.8%) will be
held by the holders of ScanSoft common stock and other ScanSoft securities
outstanding immediately prior to the Merger through the issuance of shares of
Surviving Corporation Common Stock, Surviving Corporation preferred stock and
options to purchase additional shares of Surviving Corporation Common Stock to
such former holders of ScanSoft securities.
The Merger is conditioned on, among other things, Visioneer consummating
the sale of its Hardware Division (as defined in the Agreement) to a third party
in accordance with the terms of the Asset Purchase Agreement (as defined in the
Agreement). The Merger is intended to be treated as a tax-free reorganization
pursuant to the provisions of section 368 of the Internal Revenue Code of 1986,
as amended. The terms and conditions of the above described Merger are more
fully detailed in the Agreement.
You have requested our opinion as to whether the Consideration to be
received in the Merger is fair, from a financial point of view, to Visioneer
shareholders.
Broadview International LLC focuses on providing merger and acquisition
advisory services to information technology ("IT") companies. In this capacity,
we are continually engaged in valuing such businesses, and we maintain an
extensive database of IT mergers and acquisitions for comparative purposes. We
are currently acting as financial advisor to Visioneer's Board of Directors and
will receive a fee from Visioneer upon the successful conclusion of the Merger.
In rendering our opinion, we have, among other things:
(1) reviewed the terms of the Agreement and the associated exhibits
thereto dated November 23, 1998 furnished to us by Xerox's legal advisors
on November 24, 1998 (which, for the purposes of this opinion, we have
assumed, with your permission, to be identical in all material respects to
the agreement to be executed);
(2) reviewed the terms of the Asset Purchase Agreement and the
associated exhibits thereto furnished to us by Visioneer's legal advisors
on November 11, 1998 (which, for the purposes of this opinion, we have
assumed, with your permission, to be identical in all material respects to
the agreement to be executed);
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(3) reviewed Visioneer's annual report and Form 10-K for the fiscal
year ended December 31, 1997, including the audited financial statements
included therein, Visioneer's Form 10-Q for its quarterly period ended
September 27, 1998, including the unaudited financial statements included
therein;
(4) reviewed certain internal financial and operating information,
including quarterly projections through December 31, 1999, relating to
Visioneer and prepared and furnished to us by Visioneer management;
(5) participated in discussions with Visioneer management concerning
the operations, business strategy, current financial performance and
prospects for Visioneer;
(6) discussed with Visioneer management its view of the strategic
rationale for the Merger;
(7) reviewed the recent reported closing prices and trading activity
for Visioneer Common Stock;
(8) compared certain aspects of the financial performance of Visioneer
with public companies we deemed comparable;
(9) reviewed Xerox's annual report and Form 10-K for the fiscal year
ended December 31, 1997, including the audited financial statements
included therein, Xerox's Forms 10-Q and 10-QA for its quarterly period
ended September 30, 1998, including the unaudited financial statements
included therein;
(10) reviewed ScanSoft's unaudited quarterly income statements for the
fiscal year ended December 31, 1997 and ScanSoft's unaudited quarterly
income statements for the nine months ended September 30, 1998, prepared by
ScanSoft management and furnished to us by Xerox's financial advisors;
(11) reviewed certain internal financial and operating information,
including projections through December 31, 1999, relating to ScanSoft
prepared by ScanSoft management and furnished to us by Xerox's financial
advisors;
(12) reviewed Visioneer management due diligence findings regarding
ScanSoft's business;
(13) participated in discussions with ScanSoft management concerning
the operations, business strategy, financial performance and prospects for
ScanSoft;
(14) discussed with ScanSoft management its view of the strategic
rationale for the Merger;
(15) compared certain aspects of the projected financial performance
of the Surviving Corporation with public companies we deemed comparable;
(16) analyzed available information, both public and private,
concerning other mergers and acquisitions we believe to be comparable in
whole or in part to the Merger
(17) reviewed recent equity analyst reports covering Visioneer and
Xerox;
(18) reviewed projections through December 31, 2003 for the Surviving
Corporation prepared by ScanSoft management and provided to us by Xerox's
financial advisors;
(19) reviewed preliminary correspondence and discussed issues with
Visioneer management and the Company's tax and accounting advisors
regarding the accounting treatment of the transaction and a potential
written opinion by the Securities and Exchange Commission;
(20) participated in negotiations and discussions related to the
Merger among Visioneer, ScanSoft and their financial and legal advisors;
and
(21) conducted other financial studies, analyses and investigations as
we deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied, without independent verification,
on the accuracy and completeness of all the financial and other information
(including without limitation the representations and
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warranties contained in the Agreement and the unaudited financials of ScanSoft)
that was publicly available or furnished to us by Visioneer, ScanSoft, or
Xerox's financial advisor. With respect to the financial projections examined by
us, we have assumed that they were reasonably prepared and reflected the best
available estimates and good faith judgments of the management of Visioneer and
ScanSoft as to the future performance of Visioneer, ScanSoft and the Surviving
Corporation, as applicable. We have neither made nor obtained an independent
appraisal or valuation of any of Visioneer's or ScanSoft's assets. We have also
assumed that the Asset Purchase Agreement will have been consummated in
accordance with its terms prior to or contemporaneously with the consummation of
the Merger. We have also assumed that the Merger will be accounted for as a
purchase transaction under the United States Generally Accepted Accounting
Principles, whereby Visioneer is considered the buyer.
Based upon and subject to the foregoing, we are of the opinion that the
Consideration to be received in the Merger is fair, from a financial point of
view, to Visioneer shareholders.
The foregoing opinion relates to the aggregate consideration to be received
by Visioneer shareholders in the Merger, and no opinion is rendered herein with
respect to the allocation of the Consideration among Visioneer shareholders.
Such allocation is to be determined by elections made by Visioneer shareholders
as to whether to receive Cash Consideration or Stock Consideration, and may be
adjusted in accordance with the terms of the Agreement.
For purposes of this opinion, we have assumed that neither Visioneer nor
ScanSoft is currently involved in any material transaction other than the
following: the Merger, other transactions of which we are aware (including those
relating to the Asset Purchase Agreement), and those activities undertaken in
the ordinary course of conducting their respective businesses. Our opinion is
necessarily based upon market, economic, financial and other conditions as they
exist and can be evaluated as of the date of this opinion, and any change in
such conditions may impact this opinion. We express no opinion as to the price
at which the Surviving Corporation Common Stock will trade at any time.
This opinion speaks only as of the date hereof. It is understood that this
opinion is for the information of the Board of Directors of Visioneer in
connection with its consideration of the Merger and does not constitute a
recommendation to any Visioneer shareholder as to how such shareholder should
vote on the Merger. This opinion may not be published or referred to, in whole
or part, without our prior written permission, which shall not be unreasonably
withheld. Broadview International LLC hereby consents to references to and the
inclusion of this opinion in its entirety in the Proxy Statement/Prospectus to
be distributed to Visioneer shareholders in connection with the Merger.
Sincerely,
/s/ BROADVIEW INTERNATIONAL LLC
Broadview International LLC
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ANNEX D
SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW
APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Sections 251 (other than a merger effected pursuant to
subsection (g) of section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided that,
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given
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prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by one or more publications at
least one week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or
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compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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ANNEX E
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF VISIONEER, INC.
A DELAWARE CORPORATION
The undersigned J. Larry Smart and Joshua L. Green hereby certify that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of said corporation.
TWO: That the name of the corporation is Visioneer, Inc. and that the
corporation was originally incorporated on September 21, 1995 under the name
Visioneer Communications, Inc. pursuant to the General Corporation Law.
THREE: The Amended and Restated Certificate of Incorporation of this
corporation shall be restated to read in full as follows:
ARTICLE I
The name of this corporation is Visioneer, Inc.
ARTICLE II
The address of the registered office of this corporation in the State of
Delaware is 1013 Centre Road, Wilmington, County of New Castle, Delaware and its
registered agent at such address is The Prentice-Hall Corporation System, Inc.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
(A) Classes of Stock. This corporation is authorized to issue two classes
of stock to be designated common stock ("Common Stock") and preferred stock
("Preferred Stock"). The total number of shares which the Corporation is
authorized to issue is Ninety Million (90,000,000) shares. The number of shares
of Common Stock authorized to be issued is Seventy Million (70,000,000), par
value $.001 per share, and the number of shares of Preferred Stock authorized to
be issued is Twenty Million (20,000,000), par value $.001 per share.
(B) Rights, Preferences and Restrictions of Preferred Stock. The Preferred
Stock authorized by this Amended and Restated Certificate of Incorporation may
be issued from time to time in one or more series. The first series of Preferred
Stock shall be designated "Series B Preferred Stock" and shall consist of
fifteen million (15,000,000) shares. The rights, preferences, privileges, and
restrictions granted to and imposed on the Series B Preferred Stock are as set
forth below in this Article IV(B).
The Board of Directors is hereby authorized, in the resolution or
resolutions adopted by the Board of Directors providing for the issuance of any
wholly unissued series of Preferred Stock, within the limitations and
restrictions stated in this Amended and Restated Certificate of Incorporation,
to fix or alter the dividend rights, dividend rate, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences of any wholly
unissued series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or any of them, and to increase or
decrease the number of shares of any series subsequent to the issue of shares of
that series, but not below the number of shares of such series then outstanding.
In case the number of shares of any
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series shall be so decreased, the shares constituting such decrease shall resume
the status that they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
1. Dividend Provisions.
(a) The holders of shares of Series B Preferred Stock shall be
entitled to receive dividends, out of any assets legally available
therefor, prior and in preference to any declaration or payment of any
dividend (payable other than in Common Stock or other securities and rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, shares of Common Stock of this corporation) on the Common Stock
of this corporation, at the rate of $0.065 per share of Series B Preferred
Stock per annum (as determined on a per annum basis and an as converted
basis for the Series B Preferred Stock) whenever funds are legally
available therefor, payable when, as and if declared by the Board of
Directors. Such dividends shall be non-cumulative. Unless full dividends on
the Series B Preferred Stock for the then current dividend period shall
have been paid or declared and a sum sufficient for the payment thereof set
apart: (i) no dividend whatsoever (other than a dividend payable solely in
Common Stock or other securities and rights convertible into or entitling
the holder thereof to receive, directly or indirectly, additional shares of
Common Stock of this corporation) shall be paid or declared, and no
distribution shall be made, on any Common Stock. Dividends, if declared,
must be declared and paid with respect to all series of Preferred Stock
contemporaneously, and if less than full dividends are declared, the same
percentage of the dividend rate will be payable to each series of Preferred
Stock.
(b) After payment of such dividends, any additional dividends or
distributions shall be distributed among all holders of Common Stock and
all holders of Series B Preferred Stock in proportion to the number of
shares of Common Stock which would be held by each such holder if all
shares of Series B Preferred Stock were converted to Common Stock at the
then effective conversion rate.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of this
corporation, either voluntary or involuntary, the holders of Series B
Preferred Stock shall be entitled to receive, prior and in preference to
any distribution of any of the assets of this corporation to the holders of
Common Stock by reason of their ownership thereof, an amount per share
equal to (i) $1.30 for each outstanding share of Series B Preferred Stock
(the "Original Series B Issue Price") plus an amount equal to all declared
but unpaid dividends on each such share. If upon the occurrence of such
event, the assets and funds thus distributed among the holders of the
Series B Preferred Stock shall be insufficient to permit the payment to
such holders of the full aforesaid preferential amounts, then the entire
assets and funds of this corporation legally available for distribution
shall be distributed ratably among the holders of the Series B Preferred
Stock in proportion to the product of the liquidation preference of each
such share and the number of such shares owned by each such holder.
(b) After the distribution described in section (a) above has been
paid, the remaining assets of this corporation available for distribution
to stockholders shall be distributed among the holders of Common Stock pro
rata based on the number of shares of Common Stock held by each.
3. No Redemption. No holder of Series B Preferred Stock shall have any
right to require the corporation or any "related person" (within the meaning of
section 351(g)(3)(B) of the Internal Revenue Code) to redeem or purchase any
shares of Series B Preferred Stock. Similarly, neither the corporation nor any
such related person shall have any right or option to redeem or purchase any
shares of Series B Preferred Stock from any holder thereof.
4. Conversion. The holders of Series B Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert; Automatic Conversion.
(i) Subject to subsection (c), each share of Series B Preferred
Stock shall be convertible, at the option of the holder thereof, during
the periods specified in Section 4(a)(ii) below, at the office of this
corporation or any transfer agent for the Series B Preferred Stock, into
such number of fully
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paid and nonassessable shares of Common Stock as is determined by
dividing the Original Series B Issue Price by the Conversion Price
applicable to such shares in effect on the date the certificate for such
share is surrendered for conversion. The initial Conversion Price per
share for shares of Series B Preferred Stock shall be the Original
Series B Issue Price; provided, however, that the Conversion Price for
shares of Series B Preferred Stock shall be subject to adjustment as set
forth in subsection 4(c) below.
(ii) The shares of Series B Preferred Stock shall not be
convertible into Common Stock prior to , 2001; provided,
however, that notwithstanding the foregoing, each share of Series B
Preferred Stock shall be convertible into Common Stock, at the option of
the holder thereof, at any time after the date on which such holder owns
directly or indirectly a number of outstanding shares of Common Stock of
this corporation that represents less than 30.0% of the total number of
shares of Common Stock outstanding immediately prior to conversion of
such share; and provided further, however, that such holder shall not be
entitled to convert any share of Series B Preferred Stock pursuant to
this Section 4(a)(ii) if the conversion of such share to Common Stock
would result in such holder owning directly or indirectly a number of
outstanding shares of Common Stock of this corporation that represents
more than 50.0% of the total number of shares of Common Stock
outstanding immediately after the conversion of such share.
(iii) At any time after , 2001, upon the written
consent of the holders of at least 66 2/3% of the then outstanding
shares of Series B Preferred Stock, each share of Series B Preferred
Stock shall automatically and immediately be converted into such number
of fully paid and nonassessable shares of Common Stock as is determined
by dividing the Original Series B Issue Price by the Conversion Price
applicable to such shares in effect on the date the certificate for such
share is surrendered for conversion. The initial Conversion Price per
share for shares of Series B Preferred Stock shall be the Original
Series B Issue Price; provided, however, that the Conversion Price for
shares of Series B Preferred Stock shall be subject to adjustment as set
forth in subsection 4(c) below.
(b) Mechanics of Conversion. Before any holder of shares of Series B
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of this corporation or of any
transfer agent for such Series B Preferred Stock, and shall give written
notice by mail, postage prepaid, to this corporation at its principal
corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. This corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series B Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to
which such holder shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series B Preferred Stock to be
converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock as
of such date. If the conversion is in connection with an underwritten
offering of securities registered pursuant to the Securities Act of 1933,
as amended, the conversion may, at the option of any holder tendering
Series B Preferred Stock for conversion, be conditioned upon the closing
with the underwriter(s) of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock
issuable upon such conversion of shares of Series B Preferred Stock shall
not be deemed to have converted such shares of Series B Preferred Stock
until immediately prior to the closing of such sale of securities.
(c) Conversion Price Adjustments of Series B Preferred Stock. The
Conversion Price of the Series B Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) In the event this corporation should at any time or from time
to time after the date upon which any shares of Series B Preferred Stock
were initially issued (a "Purchase Date") fix a record date for the
effectuation of a split or subdivision of the outstanding shares of
Common Stock or the
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determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without
payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional
shares of Common Stock issuable upon conversion or exercise thereof),
then as of such record date (or the date of such dividend distribution
split or subdivision if no record date is fixed), the Conversion Price
of the Series B Preferred Stock shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each
share of each such series shall be increased in proportion to such
increase of outstanding shares.
(ii) If the number of shares of Common Stock outstanding at any
time after a Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of
such combination, the Conversion Price for the Series B Preferred Stock
shall be appropriately increased so that the number of shares of Common
Stock issuable on conversion of each share of each such series shall be
decreased in proportion to such decrease in outstanding shares.
(d) Other Distributions. In the event this corporation shall declare a
distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding
cash dividends) or options or rights not referred to in subsection 4(c)(i),
then, in each such case for the purpose of this subsection 4(d), the
holders of Series B Preferred Stock shall be entitled to a proportionate
share of any such distribution as though they were the holders of the
number of shares of Common Stock of this corporation into which their
shares of Series B Preferred Stock are convertible as of the record date
fixed for the determination of the holders of Common Stock of this
corporation entitled to receive such distribution.
(e) Recapitalization. If at any time or from time to time there shall
be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere
in this Section 4 or Section 5), provision shall be made so that the
holders of Series B Preferred Stock shall thereafter be entitled to receive
upon conversion of their Series B Preferred Stock, the number of shares of
stock or other securities or property of this corporation or otherwise, to
which a holder of Common Stock deliverable upon conversion would have been
entitled on such recapitalization. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 4 with
respect to the rights of the holders of Series B Preferred Stock after the
recapitalization to the end that the provisions of this Section 4
(including adjustment of the Conversion Price then in effect and the number
of shares purchasable upon conversion of the Series B Preferred Stock)
shall be applicable after that event as nearly equivalent as may be
practicable.
(f) No Impairment. This corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by this corporation, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4
and in the taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the Series B
Preferred Stock against impairment.
(g) Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon conversion of any
share or shares of Series B Preferred Stock. All shares of Common Stock
(including fractions thereof) issuable upon such conversion shall be
aggregated for purposes of determining whether the conversion would
result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance
of a fraction of a share of Common Stock, the corporation shall, in lieu
of issuing any fractional share, pay the holder otherwise entitled to
such fraction a sum in cash equal to
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the fair market value of such fraction on the date of conversion (as
determined in good faith by the Board of Directors).
(ii) Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Series B Preferred Stock pursuant to this Section 4,
this corporation, at its expense, shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series B Preferred Stock, a certificate
setting forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based. This
corporation shall, upon the written request at any time of any holder of
Series B Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and
readjustment, (B) the Conversion Price for Series B Preferred Stock at
the time in effect, and (C) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received
upon the conversion of a share of Series B Preferred Stock.
(h) Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
this corporation shall mail to each holder of Series B Preferred Stock, at
least 20 days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
(i) Reservation of Stock Issuable Upon Conversion. This corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of Series B Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of Series B Preferred Stock; and
if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding
shares of Series B Preferred Stock, in addition to such other remedies as
shall be available to the holder of Series B Preferred Stock, this
corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such
purposes.
(j) Notices. Any notice required by the provisions of this Section 4
to be given to the holders of shares of any series of Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the
books of this corporation.
5. Merger, Consolidation or Reorganization.
(a) A consolidation, merger or other reorganization of this
corporation with or into another corporation or other entity or person in
which this corporation shall not be the continuing or surviving entity of
such merger, consolidation or reorganization, or the sale of all or
substantially all of this corporation's properties and assets to any other
person, or any transaction or series of related transactions by this
corporation in which an excess of 50% of this corporation's voting power is
transferred shall be deemed to be a liquidation for all purposes of Section
2 hereof, unless this corporation's stockholders of record immediately
prior to such merger, consolidation, reorganization, sale or transaction
are holders of more than 50% of the voting equity securities of the
surviving corporation.
(b) In the event the requirements of subsection 5(a) are not complied
with, this corporation shall forthwith either:
(i) cause such closing to be postponed until such time as the
requirements of this Section 5 have been complied with, or
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<PAGE> 242
(ii) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series B Preferred
Stock shall revert to and be the same as such rights, preferences and
privileges existing immediately prior to the date of the first notice
referred to in subsection 5(c) hereof.
(c) This corporation shall give each holder of record of Series B
Preferred Stock written notice of such impending transaction not later than
20 days prior to the stockholders' meeting called to approve such
transaction, or 20 days prior to the closing of such transaction, whichever
is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the
provisions of this Section 5, and this corporation shall thereafter give
such holders prompt notice of any material changes. The transaction shall
in no event take place earlier than 20 days after this corporation has
given the first notice provided for herein or earlier than ten days after
this corporation has given notice of any material changes provided for
herein; provided, however, that such periods may be shortened upon the
written consent of the holders of a majority of the shares of the Series B
Preferred Stock then outstanding.
6. Voting Rights. The holders of Series B Preferred Stock shall not be
entitled to vote on any matters except as expressly provided in Section
242(b)(2) of the Delaware General Corporation Law. In such event, the holder of
each share of Series B Preferred Stock shall have the right to one vote for each
share of Common Stock into which such Series B Preferred Stock could then be
converted. In all cases any fractional share, determined on an aggregate
as-converted basis, shall be rounded to the nearest whole share (with one-half
being rounded upward). If the Series B Preferred Stockholders are entitled to
vote, such holders shall be entitled, notwithstanding any provision hereof, to
notice in accordance with the bylaws of this corporation of any stockholders'
meeting that is called to consider a matter as to which the Series B Preferred
Stockholders would be entitled to vote.
7. Status of Converted Stock. In the event any shares of Series B Preferred
Stock shall be converted pursuant to Section 4 hereof, the shares so converted
shall be canceled and shall not be issuable by this corporation.
8. No Preemptive Rights. The holders of the Series B Preferred Stock shall
not have any preemptive rights.
(C) Common Stock. This corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least sixty-six and two-thirds percent (66 2/3%) the then outstanding shares of
Common Stock, voting together as a separate class:
1. sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate
with any other corporation (other than a wholly-owned subsidiary
corporation) or effect any other transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of
the Corporation is disposed of, provided that this provision shall not
apply to a merger effected exclusively for the purpose of changing the
domicile of the Corporation;
2. authorize or issue, or obligate itself to issue, any other equity
security, including any other security convertible into or exercisable for
any equity security, having a preference over, or being on a parity with,
the Series B Preferred Stock with respect to voting, dividends, conversion
or upon liquidation;
3. alter or change the rights, preferences or privileges of the shares
of Series B Preferred Stock so as to adversely affect them;
4. increase or decrease (other than by conversion) the total number of
authorized shares of Series B Preferred Stock;
5. redeem, purchase or otherwise acquire (or pay into or set aside for
a sinking fund for such purpose) any share or shares of Common Stock or
Preferred Stock, provided however, that this restriction shall not apply to
the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for this
corporation or any subsidiary pursuant to
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<PAGE> 243
agreements under which this corporation has the option to repurchase such
shares at cost or at cost upon the occurrence of certain events, such as
the termination of employment;
6. declare or pay any dividends on its Common or Preferred Stock; or
7. amend the Corporation's Bylaws.
ARTICLE V
Except as otherwise provided in this Amended and Restated Certificate of
Incorporation, in furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend, and rescind any or all of the Bylaws of this corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors or
by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws of
this corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of this corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of this corporation.
ARTICLE IX
A director of this corporation shall, to the full extent permitted by the
Delaware General Corporation Law as it now exists or as it may hereafter be
amended, not be liable to this corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Neither any amendment nor
repeal of this Article, nor the adoption of any provision of this Amended and
Restated Certificate of Incorporation inconsistent with this Article, shall
eliminate or reduce the effect of this Article in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article by
the stockholders of this corporation shall not adversely affect any right or
protection of a director of this corporation existing at the time of such repeal
or modification.
ARTICLE X
No action required to be taken or that may be taken at any annual or
special meeting of the stockholders of this corporation may be taken without a
meeting, and the power of stockholders to consent in writing, without a meeting,
to the taking of any action is specifically denied.
E-7
<PAGE> 244
ARTICLE XI
To the fullest extent permitted by applicable law, this corporation is
authorized to provide indemnification of (and advancement of expenses to) its
agents (and any other persons to which Delaware law permits this corporation to
provide indemnification) through Bylaw provisions, agreements with such agents
or other persons, vote of stockholders or disinterested directors or otherwise,
in excess of the indemnification and advancement otherwise permitted by Section
145 of the General Corporation Law of the State of Delaware, subject only to
limits created by applicable Delaware law (statutory or non-statutory), with
respect to actions for breach of duty to this corporation, its stockholders, and
others.
Any repeal or modification of any of the foregoing provisions of this
Article shall not adversely affect any right or protection of a director,
officer, agent or other person existing at the time of, or increase the
liability of any director of this corporation with respect to any acts or
omissions of such director, officer, agent or other person occurring prior to
such repeal or modification.
ARTICLE XII
This corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
FOUR: That thereafter said amendment and restatement was duly adopted in
accordance with the provisions of the General Corporation Law.
IN WITNESS WHEREOF, the undersigned have executed this certificate on
, 1999.
VISIONEER, INC.
--------------------------------------
J. Larry Smart
President and Chief Executive Officer
--------------------------------------
Joshua L. Green
Secretary
E-8
<PAGE> 245
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL permits Visioneer's board of directors to indemnify
any person against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with any threatened, pending or completed action, suit or proceeding
in which such person is made a party by reason of his or her being or having
been a director, officer, employee or agent of Visioneer, in terms sufficiently
broad to permit such indemnification under certain circumstances for liabilities
(including reimbursement for expenses incurred) arising under the Securities Act
of 1933, as amended (the "Act"). The statute provides that indemnification
pursuant to its provisions is not exclusive of other rights of indemnification
to which a person may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise.
Article XI of Visioneer's Certificate of Incorporation provides for
indemnification of its directors, officers, employees and other agents to the
fullest extent permitted by law.
As permitted by sections 102 and 145 of the DGCL, Visioneer's Certificate
of Incorporation eliminates a director's personal liability for monetary damages
to Visioneer and its stockholders arising from a breach or alleged breach of a
director's fiduciary duty except for liability under section 174 of the DGCL or
liability for any breach of the director's duty of loyalty to Visioneer or its
stockholders, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law or for any transaction from
which the director derived an improper personal benefit.
In addition, Visioneer maintains officers' and directors' insurance
covering certain liabilities that may be incurred by officers and directors in
the performance of their duties.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
See Exhibit Index for the list of exhibits following the Signature Page of
this Form S-4, which is incorporated herein by reference.
(b) FINANCIAL STATEMENT SCHEDULES
None
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended (the
"Securities Act"), each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that
is incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
II-1
<PAGE> 246
The registrant undertakes that every prospectus: (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the undersigned prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first-class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE> 247
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fremont, State of
California, on January 13, 1999.
VISIONEER, INC.
By /s/ J. LARRY SMART
------------------------------------
J. Larry Smart
President, Chief Executive Officer
and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints J. Larry Smart and Richard Brenner and each of
them, his true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments, including post-effective
amendments, to this Registration Statement, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that each of
said attorneys-in-fact and agents or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
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/ J. LARRY SMART President, Chief Executive January 13, 1999
- ----------------------------------------------------- Officer and Director
J. Larry Smart (Principal Executive Officer)
/s/ RICHARD BRENNER Chief Financial Officer January 13, 1999
- ----------------------------------------------------- (Principal Financial
Richard Brenner and Accounting Officer)
/s/ WILLIAM J. HARDING Director January 13, 1999
- -----------------------------------------------------
William J. Harding
/s/ DAVID F. MARQUARDT Director January 13, 1999
- -----------------------------------------------------
David F. Marquardt
/s/ VINCENT WORMS Director January 13, 1999
- -----------------------------------------------------
Vincent Worms
</TABLE>
II-3
<PAGE> 248
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
----------- -----------------------
<S> <C>
2.1* Agreement and Plan of Merger dated December 2, 1998 between
Visioneer, Inc., a Delaware corporation, and ScanSoft, Inc.,
a Delaware corporation.
2.2 Side Letter between Xerox Corporation and Visioneer, Inc.,
dated December 2, 1998.
2.3 Side Letter between Xerox Corporation and Visioneer, Inc.,
dated December 2, 1998.
3.2 (1) Bylaws of Registrant.
3.4 (1) Amended and Restated Certificate of Incorporation of
Registrant.
4.1 (1) Form of Common Stock Certificate.
4.2 (6) 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* Common Stock Purchase Warrant.
4.4* Registration Rights Agreement, dated December 2, 1998,
between Visioneer, Inc. and certain investors.
4.5** Irrevocable Proxy Voting Agreement, dated December 2, 1998,
between ScanSoft and certain investors.
4.6 Amendment No. 1 to Preferred Shares Rights Agreement
executed by the Registrant and U.S. Stock Transfer
Corporation effective as of December 2, 1998.
5.1 Opinion of Venture Law Group.
10.1(1) Form of Indemnification Agreement.
10.2(1)*** 1993 Incentive Stock Option Plan and form of Option
Agreement.
10.3(1)*** 1995 Employee Stock Purchase Plan and form of Subscription
Agreement.
10.4(1)*** 1995 Directors' Option Plan and form of Option Agreement.
10.5(1) Third Amended and Restated Registration Rights Agreement
dated May 9, 1995 among the Registrant and certain security
holders of the Registrant.
10.7(1) OEM Agreement dated November 2, 1994 between the Registrant
and Hewlett-Packard Company, as amended by Amendment No. 1
dated August 1, 1995.
10.8(1) Distribution Agreement dated January 31, 1994 between the
Registrant and Ingram Micro Inc.
10.9(1) Distribution Agreement dated February 24, 1994 between the
Registrant and Merisel Americas, Inc.
10.10(1) Manufacturing Contract dated March 30, 1995 between the
Registrant and Flextronics Technologies, Inc.
10.11(1) Manufacturing Services Agreement dated June 20, 1995 between
the Registrant and International Business Machines
Corporation.
10.12(1)*** Loan Agreement dated March 31, 1994 between the Registrant
and Todd Basche.
10.13(1) LZW Paper Input System Patent License Agreement dated
October 20, 1995 between the Registrant and Unisys
Corporation.
10.14(1) Patent License agreement dated November 13, 1995 between the
Registrant and Wang Laboratories, Inc.
10.15(1) Loan and Security Agreement dated November 28, 1995 between
the Registrant and Silicon Valley Bank.
</TABLE>
<PAGE> 249
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
----------- -----------------------
<S> <C>
10.16(2) Amendment No. 2 dated December 15, 1995 to OEM Agreement
dated November 2, 1994 between the Registrant and
Hewlett-Packard Company.
10.17(2) Amendment No. 3 dated January 31, 1995 to OEM Agreement
dated November 2, 1994 between the Registrant and
Hewlett-Packard Company.
10.18(3) OEM Agreement dated June 30, 1995 between the Registrant and
Compaq Computer Corporation.
10.19(4) 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.
Perry, Trustee, or his Successor Trustee, UTA dated 7/20/77
(Richard T. Perry, Separate Property Trust) as amended.
10.20(5) Software License Agreement dated August 14, 1996 between the
Registrant and Hewlett-Packard Company.
10.21(7) Form of Employment Agreement between the Registrant and each
of its Executive Officers.
10.22(8)*** 1997 Employee Stock Option Plan.
10.23(8)*** Director 1997 Compensation Plan.
10.24(9) Manufacturing Agreement dated May 8, 1997 between the
Registrant and NMB Technologies, Inc.
10.25(9) Loan and Security Agreement dated June 26, 1997 between the
Registrant and Silicon Valley Bank.
10.26(9)*** Letter Agreements dated April 1, 1997 and July 7, 1997
between the Registrant and J. Larry Smart.
10.27(9)*** Letter Agreement dated April 9, 1997 between the Registrant
and Jeff Heimbuck, and Nonstatutory Stock Option Agreements
dated April 9, 1997 between the Registrant and Jeff
Heimbuck.
10.31(10) Amendment No. 1 dated September 30, 1997 to Loan and
Security Agreement dated June 26, 1997 between the
Registrant and Silicon Valley Bank.
10.32(11) Amended and Restated Loan and Security Agreement dated March
19, 1998 between the Registrant and Silicon Valley Bank.
10.33(12) Letter Agreement dated September 11, 1996 between the
Registrant and Best Buy Co., Inc.
10.34*** Letter Agreement dated October 6, 1997 between the
Registrant and J. Larry Smart.
10.35 Asset Purchase Agreement dated December 2, 1998 between the
Registrant and Primax V Acquisition Corp., and the Waiver of
Closing Condition and Amendment to Asset Purchase Agreement
dated December 2, 1998 between the Registrant, Primax V
Acquisition Corp. and Primax Electronics Ltd.
10.36 Consent to Assignment of Standard Sublease dated as of
November 24, 1998 between the Registrant and Primax V
Acquisition Corp.
10.37 Consent to Assignment dated November 12, 1998 between the
Registrant and John Arrillaga, Survivor's Trust and the
Richard T. Perry Separate Property Trust.
10.38*** Management Services Agreement between the Registrant, Primax
Acquisition Corp., Primax Electronics Ltd. and J. Larry
Smart dated December 2, 1998.
10.39 Settlement Agreement and Mutual Release dated January 8,
1999 between the Registrant, Primax V Acquisition Corp.,
Primax Electronics, Ltd. and Michael T. Burt.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants, with respect to financial statements of
Registrant.
</TABLE>
<PAGE> 250
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
----------- -----------------------
<S> <C>
23.2 Consent of KPMG Peat Marwick LLP, Independent Certified
Public Accountants, with respect to financial statements of
ScanSoft, Inc. and subsidiary.
23.3 Consent of Venture Law Group (included in Exhibit 5.1).
24.1 Power of Attorney. See page II-3.
99.1 Form of Proxy for Special Meeting of Stockholders.
99.2 Form of Cash Election Form to be used in connection with the
Merger.
</TABLE>
- ---------------
(1) Incorporated by reference from the Registrant's Registration Statement on
From S-1 (No. 33-98356) filed with the Commission on October 19, 1995.
(2) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
(3) Incorporated by reference from the Registrant's Quarterly Report on From
10-Q for the fiscal quarter ended March 31, 1996.
(4) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1996.
(5) Incorporated by reference from Exhibit 10.19 of the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1996.
(6) Incorporated by reference from Exhibit 4.1 of the Registrant's current
Report on Form 8-K dated October 30, 1996.
(7) Incorporated by reference from the Registrant's Annual Report on Form
10-K/A-2 for the fiscal year ended December 31, 1996.
(8) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1997.
(9) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1997.
(10) Incorporated by reference from the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997.
(11) Incorporated by reference on the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 1998.
* Incorporated by reference to Annex A to the Proxy Statement/Prospectus
** Incorporated by reference to Annex B to the Proxy Statement/Prospectus
*** Management compensatory plan or arrangement.
<PAGE> 1
EXHIBIT 2.2
THE DOCUMENT COMPANY
XEROX
December 2, 1998
Visioneer, Inc.
34800 Campus Dr.
Fremont, CA 94555
Re: Agreement and Plan of Merger between ScanSoft, Inc. and
Visioneer, Inc.
Ladies and Gentlemen:
Reference is made to that certain Agreement and Plan of Merger (the "Merger
Agreement"), dated as of the date hereof between ScanSoft, Inc., a Delaware
corporation ("ScanSoft"), and Visioneer, Inc., a Delaware corporation
("Visioneer"). Capitalized terms used in this letter agreement (this
"Agreement") and not defined in this Agreement shall have the meaning assigned
to them in the Merger Agreement. Pursuant to this Agreement, Xerox Corporation,
a New York corporation ("Xerox"), and Visioneer, agreeing to be bound, agree as
follows:
1. Xerox agrees to cause ScanSoft to use commercially reasonable efforts to
effectuate the transactions contemplated by the Merger Agreement and to
fulfill and cause to be fulfilled ScanSoft's obligations under the Merger
Agreement and the conditions to closing under the Merger Agreement.
2. Xerox agrees to be bound by and to use commercially reasonable efforts to
effectuate the provisions of Section 6.3 of the Merger Agreement, to the
extent Section 6.3 shall impose obligations upon Xerox.
3. Xerox agrees to be bound by and to use commercially reasonable efforts to
effectuate the provisions of Section 6.12 of the Merger Agreement, to the
extent Section 6.12 shall impose obligations upon Xerox.
4. Xerox hereby agrees to be bound by and to use commercially reasonable efforts
to effectuate the provisions of Section 6.6 of the Merger Agreement.
5. Xerox agrees that during the period commencing on the Effective Time and
ending on the second anniversary of the Effective Time, Xerox's percentage
ownership of Visioneer's Common Stock will not exceed 49.5%.
Xerox Corporation
800 Long Ridge Road
Stamford, Connecticut 06904
<PAGE> 2
Visioneer, Inc.
December 2, 1998
Page two
6. In accordance with Section 6.18 of the Merger Agreement, Xerox agrees to
cancel, as of the Effective Date, the Tax Agreement by and between Xerox
and ScanSoft.
7. This Agreement is being executed and delivered by each of Xerox and
Visioneer concurrently with the execution and delivery of the Merger
Agreement.
8. Xerox represents and warrants to Visioneer, and Visioneer represents and
warrants to Xerox, that this Agreement has been duly executed and delivered
by it and constitutes its valid and binding obligation, enforceable
against it in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally or by the principles
governing the availability of equitable remedies.
If you are in agreement with the foregoing, please execute this Agreement in
the space provided below, whereupon this Agreement shall become binding on you
and us.
Very truly yours,
XEROX CORPORATION
By: /s/ PAUL RICCI
------------------------------------
Paul Ricci
Vice President
Agreed and accepted as of the date
first above written:
VISIONEER, INC.
By: /s/ LARRY SMART
---------------------------------
Larry Smart
President and Chief Executive Officer
[LOGO]
<PAGE> 1
EXHIBIT 2.3
THE DOCUMENT COMPANY
XEROX
December 2, 1998
Visioneer, Inc.
34800 Campus Dr.
Fremont, CA 94555
Re: Agreement and Plan of Merger between ScanSoft, Inc. and Visioneer, Inc.
Ladies and Gentlemen:
Reference is made to that certain Agreement and Plan of Merger (the "Merger
Agreement"), dated as of the date hereof between ScanSoft, Inc., a Delaware
corporation ("ScanSoft"), and Visioneer, Inc., a Delaware corporation
("Visioneer"). Capitalized terms used in this letter agreement (this
"Agreement") and not defined in this Agreement shall have the meaning assigned
to them in the Merger Agreement. Pursuant to this Agreement, Xerox Corporation,
a New York corporation ("Xerox"), and Visioneer, agreeing to be bound, agree as
follows:
1. Xerox agrees to deposit or to cause ScanSoft to deposit with the Exchange
Agent on or prior to the Election Date an amount in cash equal to the
product of the Cash Merger Consideration multiplied by the Cash Election
Number.
2. This Agreement is being executed and delivered by each of Xerox and
Visioneer concurrently with the execution and delivery of the Merger
Agreement.
3. Xerox represents and warrants to Visioneer, and Visioneer represents and
warrants to Xerox, that this Agreement has been duly executed and delivered
by it and constitutes its valid and binding obligation, enforceable against
it in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally or by the principles governing
the availability of equitable remedies.
Xerox Corporation
800 Long Ridge Road
Stanford, Connecticut 06904
<PAGE> 2
Visioneer, Inc.
December 2, 1998
Page two
If you are in agreement with the foregoing, please execute this Agreement in
the space provided below, whereupon this Agreement shall become binding on you
and us.
Very truly yours,
XEROX CORPORATION
By: /s/ EUNICE M. FILTER
-----------------------------------
E.M. Filter
Vice President, Treasurer and Secretary
Agreed and accepted as of the date
first above written:
VISIONEER, INC.
By: /s/ LARRY SMART
------------------------------
Larry Smart
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 4.6
Amendment No. 1
to
PREFERRED SHARES RIGHTS AGREEMENT
dated as of October 23, 1996
This Amendment No. 1 (this "Amendment") to PREFERRED SHARES RIGHTS
AGREEMENT dated as of October 23, 1996 (the "Rights Agreement") is executed by
Visioneer, Inc. (the "Company") and U.S. Stock Transfer Corporation ("Rights
Agent") and is effective as of the 2nd day of December 1998.
The parties hereto agree as follows:
1. Definitions. Unless specifically designated otherwise, capitalized
terms used herein shall have the same meanings given them in the Rights
Agreement.
2. Amendment. Section 1(a) of the Rights Agreement shall be amended and
restated in its entirety to read as follows:
"(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 20% or more of the Common Shares then outstanding,
but shall not include the Company, any Subsidiary of the Company or any
employee benefit plan of the Company or of any Subsidiary of the
Company, or any entity holding Common Shares for or pursuant to the
terms of any such plan. Notwithstanding the foregoing, no Person shall
be deemed to be an Acquiring Person either (i) as the result of an
acquisition of Common Shares by the Company which, by reducing the
number of shares outstanding, increases the proportionate number of
shares beneficially owned by such Person to 20% or more of the Common
Shares of the Company then outstanding; provided, however, that if a
Person shall become the Beneficial Owner of 20% or more of the Common
Shares of the Company then outstanding by reason of share purchases by
the Company and shall, after such share purchases by the Company, become
the Beneficial Owner of any additional Common Shares of the Company,
then such Person shall be deemed to be an Acquiring Person, or (ii) if
within eight days after such Person would otherwise become an Acquiring
Person (but for the operation of this clause (ii)), such Person notifies
the Board of Directors that such Person did so inadvertently and within
two days after such notification, such Person is the Beneficial Owner of
less than 20% of the outstanding Common Shares. Notwithstanding the
foregoing, neither ScanSoft, Inc. ("ScanSoft") nor any of its Affiliates
set forth on Schedule 1 hereto
-1-
<PAGE> 2
(collectively, the "Approved Persons") shall be considered an "Acquiring
Person" in the event such Approved Person shall become the Beneficial
Owner of Common Stock of the Company pursuant to and not in
contravention of that certain Agreement and Plan of Merger between
ScanSoft, Inc. and Visioneer, Inc. dated as of December 2, 1998 (the
"ScanSoft Merger Agreement").
Section 1(h) of the Rights Agreement shall be amended and restated in
its entirety to read as follows:
"(h) "Distribution Date" shall mean the earlier of (i) the Close
of Business on the tenth day (or such later date as may be determined by
action of a majority of Continuing Directors then in office) after the
Shares Acquisition Date (or, if the tenth day after the Shares
Acquisition Date occurs before the Record Date, the Close of Business on
the Record Date) or (ii) the Close of Business on the tenth day (or such
later date as may be determined by action of a majority of Continuing
Directors then in office) after the date that a tender or exchange offer
by any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or of any Subsidiary of the
Company, or any Person or entity organized, appointed or established by
the Company for or pursuant to the terms of any such plan) is first
published or sent or given within the meaning of Rule 14d-2(a) of the
General Rules and Regulations under the Exchange Act, if, assuming the
successful consummation thereof, such Person would be the Beneficial
Owner of 20% or more of the shares of Common Stock then outstanding.
Notwithstanding the foregoing, no Distribution Date shall occur in the
event that any Approved Person shall become the Beneficial Owner of
Common Stock of the Company pursuant to and not in contravention of the
ScanSoft Merger Agreement.
Section 1(u) of the Rights Agreement shall be amended and restated in
its entirety to read as follows:
"(u) "Shares Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition, shall
include, without limitation, a report filed pursuant to Section 13(d)
under the Exchange Act) by the Company or an Acquiring Person that an
Acquiring Person has become such; provided that, if such Person is
determined not to have become an Acquiring Person pursuant to Section
l(a)(ii) hereof, then no Shares Acquisition Date shall be deemed to have
occurred. Notwithstanding the foregoing, no Shares Acquisition Date
shall
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<PAGE> 3
occur in the event that any Approved Person shall become the Beneficial
Owner of Common Stock of the Company pursuant to and not in
contravention of the ScanSoft Merger Agreement.
3. Effect of Amendment. Except as specifically set forth herein, the
terms and conditions contained in the Rights Agreement shall continue in full
force and effect.
4. Miscellaneous.
4.1 Governing Law. This Amendment shall be governed by and
construed under the laws of the State of Delaware in the United States of
America as applied to agreements among Delaware residents entered into and to be
performed entirely within such state.
4.2 Counterparts. This Amendment 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.
4.4 Severability. If one or more provisions of this Amendment are
held to be unenforceable under applicable law, portions of such provisions, or
such provisions in their entirety, to the extent necessary, shall be severed
from this Amendment, and the balance of this Amendment shall be enforceable in
accordance with its terms.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
Visioneer, Inc.
By: /s/ J. LARRY SMART
-------------------------------------------
Name: J. Larry Smart
-----------------------------------------
Title: President and Chief Executive Officer
-----------------------------------------
U.S. Stock Transfer Corporation
By: /s/ MARK CANO
-------------------------------------------
Name: Mark Cano
-----------------------------------------
Title: Asst. V.P.
---------------------------------------
-4-
<PAGE> 5
Schedule 1
Xerox Corporation and its affiliates
ScanSoft, Inc. and its affiliates
-5-
<PAGE> 1
EXHIBIT 5.1
January 14, 1999
Visioneer, Inc.
34800 Campus Drive
Fremont, CA 94555
REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 0-27038)
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 (No. 0-27038)
filed by you with the Securities and Exchange Commission (the "Commission") on
January 14, 1999 (the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended, of 37,516,898 shares
of your Common Stock and 7,179,495 shares of Series B Preferred Stock (the
"Shares"). As your counsel in connection with this transaction, we have examined
the proceedings taken and are familiar with the proceedings proposed to be taken
by you in connection with the issuance of the Shares.
It is our opinion that upon conclusion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares when issued in the manner
described in the Registration Statement will be legally and validly issued,
fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to said Registration
Statement, and further consent to the use of our name wherever appearing in said
Registration Statement, including the Prospectus/Joint Proxy Statement
constituting a part thereof, and in any amendment thereto.
Very truly yours,
VENTURE LAW GROUP
/s/ Venture Law Group
<PAGE> 1
EXHIBIT 10.34
October 6, 1997
Mr. J. Larry Smart
21245 Comet Drive
Saratoga, California 95070
Dear Larry:
The Board of Directors of Visioneer, Inc. (the "Company") is pleased to
offer you a full time employment position starting October 6, 1997 as permanent
President and CEO of Visioneer. You will report directly to the Board and all
Visioneer officers will report to you. Commencing on the date of this agreement,
your base salary will be $293,500 per year, payable in accordance with
Visioneer's standard payroll policy. You will be required to devote all of your
business time and attention to Visioneer's business, except that you may serve
on boards of directors of companies not competitive to Visioneer.
You will be paid a bonus for the third-quarter of 1997 of $30,000. In
addition, commencing in the fourth quarter of 1997, you will be eligible for
quarterly bonuses based on the fulfillment of certain performance objectives
agreed to between you and the Board on a quarterly basis. The amount of such
quarterly bonuses paid during any twelve month period will not exceed 50% of
your base salary during such twelve month period. In addition, you will receive
up to $5,000 per year for expenses incurred in purchasing private medical (which
will be paid on a quarterly basis) and disability insurance coverage at a cost
greater that the Company's current medical and disability benefits plans.
If at any time prior to January 6, 1998, your employment relationship
with Visioneer is terminated by the Company other than for Cause (as defined
below), you will continue to be paid your base salary from the date of
termination until January 6, 1998: "Cause" for purposes of this letter shall
mean unsatisfactory performance by you of your duties as determined by the Board
in its sole discretion, breaches of Visioneer policies or agreements, the
conviction of a felony, committing an act of dishonesty, fraud or intentional
illegal conduct against Visioneer, the misappropriation of Visioneer property,
the breach by you of any other arrangement or relationship between you and
another entity which the Board determines in its sole discretion to be injurious
to Visioneer in a material manner.
In addition to the above severance payment, which is applicable until
January 6, 1998, if at any time during the period of your employment
relationship with Visioneer, your relationship is terminated by the Company
other than for Cause, you will be entitled to a lump sum severance payment equal
to six months of your base salary existing at the time of such termination.
<PAGE> 2
The Company granted you on October 6, 1997 an option to purchase 500,000
shares of Visioneer Common Stock at the price of $3 7/8 per share (the "October
Option"). The October Option is in addition to the options granted to you in
April and June of 1997 (the "April Option" and "June Option," respectively).
The shares granted under the October Option will be incentive stock options
under the Company's 1993 Incentive Stock Option Plan (the "Plan") to the
maximum extent permitted by applicable IRS rules, with the balance of such
options being nonstatutory stock options. These options will vest at the rate
of 1/48th of the shares subject to the option per month commencing October 6,
1997 for so long as you remain President and CEO of Visioneer.
Upon the occurrence of a Change of Control (as defined below), 125,000 of
the shares subject to the October Option which have not otherwise vested as of
the effective date of the Change of Control shall immediately vest and may be
exercised in accordance with the provisions of the October Option and the Plan
(the "Automatic Accelerated Shares"). "Change of Control" for purposes of this
letter shall mean a merger or consolidation of the Company in which the voting
securities of the Company outstanding immediately prior thereto represent
(either by remaining outstanding or by being converted into voting securities
of the surviving entity) less than fifty percent (50%) of the total voting
power represented by the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, the complete
liquidation of the Company, or the sale or disposition by the Company of all or
substantially all of the Company's assets.
In addition, if your relationship with Visioneer is terminated by the Company
other than for Cause in connection with a Change of Control, the greater of (i)
one-half of the unvested shares subject to the October Option that are not
vested as of the effective date of the Change of Control, after vesting of the
Automatic Accelerated Shares, or (ii) that number of shares subject to the
October Option that would have vested if you had remained President and CEO of
the Company for one year after the date of such termination, shall immediately
vest and may be exercised in accordance with provisions of the October Option
and the Plan.
In addition, the Board has determined that you have achieved the
performance milestones agreed to between you and the Board based on your
performance through September 30, 1997, and therefore, in accordance with the
July 7, 1997 letter agreement between you and Visioneer, the Board has
accelerated vesting under the June Option (as defined in the July 7, 1997
letter agreement) with respect to 45,000 shares. You acknowledge that all other
provisions of the June Option, which provided for the acceleration of vesting
of an additional 90,000 shares under the June Option under certain conditions
are hereby terminated, and the June Option and July 7, 1997 letter agreement
are hereby amended accordingly.
As with the April Option (also as defined in the July 7, 1997 letter
agreement) and the June Option, the October Option will be subject to the
execution by you of an Option Agreement setting forth in detail these terms.
Under such Option Agreement you will be entitled to exercise the October Option
with respect to the shares that have vested as of the date of termination for 90
days after such date. Except as set forth in this letter agreement, you will not
be entitled to any acceleration of vesting under April Option, June Option or
October Option. You will also
<PAGE> 3
not be entitled to any severance payment in connection with your employment
relationship with the Company or any termination thereof except as set forth in
this agreement. The salary and severance provisions set forth in the April 1,
1997 letter agreement between you and Visioneer shall no longer apply.
To the extent any severance and other benefits provided for in this
letter agreement constitute "parachute payments" within the meaning of Section
280G of the Internal Revenue Code (the "Code"), you will be entitled to either
(i) such benefits in full, or (ii) such lesser amount which would result in no
portion of such benefits being subject to excise tax under Section 4999 of the
Code, whichever of the foregoing amounts, taking into account the applicable
federal, state and local income taxes and such excise tax result in the receipt
by you on an after-tax basis, of the greatest amount of severance and other
benefits under this agreement.
Your employment relationship with Visioneer will continue to be "at
will" and will be terminable by either you or Visioneer at any time for any
reason.
We all look forward to a mutually profitable and enjoyable relationship
as we build Visioneer into a premier data input device company together.
Regards,
/s/ Jeff Heimbuck
- -----------------------------
Jeff Heimbuck
For the Board of Directors of
Visioneer, Inc.
I agree to the above terms: /s/ J. Larry Smart Date: October 6, 1997
------------------------
J. Larry Smart
<PAGE> 1
EXHIBIT 10.35
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered into as of
December 2, 1998, by and between Visioneer, Inc., a Delaware corporation
("Seller" or the "Company"), Primax V Acquisition Corp., a California
corporation ("Buyer") and Primax Electronics Ltd., a corporation organized under
the laws of Taiwan ("Buyer Parent").
RECITALS
Buyer and Buyer Parent are in the business of designing, manufacturing,
marketing and selling computer peripheral devices. Seller is in the business of
designing, manufacturing, marketing and selling desktop and flatbed scanners
(the "Hardware Business"), and Seller is also in the business of designing,
marketing and selling software (the "Software Business"). The Hardware and
Software Business are collectively referred to herein as the "Business." Buyer
desires to acquire from Seller, and Seller desires to sell to Buyer, all of
Seller's assets relating to the Hardware Business and certain additional
specified assets, and Buyer desires to assume, and Seller desires to delegate to
Buyer, all of Seller's liabilities relating to the Hardware Business and certain
additional specified liabilities, on the terms and subject to the conditions set
forth in this Agreement.
AGREEMENT
In consideration of the mutual agreements, representations, warranties
and covenants set forth below, Buyer and Seller agree as follows:
1. DEFINITIONS. Certain capitalized terms used in this Agreement are
defined in Exhibit A.
2. SALE AND PURCHASE.
2.1 TRANSFER OF ASSETS. Subject to the terms and conditions of this
Agreement, Seller shall sell, assign, grant, transfer, and deliver (or cause to
be sold, assigned, granted, transferred and delivered) to Buyer, or to any
Affiliate of Buyer designated by Buyer, and Buyer shall purchase and accept from
Seller effective as of the Closing Date (as defined in Section 3.1 below) the
following assets, properties and business of Seller as the same shall exist on
the Closing Date:
(a) HARDWARE ASSETS. All of Seller's rights, title and
interest in and to all of the following assets, properties and business owned,
held or used by Seller (the "Hardware Assets"):
(i) all real property and leases of and other
interests in real property, in each case together with all buildings, fixtures
and improvements thereon, including without limitation, the items listed in Part
4.6 of the Disclosure Schedule and identified as Purchased Assets;
<PAGE> 2
(ii) all leases of and other interests in the
equipment listed in Part 4.6 of the Disclosure Schedule and identified as
Purchased Assets;
(iii) all tangible personal property and assets
listed in Part 4.7 of the Disclosure Schedule and identified as Purchased
Assets;
(iv) all raw materials, work-in-process, finished
goods, supplies and other inventories relating solely to the Hardware Business;
(v) all accounts receivable, notes receivable and
other receivables to the extent relating to the Hardware Business (for this
purpose, the parties agree that accounts receivable from Seller's sales in the
ordinary course of hardware and software bundled products prior to the Closing
Date constitute accounts receivable of the Hardware Business);
(vi) all prepaid expenses to the extent relating to
the Hardware Business or any Purchased Assets including, but not limited to
Taxes, leases, royalties and rentals;
(vii) all of Seller's rights, claims, credits, causes
of action (including Legal Proceedings set forth in Part 4.20(a) of the
Disclosure Schedule and identified as Purchased Assets) or rights of set-off
against third parties to the extent relating to the Hardware Business,
including, without limitation, unliquidated rights under warranties;
(viii) all patents and patent applications,
trademarks (whether or not registered), trademark applications, trade names,
fictitious business names, service marks (whether or not registered), service
mark applications, copyrights (whether or not registered), copyright
applications, maskworks, maskwork applications, moral rights, and proprietary
products (but excluding bundled software and all intellectual property rights
associated therewith, except to the limited extent that such bundled software or
intellectual property rights are designated as Purchased Assets) listed on Part
4.9(a) of the Disclosure Schedule and identified as Purchased Assets, together
with all associated goodwill and all intellectual property rights of Seller
therein;
(ix) all things authored, discovered, developed,
made, perfected, improved, designed, engineered, acquired, produced, conceived
or first reduced to practice by Seller or any of its employees or agents that
are solely embodied in, derived from or relating solely to the Hardware Business
(but excluding bundled software and all intellectual property rights therein),
in any stage of development, including, without limitation, modifications,
enhancements, designs, concepts, techniques, methods, ideas, flow charts, coding
sheets, notes and all other information relating solely to the Hardware Business
(but excluding bundled software and all intellectual property rights therein);
(x) any and all design and code documentation,
methodologies, processes, trade secrets, design information, product
information, technology, formulae, routines, engineering specifications,
technical manuals and data, drawings, inventions, know-how, techniques,
engineering work papers, and notes, development work-in-process, business
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<PAGE> 3
and marketing plans, and other proprietary information and materials of any kind
solely relating to, used in, or derived from the Hardware Business (but
excluding bundled software and all intellectual property rights therein)
(collectively with subsections (viii) and (ix), the "Intellectual Property");
(xi) all the Material Contracts listed in Part 4.10
of the Disclosure Schedule and identified as Purchased Assets, Contracts of
Seller relating solely to the Hardware Business, and sales and purchase orders
of Seller to the extent relating to the Hardware Business (collectively, the
"Purchased Contracts"), provided however, that "Purchased Contracts" shall
exclude any Material Contracts listed in Part 4.10 of the Disclosure Schedule
and identified as Purchased Assets for which a Consent is required under such
contracts to effect the assignment of all rights and delegation of all
obligations thereunder to Buyer, and for which a Consent is not obtained prior
to Closing; provided further, however, that the provisions of Section 2.8 shall
apply with respect to all Distribution and Marketing Agreements listed in Part
4.10 (a)(ii)(B) of the Disclosure Schedule for which a Consent is not obtained
prior to Closing;
(xii) all licenses, permits, authorizations, consents
and approvals of any Governmental Entity solely affecting or relating in any way
to the Hardware Business which are transferable to Buyer;
(xiii) subject to Section 6.8 below, all books,
records, files and papers, whether in hard copy or electronic format, used in
the Hardware Business, including without limitation, a copy of sales and
promotional literature, sales and purchase correspondence, lists of present,
former and prospective suppliers or customers, personnel and employment records,
and any information relating to Taxes imposed on the Hardware Business or the
Hardware Assets;
(xiv) all computer software programs, data and
associated licenses used internally by Seller in its conduct of the Hardware
Business;
(xv) all goodwill associated with the Hardware
Business or the Hardware Assets, together with the right to represent to third
parties that Buyer is the successor to the Hardware Business; and
(xvi) all software and firmware driver technology
relating to Seller's Strobe, flatbed and OneTouch scanner products, including
all Intellectual Property rights of Seller therein, provided however, that the
Purchased Assets shall not include the Intellectual Property related to the
OneTouch software module; and
(b) "VISIONEER." All of Seller's rights, title and interest in
and to the "Visioneer" name, including all intellectual property rights
(including trademark rights) of Seller therein (the "Visioneer Name"); and
(c) OTHER INCLUDED ASSETS. All of Seller's rights, title and
interest in and to all of the assets, properties and business set forth on
Schedule 2.1(c) attached hereto ("Other Assets"). The Hardware Assets, the
Visioneer Name, and Other Assets are collectively referred to herein as the
"Purchased Assets."
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<PAGE> 4
2.2 EXCLUDED ASSETS. Buyer agrees that only the assets, properties and
business expressly identified in Section 2.1 above shall be Purchased Assets,
and that the assets, properties and business that are not identified as
Purchased Assets in the Disclosure Schedules shall not be Purchased Assets.
Notwithstanding the provisions of Section 2.1 above, Buyer agrees that all of
Seller's rights, title and interest in and to the assets, properties and
business set forth on Schedule 2.2 attached hereto shall be excluded from the
Purchased Assets (collectively, the "Excluded Assets"):
2.3 TRANSFER OF LIABILITIES. Subject to the terms and conditions of
this Agreement, Buyer shall assume from Seller, and Seller shall delegate to
Buyer, effective as of the Closing Date, the following liabilities and
obligations of Seller (whether actual, contingent or otherwise) as the same
shall exist as of the Closing Date:
(a) HARDWARE LIABILITIES all liabilities and obligations of
Seller (whether actual, contingent or otherwise) relating to the Hardware
Business (the "Hardware Liabilities"), including:
(i) all liabilities and obligations relating to the
Purchased Assets, including but not limited to all liabilities of Seller
pursuant to the Purchased Contracts and any Unassigned Contracts (as that term
is defined in Section 2.8(a) below);
(ii) all liabilities and obligations included within
Total Accounts Payable of the Hardware Business as set forth on the Closing
Balance Sheet (as defined in Section 2.6 below; and
(iii) all liabilities and obligations included within
Other Current Liabilities of the Hardware Business set forth on the Closing
Balance Sheet, including sale, use and value-added taxes, state income or
franchise taxes (based on or measured by property), real, personal or intangible
property taxes, and other liabilities relating to the real property and
equipment leases assumed by Buyer, and all similar liabilities and obligations
that arise after the Closing Date.
(b) OTHER INCLUDED LIABILITIES all liabilities and
obligations of Seller set forth in Schedule 2.3(b) attached hereto ("Other
Liabilities"). The Hardware Liabilities and Other Liabilities are collectively
referred to herein as the "Assumed Liabilities."
2.4 EXCLUDED LIABILITIES. All liabilities and obligations of Seller
(whether actual, contingent or otherwise) which are not expressly assumed by
Buyer pursuant to Section 2.3 above shall be excluded from the Assumed
Liabilities, including without limitation the liabilities set forth on Schedule
2.4 ("Excluded Liabilities").
2.5 PURCHASE PRICE. Subject to the performance by Seller of all of its
obligations under this Agreement at or prior to the Closing, in consideration of
the acquisition of the Purchased Assets under Section 2.1 and the assumption of
the Assumed Liabilities under Section 2.3, Buyer agrees to deliver to Seller or
to an account or accounts designated by Seller (i) $1,100,000 plus (ii) the net
book value of the Purchased Assets (based on the Closing Balance
-4-
<PAGE> 5
Sheet (as defined in Section 2.6)) in immediately available funds denominated in
U.S. dollars (collectively, the "Purchase Price").
2.6 DETERMINATION OF CLOSING BALANCE SHEET. No later than five (5)
business days prior to the Closing Date, Seller shall deliver to Buyer an
unaudited balance sheet of the Hardware Business prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied, which
shall include Seller's asset and liability accounts as of such date (the "Seller
Balance Sheet"). From the date of the Seller Balance Sheet to the Closing Date,
Buyer and Seller shall mutually monitor and maintain a ledger reflecting
Seller's receipt of payments for accounts receivable, the payment by Seller of
any accounts payable and events that impact any of Seller's other balance sheet
accounts. Based on such events, Buyer and Seller shall agree upon the
appropriate adjustments to be made to the Seller Balance Sheet and any change to
the net book value of the Purchased Assets since the date of the Seller Balance
Sheet. The resulting adjusted balance sheet of Seller, which shall include the
unaudited asset and liability accounts of the Business as of the Closing Date,
shall be known as the "Closing Balance Sheet." Notwithstanding the foregoing,
either party may deliver to the other party prior to the Closing Date written
notice (the "Objection Notice") of its disagreement as to the value of any item
included in the Seller Balance Sheet or in the calculation of any adjustment
thereto pursuant to this Section 2.6. The Objection Notice shall specify in
reasonable detail the nature of such disagreement and the basis and supporting
evidence for the objecting party's position with respect to the disputed
item(s). Seller and Buyer shall attempt in good faith to resolve any
disagreement prior to the Closing Date in order to determine the Closing Balance
Sheet. Buyer and Seller shall each be entitled to review all work papers and
other supporting documentation used in or relevant to the Seller Balance Sheet,
and the calculation of any adjustment thereto pursuant to this Section 2.6. If
Buyer and Seller are unable to reach agreement on the Closing Balance Sheet
prior to the Closing Date, they shall submit the disputed items to Arthur
Andersen L.L.P. (the "Arbitrator"), whose decision with respect to the matters
disputed in the Objection Notice shall be final and binding. Buyer and Seller
shall each promptly provide all information and documents within their
respective possession that the Arbitrator, in its sole discretion, deems
necessary in order to make its decision with respect to the disputed matters.
The fees and expenses of the Arbitrator shall be borne equally by Buyer and
Seller. The Arbitrator shall render its decision with respect to such matters
within 10 days after such matters are submitted to it and then deliver the
Closing Balance Sheet to Buyer and Seller at such time. The Closing shall take
place as soon as practicable thereafter. For purposes of Section 2.5, the net
book value of the Purchased Assets shall not include (i.e. shall be increased
by) liabilities and obligations included within Total Accrued Wages of the
Hardware Business, such as accrued payroll, federal and state income taxes,
commissions, 401(k) contributions made by employees, 401(k) loans payable to
employees, vacation, insurance, Section 125 contributions, and employee stock
purchase plan contributions, except to the extent the parties agree that such
liabilities shall constitute Assumed Liabilities.
2.7 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Purchased Assets as provided in a schedule to be prepared by Buyer
(Schedule 2.7 hereto) for purposes of complying with the requirements of Section
1060 of the Code and the regulations thereunder. As soon as practicable after
the delivery of the Closing Balance Sheet, Buyer shall
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deliver to Seller a revised allocation reflecting any adjustment to the Seller
Balance Sheet represented by the Closing Balance Sheet, which revised allocation
shall be reasonably consistent with the principles of the allocation set forth
in Schedule 2.7 as determined by Buyer in its good faith discretion. Buyer and
Seller agree to each prepare and file on a timely basis with the Internal
Revenue Service (and applicable state tax authorities) substantially identical
and supplemental Internal Revenue Service Forms 8594 (and corresponding state
tax forms) consistent with Buyer's allocation of the Purchase Price. If any Tax
authority challenges such allocation, the party receiving notice of such
challenge shall give the other prompt written notice thereof and the parties
shall cooperate in order to preserve the effectiveness of such allocation.
2.8 CERTAIN UNASSIGNED CONTRACTS.
(a) Buyer and Seller agree that with respect to all
Distribution and Marketing Agreements listed in Part 4.10 (a)(ii)(B) of the
Disclosure Schedule which constitute a Purchased Asset and Assumed Liability for
which a Consent under such contract is required to assign the rights and
delegate the obligations under such contract to Buyer but not obtained on or
prior to the Closing Date (an "Unassigned Contract"), Seller and Buyer shall
take the following actions: Seller shall (i) promptly transfer to Buyer all
payments to the extent relating to the Hardware Business received from any
third-party under the Unassigned Contract, if applicable; (ii) take, at Buyer's
expense, all reasonable actions to enforce Buyer's rights relating to the
Hardware Business under the Unassigned Contract after prior consultation with
Buyer; and (iii) promptly provide Buyer with a copy of all correspondence,
notices, and other communications received by the third-party under the
Unassigned Contract that relate specifically to Buyer and the Hardware Business.
Buyer shall (i) perform all obligations under the Unassigned Contract which
Buyer would be required to perform thereunder if the Unassigned Contract were
assigned to Buyer under this Agreement, including making any payments directly
to any third-party that would be required by Buyer; (ii) indemnify and reimburse
Seller for all expenses and costs incurred by Seller arising under or relating
to the Unassigned Contract, and (iii) hold harmless Seller for all expenses and
costs incurred by Buyer arising under or relating to the Unassigned Contract.
Buyer acknowledges that Seller shall not be required to obtain Consents for each
Unassigned Contract, however, Seller shall provide assistance and information
upon Buyer's reasonable request to assist Buyer in negotiating a new contract
with such third parties after the Closing Date.
(b) Buyer and Seller agree that with respect to all
Distribution and Marketing Agreements listed in Part 4.10 (a)(ii)(B) of the
Disclosure Schedule which are included as Purchased Assets (either because no
Consent to assignment is required or because such Consent has been obtained)
(each an "Assigned Contract"), Seller and Buyer shall take the following
actions: Buyer shall (i) promptly transfer to Seller all payments to the extent
relating to the Software Business received from any third-party under the
Assigned Contract, if applicable; (ii) take, at Seller's expense, all reasonable
actions to enforce Seller's rights relating to the Software Business under the
Assigned Contract after prior consultation with Seller; and (iii) promptly
provide Seller with a copy of all correspondence, notices, and other
communications received from any third-party under the Assigned Contract that
relates specifically to Seller and the Software Business. Seller shall (i)
perform all applicable
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obligations under the Assigned Contract which Seller would be required to
perform thereunder if the Assigned Contract had not been assigned to Buyer under
this Agreement, including making any payments directly to any third-party that
would be required by Buyer; (ii) indemnify and reimburse Buyer for all expenses
and costs incurred by Buyer arising under or relating to the Assigned Contract
that were undertaken on behalf of Seller or that relate to Seller's rights in
connection with the Software Business, and (iii) hold harmless Buyer for all
expenses and costs incurred by Seller arising under or relating to the Assigned
Contract. Seller acknowledges that Buyer shall not be required to assist Seller
in negotiating a new contract with such third parties after the Closing Date.
3. CLOSING.
3.1 CLOSING. The Closing shall take place at the offices of Venture Law
Group, 2800 Sand Hill Road, Menlo Park, California 94025 on January 3, 1999, or
as soon as practicable thereafter on such other date as may be jointly
designated by Buyer and Seller (the "Closing Date").
3.2 ACTIONS AT THE CLOSING. At the Closing, Seller shall deliver to
Buyer and Buyer shall accept from Seller the Purchased Assets and Assumed
Liabilities, and Buyer shall deliver to Seller and Seller shall accept from
Buyer the Purchase Price, and Buyer and Seller shall take such actions and
execute and deliver such agreements, bills of sale, and other instruments and
documents as necessary or appropriate to effect the transactions contemplated by
this Agreement in accordance with its terms, including without limitation the
following:
(a) BILL OF SALE; ASSIGNMENT AND ASSUMPTION AGREEMENT. Seller
shall deliver to Buyer a general Bill of Sale duly executed by Seller
substantially in the form attached as Exhibit B, and with respect to each
Purchased Contract and item of Intellectual Property, an Assignment and
Assumption Agreement substantially in the form attached as Exhibit C
(collectively, the "Transfer Documents") in each case duly executed by Seller
and Buyer, and in the aggregate assigning to Buyer all of Seller's right, title
and interest in and to the Purchased Assets, and delegating to Buyer all of
Seller's obligations under the Assumed Liabilities. Buyer may designate one or
more of its Affiliates as the recipient of certain of the Purchased Assets, and
as the party to assume certain of the Assumed Liabilities, in which case Seller
shall transfer such Purchased Assets and Assumed Liabilities to Buyer or the
Affiliate(s) designated by Buyer pursuant to such Transfer Documents.
(b) THIRD PARTY CONSENTS AND ASSIGNMENTS. Seller shall deliver
to Buyer any assignments, and any required consents to assignment, that it has
obtained in respect of the Purchased Contracts, duly executed by parties having
the authority to so assign or consent to assign, in form and substance as Buyer
shall reasonably request.
(c) SELLER DOCUMENTS. At the Closing, Seller shall deliver to
Buyer any and all documents required to satisfy the conditions set forth in
Section 9 of this Agreement and any other closing documents reasonably requested
by Buyer.
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(d) BUYER DOCUMENTS. At the Closing, Buyer shall deliver to
Seller any and all documents required to satisfy the conditions set forth in
Section 8 of this Agreement and any other closing documents reasonably requested
by Seller.
(e) POST-CLOSING ACTIONS. Subsequent to the Closing Date,
Seller shall, and shall cause any Affiliate of Seller to, from time to time
execute and deliver, upon the request of Buyer, all such other and further
materials and documents and instruments of conveyance, transfer or assignment as
may reasonably be requested by Buyer to effect, record or verify the transfer to
and vesting in Buyer of Seller's and any of Seller's Affiliates' right, title
and interest in and to the Purchased Assets, free and clear of all Liens in
accordance with the terms of this Agreement.
(f) OBLIGATIONS OF BUYER PARENT. Buyer Parent shall take all
actions necessary to cause Buyer to perform all obligations of Buyer existing
prior to and in connection with the Closing, including without limitation
Buyer's obligations under Section 6.4 below.
(g) USE OF CORPORATE NAME. Buyer acknowledges that Seller
contemplates entering into the Merger Agreement providing for the Merger of
Seller with the Third Party, and pursuant to which the corporate name of the
successor entity will be a name other than "Visioneer." Seller expects that it
will be required to obtain the consent of its stockholders to such Merger and
change of corporate name at a special meeting of stockholders to be held as soon
as practicable following the execution date of the Merger Agreement and prior to
the effective time of the Merger. Seller acknowledges that the Hardware Assets
include all of Seller's right, title and interest, including intellectual
property rights, in and to the name "Visioneer". Buyer acknowledges Seller's
desire to use the corporate name "Visioneer" after the Closing Date, on the
terms and subject to the below conditions. Effective as of the Closing Date,
Buyer hereby grants to Seller and the successor entity of Seller, if applicable,
a non-exclusive, worldwide, royalty-free, irrevocable, perpetual right and
license, under all of Buyer's intellectual property rights, to use, with right
of sublicense, the name "Visioneer" as the corporate name of Seller (the
"Corporate Name License"). The Corporate Name License shall terminate on the
earlier of (i) one week following the Effective Time of the Merger or (ii) April
30, 1999; provided, however, in the event the Merger does not close by April 30,
1999, Seller shall have the right to use the name "Visioneer" as its legal
corporate name, except that Seller shall do business with a name other than
"Visioneer," and Seller shall recommend to its stockholders at its next annual
meeting of stockholders that Seller change its legal corporate name to a name
not using the name "Visioneer." Seller shall provide to Buyer reasonable
evidence of Seller's change of corporate name in compliance with this Section
3.2(g). In addition, as of the Closing Date, Seller shall inform the California
Secretary of State of Seller's consent to Buyer's use of the name "Visioneer."
Seller shall use its best efforts to ensure that each affiliate of
Seller listed in Part 4.19 of the Disclosure Schedule enters into a voting
agreement prior to the Closing Date providing that such affiliate agrees to vote
all shares of capital stock of Seller held by it in favor of Seller's
recommendation at its next annual meeting of stockholders to change its
corporate name to a name not using the name "Visioneer."
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Seller acknowledges that Buyer may commence use of the name "Visioneer"
as of the Closing. Buyer and Seller shall cooperate with regard to their
respective uses of the name "Visioneer" between Closing and the termination of
the License to prevent confusion between each of Seller and Buyer and their
respective customers, suppliers and other partners.
(h) PRODUCT NAME LICENSE GRANTED TO SELLER. Seller
acknowledges that the Hardware Assets include all of Seller's right, title and
interest, including intellectual property rights, in and to the trademarks of
Seller identified as Purchased Assets in Part 4.9(b) of the Disclosure Schedule.
Buyer acknowledges Seller's desire to use those trademarks on the terms and
subject to the below conditions. Effective as of the Closing Date, Buyer hereby
grants to Seller and the successor of Seller, if applicable, a non-exclusive,
worldwide, royalty-free, irrevocable right and license, under all of Buyer's
intellectual property rights related to Hardware Assets, to use those trademarks
identified as Purchased Assets in Part 4.9(b) of the Disclosure Schedule for the
purposes of marketing, selling and distributing Seller's software products alone
or bundled with third-party products (other than imaging hardware devices (as
that term is defined in the Software License Agreement) with a retail price less
than $300) under the same product name that such products were marketed, sold
and distributed immediately prior to the Closing Date (the "Product Name License
Granted to Seller"). The Product Name License Granted to Seller shall continue
for Seller, any successor of Seller, or any distributor, OEM or reseller
thereof, until March 31, 2000; provided that Seller shall use commercially
reasonable efforts to rename any products to which the Product Name License
Granted to Seller applies as soon as it is feasible to do so.
(i) PRODUCT NAME LICENSE GRANTED TO BUYER. Buyer acknowledges
that the Hardware Assets exclude all of Seller's right, title and interest,
including intellectual property rights, in and to the trademarks of Seller set
forth in Part 4.9(b) of the Disclosure Schedule that are identified as not being
Purchased Assets. Seller acknowledges Buyer's desire to use those trademarks on
the terms and subject to the below conditions. Effective as of the Closing Date,
Seller hereby grants to Buyer and its affiliates, if applicable, a
non-exclusive, worldwide, royalty-free, irrevocable right and license, under all
of Seller's intellectual property rights, to use those trademarks set forth in
Part 4.9(b) of the Disclosure Schedule that are identified as not being
Purchased Assets for the purposes of marketing, selling and distributing Buyer's
hardware products alone or bundled with third-party products (except paper
management or OCR software other than software provided by Seller or a successor
Seller) under the same product name that such products were marketed, sold and
distributed immediately prior to the Closing Date (the "Product Name License
Granted to Buyer"). The Product Name License Granted to Buyer shall continue for
Buyer, any successor Buyer, or any distributor, OEM or reseller thereof, until
March 31, 2000; provided that Buyer shall use commercially reasonable efforts to
rename any products to which the Product Name License Granted to Buyer applies
as soon as it is feasible to do so.
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Each representation
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and warranty set forth below is qualified by any exception or disclosures set
forth in the Disclosure Schedule attached hereto delivered to Buyer by Seller.
Seller represents and warrants to Buyer as of the date of this Agreement as
follows:
4.1 DUE ORGANIZATION; SUBSIDIARIES; ETC.
(a) Seller has no Subsidiaries and Seller does not own any
capital stock of, or any equity interest of any nature in, any other Entity.
Seller has not agreed nor is it obligated to make, nor is it bound by any
Contract under which it may become obligated to make, any future investment in
or capital contribution to any other Entity. Seller has not at any time been a
general partner of any general partnership, limited partnership or other Entity.
(b) Seller is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has all corporate power and authority: (i) to conduct its business in the manner
in which its business is currently being conducted; (ii) to own and use its
assets in the manner in which its assets are currently owned and used; and (iii)
to perform its obligations under all Contracts by which it is bound.
(c) Seller has not been required to be qualified, authorized,
registered or licensed to do business as a foreign corporation in any
jurisdiction other than the jurisdictions identified in Part 4.1(c) of the
Disclosure Schedule, except where the failure to be so qualified, authorized,
registered or licensed has not had and will not have a Material Adverse Effect
on the Seller. Seller is in good standing as a foreign corporation in each of
the jurisdictions identified in Part 4.1(c) of the Disclosure Schedule.
4.2 CERTIFICATE OF INCORPORATION AND BYLAWS. Seller has delivered to
Buyer accurate and complete copies of its certificate of incorporation, bylaws
and other charter and organizational documents, including all amendments
thereto. Seller is not in violation of any of the provisions of its certificate
of incorporation or bylaws or equivalent governing instruments.
4.3 [Intentionally left blank.]
4.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Seller has delivered or made available to Buyer accurate
and complete copies of all publicly available registration statements, proxy
statements and other statements, reports, schedules, forms and other documents
filed by Seller with the SEC and will deliver to Buyer accurate and complete
copies of all such publicly available registration statements, proxy statements
and other statements, reports, schedules, forms and other documents filed after
the date of this Agreement and prior to the Closing Date (collectively, the
"Seller SEC Documents"). All statements, reports, schedules, forms and other
documents required to have been filed by Seller with the SEC have been so filed.
As of the time it was filed with the SEC (or, if amended or superseded by a
later filing, then on the date of such filing): (i) each of the Seller SEC
Documents filed with the SEC complied in all material respects with the
applicable requirements of the Securities Act or the Exchange Act and the rules
and regulations under either of them (as the case may be) as of the date of such
filing and any Seller SEC Documents filed after the date
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hereof will so comply; and (ii) none of the Seller SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(b) The consolidated financial statements (including any
related notes) contained in the Seller SEC Documents filed with the SEC (the
"Seller Financial Statements"): (i) complied as to form in all material respects
with the published rules and regulations of the SEC applicable thereto; (ii)
were prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC, and except that the unaudited financial statements may not contain
footnotes and other information required for complete financial statements), and
(iii) fairly present the consolidated financial position of Seller as of the
respective dates thereof and the consolidated results of operations of Seller
for the periods covered thereby. All adjustments (consisting of recurring
accruals) considered necessary for a fair presentation of the financial
statements have been included. The audited consolidated balance sheet of the
Seller included in Seller's Annual Report on Form 10-K for the year ended
December 28, 1997 is sometimes referred to herein as the "1997 Balance Sheet"
and the unaudited consolidated balance sheet of Seller as of September 27, 1998
is sometimes referred to herein as the "Seller Unaudited Interim Balance Sheet."
All financial statements (including any related notes) contained in Seller SEC
Documents filed after the date hereof shall meet the conditions set forth in
(i), (ii) and (iii) of this Section 4.4(b).
(c) The Seller Unaudited Interim Balance Sheet and the
statement of operations of Seller for the quarter ended September 27, 1998 and
delivered to Buyer were prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered (except that the such financial statements
may not contain footnotes and other information required for complete financial
statements), and fairly present the financial position of the Business as of the
respective dates thereof and the results of operations of the Business for the
periods covered thereby.
(d) Seller has recognized revenues in accordance with GAAP and
Statement of Position 91-1 entitled "Software Revenue Recognition," dated
December 12, 1991, issued by the American Institute of Certified Public
Accountants. Seller has recognized (i) initial license fee revenues only after
delivery of software and hardware products and upon satisfaction of all
significant post-delivery obligations; (ii) revenues associated with the grant
of additional licenses to Seller's existing customers upon shipment and upon
satisfaction of all significant post-delivery obligations and (iii) maintenance
revenues ratably over the term of the maintenance period.
4.5 ABSENCE OF CHANGES. Since the date of the Seller Unaudited Interim
Balance Sheet and except as set forth in Part 4.5 of the Disclosure Schedule:
(a) there has not been any material adverse change in the
business, condition, assets, Liabilities, operations, financial performance or
prospects of the Hardware Business, and
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no event has occurred that could reasonably be expected to have a Material
Adverse Effect on the Purchased Assets;
(b) there has not been any material loss, damage or
destruction to, or any material interruption in the use of, any of the Purchased
Assets (whether or not covered by insurance);
(c) there has been no amendment to the certificate of
incorporation, bylaws or other charter or organizational documents of Seller,
and Seller has not effected or been a party to any merger, consolidation, share
exchange, business combination, recapitalization, reclassification of shares,
stock split, reverse stock split or similar transaction, other than the Merger
Agreement;
(d) Seller has not (i) received any Acquisition Proposal, or
(ii) solicited, initiated, encouraged or induced, or provided any nonpublic
information to or entered into any discussions with any Person for the purpose
of soliciting, initiating, encouraging or inducing, the making or submission of
any Acquisition Proposal;
(e) Seller has not formed any Subsidiary or acquired any
equity interest or other interest in any other Entity:
(f) Seller has not made any capital expenditures which exceed
$25,000 with respect to any single matter, or $50,000 in the aggregate;
(g) except in the ordinary course of business and consistent
with past practices and except for the Merger Agreement, Seller has not (i)
entered into or permitted any of the Purchased Assets to become bound by any
Material Contract (as defined in Section 4.10), or (ii) amended or prematurely
terminated, or waived any material right or remedy under, any Purchased
Contract;
(h) except as contemplated by the Merger Agreement, Seller has
not (i) acquired, leased or licensed any material right or other material asset
from any other Person, (ii) sold or otherwise disposed of, or leased or
licensed, any Purchased Asset to any other Person, or (iii) waived or
relinquished any material right relating to the Purchased Assets or Assumed
Liabilities, except for rights or other assets acquired, leased, licensed or
disposed of in the ordinary course of business and consistent with past
practices;
(i) Seller has not written off as uncollectible, or
established any extraordinary reserve with respect to, any account receivable or
other indebtedness that constitutes a Purchased Asset or Assumed Liability in
excess of $25,000 with respect to any single matter, or in excess of $50,000 in
the aggregate;
(j) Seller has not made any pledge or otherwise permitted any
of the Purchased Assets to become subject to any Encumbrance, except for pledges
of immaterial assets made in the ordinary course of business and consistent with
past practices and except as set forth in the Merger Agreement;
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(k) except for relocation and travel advances referred to in
Section 4.8(b), Seller has not (i) lent money to any Person, or (ii) incurred or
guaranteed any indebtedness for borrowed money that constitutes a Purchased
Asset or an Assumed Liability;
(l) Seller has not (i) established or adopted any Plan (as
defined in Section 4.16(a)), (ii) caused or permitted any Plan to be amended in
any material respect, or (iii) paid any bonus or made any profit-sharing or
similar payment to, or materially increased the amount of the wages, salary,
commissions, fringe benefits or other compensation or remuneration payable to,
any of its directors, officers or employees;
(m) Seller has not changed any of its methods of accounting or
accounting practices in any respect with respect to the Hardware Business;
(n) Seller has not made any material election with respect to
Taxes;
(o) Seller has not commenced or settled any Legal Proceeding;
(p) Seller has not entered into any material transaction or
taken any other material action that has had, or could reasonably be expected to
have, a Material Adverse Effect on the Purchased Assets or the Assumed
Liabilities; and
(q) Seller has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(p)" above.
4.6 LEASEHOLD; EQUIPMENT. Seller does not own any real property or any
interest in real property, except for the leaseholds created under the real
property leases identified in Part 4.6 of the Disclosure Schedule (which Part
4.6 indicates that such leaseholds are included as part of the Purchased Assets
hereunder). All such real property is being leased pursuant to lease agreements
that are in full force and effect, are valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default). Part 4.6 of the Disclosure Schedule
accurately identifies all material items of equipment leased by Seller and
indicates whether or not such items of equipment are included as Purchased
Assets. All material items of equipment and other tangible assets owned by or
leased to Seller are adequate for the uses to which they are being put, are in
good condition and repair (ordinary wear and tear excepted).
4.7 TITLE TO ASSETS. Seller owns, and has good, valid and marketable
title to, or in the case of leased properties and assets, valid leasehold
interests in, all of its tangible properties and assets, real, personal and
mixed, that constitute Purchased Assets. Except as set forth in Part 4.7 of the
Disclosure Schedule, all of said assets are owned or leased by Seller free and
clear of any encumbrances, except for (x) any lien for current taxes not yet due
and payable, and (y) minor liens that have arisen in the ordinary course of
business and that do not (in any case or in the aggregate) materially detract
from the value of the assets subject thereto or materially impair the operations
of Seller. Part 4.7 sets forth a list of all material tangible personal property
and assets of Seller and identifies which of such assets constitute Purchased
Assets.
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4.8 RECEIVABLES; SIGNIFICANT CUSTOMERS OF THE BUSINESS.
(a) Part 4.8(a) of the Disclosure Schedule provides an
accurate and complete breakdown and aging of all accounts receivable of Seller
as of the date of the Seller Unaudited Interim Balance Sheet. All such accounts
receivable are current, and the Company believes that there is reasonable basis
that such accounts receivable will be collected (net of the allowance of
doubtful accounts set forth on the Company Unaudited Interim Balance Sheet,
which allowance the Company believes is reasonable).
(b) Part 4.8(b) of the Disclosure Schedule contains an
accurate and complete list as of date of this Agreement of all loans and
advances made by Seller to any employee, director, consultant or independent
contractor of Seller outstanding as of the date of this Agreement, other than
routine travel or relocation advances made to employees in the ordinary course
of business. All of such loans and advances existing as of the Closing Date are
Purchased Assets, except the loans and advances indicated on Part 4.8(b) that
were made by Seller to any employee, director, consultant or independent
contractor of Seller offered employment by Merger Party.
(c) Part 4.8(c) of the Disclosure Schedule sets forth a
complete and accurate list of all Significant Customers of the Business. For
purposes of this Agreement, "Significant Customers of the Business" are the
thirty (30) customers of the Seller (including without limitation original
equipment manufacturers and royalty-paying customers) that have effected the
most purchases from the Business, in dollar terms, and accounted for the most
revenues for the Business, in dollar terms, during the eight fiscal quarter
period ended September 27, 1998. None of the Company's Significant Customers of
the Business has canceled or returned or, to the knowledge of Seller, is
currently attempting or threatening to cancel or return, any purchases from,
orders to or services provided by the Seller. Seller has not received any
material customer complaints concerning its products and/or services.
4.9 PROPRIETARY ASSETS.
(a) Part 4.9(a) of the Disclosure Schedule sets forth a list
of all patents and patent applications, trademarks (whether or not registered),
trademark applications, trade names, fictitious business names, service marks
(whether or not registered), service mark applications, copyrights (whether or
not registered), copyright applications, maskworks, maskwork applications,
computer software, computer programs (in source and executable form),
proprietary products of Seller and which of such Proprietary Assets are
Purchased Assets. Part 4.9(a) of the Disclosure Schedule indicates each
Proprietary Asset of Seller registered with any Governmental Body or for which
an application has been filed with any Governmental Body and the names of the
jurisdictions covered by the applicable registration or application. Seller owns
no Proprietary Assets registered with any Governmental Body or for which an
application has been filed with any Governmental Body other than the Proprietary
Assets set forth in Part 4.9(a) of the Disclosure Schedule. Part 4.9(a) of the
Disclosure Schedule identifies and provides a brief description of each
Proprietary Asset licensed to Seller by any Person (except for any Proprietary
Asset that is licensed to Seller under any third party software license
generally available to the
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public at a cost of less than $25,000), and identifies the license agreement
under which such Proprietary Asset is being licensed to Seller. Seller has good
and marketable title to all of the Proprietary Assets identified in Parts 4.9(a)
of the Disclosure Schedule, free and clear of all liens and other Encumbrances,
and has a right to use all of such Proprietary Assets that constitute Purchased
Assets. To Seller's knowledge, except as set forth in Part 4.9(a) of the
Disclosure Schedule, Seller is not obligated to make any payment after the date
of this Agreement to any Person for the use of any Proprietary Asset. To
Seller's knowledge, Seller has not developed jointly with any other Person any
Proprietary Asset with respect to which such other Person has any rights.
(b) Seller has taken all reasonable and appropriate steps to
protect and preserve all Seller Proprietary Assets that constitute Purchased
Assets that are not otherwise protected by patents, copyright or maskwork
registrations and that are not publicly known ("Trade Secrets"). The use,
possession or disclosure by Seller of any Proprietary Assets that constitute
Purchased Assets used in the Business but which are not owned by Seller has been
in compliance with the terms and conditions of a valid and enforceable agreement
between Seller and the owner of such Proprietary Assets that constitute
Purchased Assets, or such use, possession or disclosure is otherwise lawful
under the circumstances. To Seller's knowledge, there has been no unauthorized
disclosures of any Trade Secrets, no unauthorized disclosures of any Proprietary
Assets of any third party by Seller or any of its respective employees or
consultants, and there has been no breach of any confidentiality or
nondisclosure agreements to which Seller is a party.
(c) Except as set forth in Part 4.9(c) of the Disclosure
Schedule, to Seller's knowledge, none of Seller's Proprietary Assets that
constitute Purchased Assets infringes or conflicts with any Proprietary Asset
owned or used by any other Person and Seller is not infringing, misappropriating
or making any unlawful use of, and Seller has not at any time infringed,
misappropriated or made any unlawful use of, or received any notice or other
communication (in writing or otherwise) of any actual, alleged, possible or
potential infringement, misappropriation or unlawful use of, any Proprietary
Asset owned or used by any other Person. To Seller's knowledge, no other Person
is infringing, misappropriating or making any unlawful use of, and no
Proprietary Asset owned or used by any other Person infringes or conflicts with,
any Proprietary Asset of Seller that constitutes a Purchased Asset.
(d) There has not been any claim by any customer or other
Person alleging that any Proprietary Asset of Seller that constitutes a
Purchased Asset (including each version thereof that has ever been licensed or
otherwise made available by Seller to any Person) does not conform in all
material respects with any specification, documentation, performance standard,
representation or statement made or provided by or on behalf of Seller. Seller
has established adequate reserves on the Seller Unaudited Interim Balance Sheet
to cover all costs that Seller reasonably anticipates to be associated with any
obligations that Seller may have with respect to the correction or repair of
programming errors or other defects in the Proprietary Assets.
(e) Seller's Proprietary Assets constitute all the Proprietary
Assets necessary to enable Seller to conduct the Hardware Business in the manner
in which such Hardware
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<PAGE> 16
Business has been and is being conducted. Except as set forth in Part 4.9(e) of
the Disclosure Schedule (which Part 4.9(e) indicates whether or not such
disclosure relates to the Purchased Assets), (i) Seller has not licensed any of
the Proprietary Assets to any Person on an exclusive basis, and (ii) Seller has
not entered into any material restriction on the right or ability of Seller (A)
to compete in any market or geographic area with any other Person, (B) to
acquire any product or other asset or any services from any other Person, to
sell any product or other asset to or perform any services for any other Person
or to transact business or deal in any other manner with any other Person, or
(C) to develop or distribute any technology.
(f) All current and former employees have executed and
delivered to Seller an agreement (containing no exceptions to or exclusions from
the scope of its coverage) that is substantially identical to the form of
confidential information and invention assignment agreement previously delivered
to Buyer and identified as satisfying the conditions of this Section 4.9(f). All
current and former consultants and independent contractors to Seller have
executed and delivered to Seller an agreement (containing no exceptions to or
exclusions from the scope of its coverage) that is substantially identical to
the form of consultant confidential information and invention assignment
agreement previously delivered to Buyer and identified as satisfying the
conditions of this Section 4.9(f).
4.10 CONTRACTS.
(a) Part 4.10 of the Disclosure Schedule identifies each
Contract of Seller that constitutes a "Material Contract" and indicates whether
or not each such Contract is a Purchased Asset. For purposes of this Agreement,
each of the following shall be deemed to constitute a "Material Contract":
(i) (A) any Contract or outstanding offer relating to
the employment of, or the performance of services by, any employee, (B) any
Contract pursuant to which Seller is required to make any severance, termination
or similar payment, bonus or relocation payment or any other payment (other than
payments in respect of salary) to any current or former employee or director of
Seller (if any such payment is disclosed on Part 4.10 of the Disclosure
Schedule, such reference also states whether or not such payment is an Assumed
Liability for purposes of this Agreement) and (C) any Contract or Plan
(including, without limitation, any stock option plan, stock appreciation plan
or stock purchase plan), any of the benefits of which may be increased, or the
vesting of benefits of which may be accelerated;
(ii) any Contract (A) relating to the acquisition,
transfer, development, sharing, license (to or by Seller), use or other
exploitation of any Proprietary Asset (except for any Contract pursuant to which
any Proprietary Asset is licensed to Seller under any third party software
license generally available to the public); or (B) with respect to the
distribution or marketing of any products of Seller, in each case the absence of
which would have a Material Adverse Effect on Seller or the Hardware Business;
(iii) any Contract which provides for indemnification
of any officer, director, employee or agent of Seller;
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<PAGE> 17
(iv) any Contract imposing any material restriction
on the right or ability of Seller (A) to compete in any market or geographic
area with any other Person, (B) to acquire any product or other asset or any
services from any other Person, to sell any product or other asset to or perform
any services for any other Person or to transact business or deal in any other
manner with any other Person, or (C) to develop or distribute any technology;
(v) any Contract (A) relating to the acquisition,
issuance, voting, registration, sale or transfer of any securities (other than
the issuance of Seller Common Stock upon the valid exercise of Seller Options,
Employee Stock Purchase Plan Rights or Seller Warrants outstanding as of the
date of this Agreement), (B) providing any Person with any preemptive right,
right of participation, right of maintenance or any similar right with respect
to any securities, or (C) providing Seller with any right of first refusal with
respect to, or right to repurchase or redeem, any securities;
(vi) any Contract requiring that Seller give any
notice or provide any information to any Person prior to accepting any
Acquisition Proposal;
(vii) any Contract that (A) contemplates or involves
payment or delivery of cash or other consideration in an amount or having a
value in excess of $25,000 per month and (B) has a term of more than 90 days and
that may not be terminated by Seller within 90 days after the delivery of a
termination notice by Seller;
(viii) any Contract that contemplates or involves
payment or delivery of cash or other consideration by Seller in an amount or
having a value in excess of $75,000 in the aggregate;
(ix) any Contract or Plan (including, without
limitation, any stock option plan, stock appreciation plan or stock purchase
plan), any of the benefits of which will be increased, or the vesting of
benefits of which will be accelerated, by the execution of this Agreement or the
consummation of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement;
(x) any joint marketing or development Contract
currently in force under which Seller has continuing material obligations to
jointly market any product, technology or service and which may not be canceled
without penalty upon notice of 90 days or less, or any Material Contract
pursuant to which Seller has continuing material obligations to jointly develop
any Proprietary Asset that will not be owned, in whole or in part, by Seller and
which may not be canceled without penalty upon notice of 90 days or less;
(xi) any Contract currently in force to disclose or
deliver to any Person, or permit the disclosure or delivery to any escrow agent
or other Person, of the source code, or any portion or aspect of the source
code, or any proprietary information or algorithm contained in or relating to
any source code, of any Seller Proprietary Asset that is material to Seller
taken as a whole;
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<PAGE> 18
(xii) any Contract (not otherwise identified in
clauses "(i)" through "(xi)" of this sentence) that is or would be material to
any of Seller, to the business, condition, capitalization or operations of
Seller or the Hardware Business, or to any of the transactions contemplated by
this Agreement; and
(xiii) any other Contract, if a breach of such
Contract could reasonably be expected as of the date of this Agreement to have a
Material Adverse Effect on Seller.
(b) Each Material Contract is valid and in full force and
effect, and is enforceable by Seller in accordance with its terms, subject to
(i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies. To the best of the knowledge of
Seller, no Person has violated or breached, or committed any default under, any
Material Contract.
(c) (i) Seller has not violated or breached, or committed any
default under, any Material Contract, and, to the best of the knowledge of
Seller, no other Person has violated or breached, or committed any default
under, any Material Contract that could reasonably be expected as of the date of
this Agreement to have a Material Adverse Effect on Seller; (ii) to the best of
the knowledge of Seller, no event has occurred, and no circumstance or condition
exists, that (with or without notice or lapse of time) will, or could reasonably
be expected to, (A) result in a violation or breach of any of the provisions of
any Material Contract, (B) give any Person the right to declare a default or
exercise any remedy under any Material Contract, (C) give any Person the right
to a rebate, chargeback, penalty or change in delivery schedule under any
Material Contract, (D) give any Person the right to accelerate the maturity or
performance of any Material Contract, or (E) give any Person the right to
cancel, terminate or modify any Material Contract that will have a Material
Adverse Effect on Seller; (iii) neither Seller nor any of its Representatives
has received any notice or other communication regarding any actual or possible
violation or breach of, or default under, any Material Contract that will have a
Material Adverse Effect on Seller; and (iv) Seller has obtained all necessary
export licenses related to the export of its products and is not, and has not
been, in violation of such export licenses.
(d) There is no Material Contract to which any Governmental
Body is a party or under which any Governmental Body has any rights or
obligations, or directly or indirectly benefiting any Governmental Body
(including any subcontract or other Material Contract between Seller and any
contractor or subcontractor to any Governmental Body).
(e) No Person is renegotiating, or has a right pursuant to the
terms of any Material Contract to renegotiate, any amount paid or payable to
Seller under any Material Contract or any other material term or provision of
any Material Contract.
4.11 LIABILITIES. To Seller's knowledge, Seller has no Liabilities,
except for: (a) Liabilities identified as such in the "liabilities" column of
the Seller Unaudited Interim Balance Sheet; (b) normal and recurring liabilities
that have been incurred by Seller since the date of the Seller Unaudited Interim
Balance Sheet in the ordinary course of business and consistent with
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<PAGE> 19
past practices; (c) transaction expenses payable to Seller's accountants, legal
and financial advisors incurred in connection with this Agreement and the Merger
Agreement.
4.12 COMPLIANCE WITH LEGAL REQUIREMENTS. Seller is, and has at all
times been, in compliance with all applicable Legal Requirements, except where
the failure to comply with such Legal Requirements has not had and will not have
a Material Adverse Effect on Seller. Seller has not received any notice or other
communication from any Governmental Body regarding any actual or possible
violation of, or failure to comply with, any Legal Requirement.
4.13 CERTAIN BUSINESS PRACTICES. Neither Seller nor any director,
officer, agent or employee of Seller has, on behalf of Seller, (i) used any
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended, or (iii) made any other unlawful payment.
4.14 GOVERNMENTAL AUTHORIZATIONS. Seller holds all Governmental
Authorizations necessary to enable Seller to conduct its business in the manner
in which such business is currently being conducted. All Governmental
Authorizations held by Seller are valid and in full force and effect. Seller is,
and at all times has been, in substantial compliance with the terms and
requirements of such Governmental Authorizations. Seller has not received any
notice or other communication from any Governmental Body regarding (a) any
actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (b) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Authorization.
4.15 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of
Seller with any Governmental Body with respect to any taxable period ending on
or before the Closing Date (the "Seller Returns") (i) have been or will be filed
on or before the applicable due date (including any extensions of such due date
if properly obtained), and (ii) have been, or will be when filed, prepared in
all material respects in compliance with all applicable Legal Requirements. All
amounts shown on the Seller Returns to be due on or before the Closing Date have
been or will be paid on or before the Closing Date or accrued on the Seller's
financial statements.
(b) Seller's Financial Statements fully accrue all actual and
contingent Liabilities for Taxes with respect to all periods through the dates
thereof in accordance with GAAP. Sellers will establish, in the ordinary course
of business and consistent with its past practices, reserves adequate for the
payment of all Taxes for the period from the date of this Agreement through the
Closing Date or accrued in the Company's financial statements.
(c) Except as provided in Seller's Disclosure Schedules, no
Seller Tax Return has ever been examined or audited by any Governmental Body. No
extension or waiver of the limitation period applicable to any of Seller's Tax
Returns has been granted (by Seller or any
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<PAGE> 20
other Person) that is still in effect, and no such extension or waiver is
currently being requested from Seller.
(d) No claim or Legal Proceeding is pending or, to the best of
the knowledge of Seller, has been threatened against or with respect to Seller
in respect of any material Tax. There are no unsatisfied liabilities for
material Taxes (including liabilities for interest, additions to tax and
penalties thereon and related expenses) with respect to any notice of deficiency
or similar document received by Seller with respect to any material Tax (other
than liabilities for Taxes asserted under any such notice of deficiency or
similar document which are being contested in good faith by Seller and with
respect to which adequate reserves for payment have been established). There are
no liens for material Taxes upon any of the assets of any of Seller except liens
for current Taxes not yet due and payable.
(e) Seller is not, nor has it ever been, a party to or bound
by any tax indemnity agreement, tax sharing agreement, tax allocation agreement
or similar Contract, other than agreements to which only the Seller is a party.
4.16 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 4.16(a) of the Disclosure Schedule identifies each
salary, bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance pay, termination pay, hospitalization, medical, life or
other insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement (collectively, the "Plans") sponsored,
maintained, contributed to or required to be contributed to by Seller for the
benefit of any current or former employee of Seller.
(b) Seller does not maintain, sponsor or contribute to, and
Seller has not at any time in the past maintained, sponsored or contributed to,
any employee pension benefit plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not
excluded from coverage under specific Titles or Merger Subtitles of ERISA) for
the benefit of its employees or former employees (a "Pension Plan"). None of the
Plans identified in Part 4.16(a) of the Disclosure Schedule is subject to Title
IV of ERISA or Section 412 of the Code.
(c) Seller does not maintain, sponsor or contribute to any:
(i) employee welfare benefit plan (as defined in Section 3(1) of ERISA, whether
or not excluded from coverage under specific Titles or Merger Subtitles of
ERISA) for the benefit of any of its employees or former employees (a "Welfare
Plan"), or (ii) self-funded medical, dental or other similar Plan. None of the
Plans identified in Part 4.16(a) of the Disclosure Schedule is a multi-employer
plan (within the meaning of Section 3(37) of ERISA).
(d) With respect to each Plan, Seller has made available to
Buyer: (i) an accurate and complete copy of such Plan (including all amendments
thereto); (ii) an accurate and complete copy of the annual report, if required
under ERISA, with respect to such Plan for the last two years; (iii) an accurate
and complete copy of the most recent summary plan description, together with
each Summary of Material Modifications, if required under ERISA, with respect to
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such Plan, (iv) if such Plan is funded through a trust or any third party
funding vehicle, an accurate and complete copy of the trust or other funding
agreement (including all amendments thereto) and accurate and complete copies
the most recent financial statements thereof; (v) accurate and complete copies
of all Contracts relating to such Plan, including service provider agreements,
insurance Contracts, minimum premium Contracts, stop-loss agreements, investment
management agreements, subscription and participation agreements and
recordkeeping agreements; and (vi) an accurate and complete copy of the most
recent determination letter received from the Internal Revenue Service with
respect to such Plan (if such Plan is intended to be qualified under Section
401(a) of the Code).
(e) Seller is not nor has it ever been required to be treated
as a single employer with any other Person under Section 4001(b)(1) of ERISA or
Section 414(b), (c), (m) or (o) of the Code. Seller has never been a member of
an "affiliated service group" within the meaning of Section 414(m) of the Code.
Seller has never made a complete or partial withdrawal from a multi-employer
plan, as such term is defined in Section 3(37) of ERISA, resulting in
"withdrawal liability," as such term is defined in Section 4201 of ERISA
(without regard to subsequent reduction or waiver of such liability under either
Section 4207 or 4208 of ERISA).
(f) Seller does not have any plan or commitment to create any
Welfare Plan or any additional Pension Plan, or to modify or change any existing
Pension Plan (other than to comply with applicable law) in a manner that would
affect any of its employees.
(g) No Plan provides death, medical or health benefits
(whether or not insured) with respect to any current or former employee of
Seller after any such employee's termination of service (other than (i) benefit
coverage mandated by applicable law, including coverage provided pursuant to
Section 4980B of the Code, (ii) deferred compensation benefits accrued as
liabilities on the Seller Balance Sheet, and (iii) benefits the full cost of
which are borne by current or former employees of Seller (or the employees'
beneficiaries)).
(h) With respect to any Plan constituting a group health plan
within the meaning of Section 4980B(g)(2) of the Code, to the knowledge of the
Seller, the provisions of Section 4980B of the Code ("COBRA") have been complied
with in all material respects. Part 2.16(h) of the Disclosure Schedule describes
all obligations of Seller as of the date of this Agreement under any of the
provisions of COBRA.
(i) Each of the Plans has been operated and administered in
all material respects in accordance with applicable Legal Requirements,
including but not limited to ERISA and the Code.
(j) To the knowledge of the Seller, each of the Plans intended
to be qualified under Section 401(a) of the Code has received a favorable
determination from the Internal Revenue Service or has remaining a period of
time in which to file an application for such determination, and the Company is
not aware of any reason why any such determination letter should be revoked or
not issued.
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<PAGE> 22
(k) Neither the execution, delivery or performance of this
Agreement or the Merger Agreement, nor the consummation of the Merger thereunder
or the transaction contemplated by this Agreement, or any of the other
transactions contemplated by this Agreement or the Merger Agreement, will result
in any payment (including any bonus, golden parachute or severance payment) to
any current or former employee, consultant, or director of Seller (whether or
not under any Plan), or materially increase the benefits payable under any Plan,
or result in any acceleration of the time of payment or vesting of any such
benefits. If any such payment is disclosed in Part 4.16(k) of the Disclosure
Schedule, such reference also states whether or not such payment is an Assumed
Liability for purposes of this Agreement.
(l) Part 4.16(l) of the Disclosure Schedule contains a list of
all employees of Seller as of the date of this Agreement, and correctly
reflects, in all material respects, their base salaries, their targeted annual
bonus amounts, their dates of employment and their positions. Seller is not a
party to any collective bargaining Contract or other Contract with a labor union
involving any of its employees. All of Seller's employees are "at will"
employees under applicable law.
(m) Part 4.16(m) of the Disclosure Schedule identifies each
employee who is not fully available to perform work because of disability or
other leave and sets forth the basis of such leave and the anticipated date of
return to full service.
(n) To Seller's knowledge, each Plan complies in all material
respects with all applicable Legal Requirements. To Seller's knowledge, Seller
is in compliance in all material respects with all Contracts relating to
employment, employment practices, wages, bonuses and terms and conditions of
employment, including employee compensation matters.
(o) Seller has good labor relations, and it has no knowledge
of any facts indicating that (i) the consummation of the Merger pursuant to the
Merger Agreement or the transaction contemplated by this Agreement or any of the
other transactions contemplated by this Agreement or the Merger Agreement will
have a Material Adverse Effect on the labor relations of Seller, or (ii) any of
the Hardware Employees (as defined in Section 7.1 below) intends to terminate
his or her employment with Seller prior to the Closing
4.17 ENVIRONMENTAL MATTERS. Seller is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes the
possession by Seller of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof. Seller has not received any notice or other communication
(in writing or otherwise), whether from a Governmental Body, citizens group,
employee or otherwise, that alleges that it is not in compliance with any
Environmental Law, and, to the best of the knowledge of Seller, there are no
circumstances that may prevent or interfere with the compliance by Seller with
any Environmental Law in the future. To the best of the knowledge of Seller, no
current or prior owner of any property leased or controlled by Seller has
received any notice or other communication (in writing or otherwise), whether
from a Government Body, citizens group, employee or otherwise, that alleges that
such current or prior owner or Seller is not in compliance with any
Environmental Law. To the best knowledge of
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<PAGE> 23
Seller, all property that is leased to, controlled by or used by Seller, and all
surface water, groundwater and soil associated with or adjacent to such property
is in clean and healthful condition and is free of any material environmental
contamination of any nature.
4.18 INSURANCE. Seller has delivered to Buyer a copy of each insurance
policy and each self insurance program relating to the business, assets or
operations of Seller. Each such insurance policy is in full force and effect.
Seller has not received any notice or other communication regarding any actual
or possible (a) cancellation or invalidation of any insurance policy, (b)
refusal of any coverage or rejection of any material claim under any insurance
policy, or (c) material adjustment in the amount of the premiums payable with
respect to any insurance policy. There is no pending claim (including any
workers' compensation claim) under or based upon any insurance policy of Seller;
and, to the best of the knowledge of Seller, no event has occurred, and no
condition or circumstance exists, that might (with or without notice or lapse of
time) directly or indirectly give rise to or serve as a basis for any such
claim.
4.19 TRANSACTIONS WITH AFFILIATES. Except as set forth in the Seller
SEC Documents, since the date of the Seller's last proxy statement filed with
the SEC, no event has occurred that would be required to be reported by Seller
pursuant to Item 404 of Regulation S-K promulgated by the SEC. Part 4.19 of the
Disclosure Schedule identifies each Person who is an "affiliate" (as that term
is used in Rule 145 promulgated under the Securities Act) of Seller as of the
date of this Agreement.
4.20 LEGAL PROCEEDINGS; ORDERS.
(a) There are no pending Legal Proceedings (including, to the
best knowledge of Seller, any investigation), and no Person has overtly
threatened to commence any Legal Proceeding, except as set forth in Part 4.20(a)
of the Disclosure Schedule (which Part 4.20(a) indicates whether or not such
Legal Proceedings are Purchased Assets or Purchased Liabilities): (i) that
involves Seller or any of the assets owned or used by Seller, including, without
limitation, any Proprietary Asset of Seller; or (ii) that challenges, or that
may have the effect of preventing, delaying, making illegal or otherwise
interfering with any of the transactions contemplated by this Agreement or the
Merger Agreement. To the best knowledge of Seller, no event has occurred, and no
claim, dispute or other condition or circumstance exists, that will, or that
could reasonably be expected to, give rise to or serve as a basis for the
commencement of any such Legal Proceeding. To the best knowledge of Seller, no
event has occurred, and no claim, dispute or other condition or circumstance
exists, that will, or that could reasonably be expected to, cause or provide a
basis for a director, officer or other Representative of Seller to seek
indemnification from, or commence a Legal Proceeding against or involving
Seller.
(b) There is no order, writ, injunction, judgment or decree to
which Seller, or any of the assets owned or used by Seller, is subject. To the
best knowledge of Seller, no officer or other employee of Seller is subject to
any order, writ, injunction, judgment or decree that prohibits such officer or
other employee from engaging in or continuing any conduct, activity or practice
relating to the business of Seller.
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<PAGE> 24
4.21 AUTHORITY; BINDING NATURE OF AGREEMENTS. Seller has the absolute
and unrestricted right, corporate power and authority to enter into and to
perform its obligations under this Agreement, the Merger Agreement and the other
agreements contemplated hereby. The Board of Directors of Seller (at a meeting
duly called and held) has (a) unanimously determined that the transactions
contemplated by the Agreement and the Merger Agreement are advisable and fair
and in the best interests of Seller and its stockholders, (b) unanimously
approved the execution, delivery and performance of this Agreement and the
Merger Agreement by Seller and has unanimously approved the transactions
contemplated by the Agreement and the Merger Agreement. This Agreement, the
Merger Agreement and the other agreements contemplated hereby and thereby,
constitute the legal, valid and binding obligations of Seller, enforceable
against Seller in accordance with their respective terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
4.22 [Intentionally left blank.]
4.23 VOTE REQUIRED. No vote of Seller's stockholders is required to
adopt and approve this Agreement and the transactions contemplated by this
Agreement.
4.24 NON-CONTRAVENTION; CONSENTS. Neither (i) the execution, delivery
or performance of this Agreement, the Merger Agreement or any of the other
agreements referred to in this Agreement or the Merger Agreement, nor (ii) the
consummation of any of the transactions contemplated by this Agreement or the
Merger Agreement, will directly or indirectly (with or without notice or lapse
of time):
(a) contravene, conflict with or result in a violation of (i)
any of the provisions of the certificate of incorporation, bylaws or other
charter or organizational documents of Seller, or (ii) any resolution adopted by
the stockholders, the board of directors or any committee of the board of
directors of Seller;
(b) to the knowledge of Seller, contravene, conflict with or
result in a violation of, or give any Governmental Body or other Person the
right to challenge any of the transactions contemplated by this Agreement or the
Merger Agreement or to exercise any remedy or obtain any relief under, any Legal
Requirement or any order, writ, injunction, judgment or decree to which Seller,
or any of the assets owned or used by Seller, is subject, except as provided
under U.S. antitrust laws, including the Hart-Scott-Rodino Anti-Trust
Improvements Act (the "HSR Act"), Sherman Act and Clayton Act;
(c) contravene, conflict with or result in a violation of any
of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by Seller or that otherwise relates to the business
of Seller or to any of the assets owned or used by Seller;
(d) contravene, conflict with or result in a violation or
breach of, or result in a default under, any provision of any Material Contract,
or give any Person the right to (i) declare a default or exercise any remedy
under any Material Contract, (ii) a rebate, chargeback, penalty or
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<PAGE> 25
change in delivery schedule under any Material Contract, (iii) accelerate the
maturity or performance of any Material Contract, or (iv) cancel, terminate or
modify any term of any Material Contract; or
(e) result in the imposition or creation of any Encumbrance
upon or with respect to any asset owned or used by Seller (except for minor
liens that will not, in any case or in the aggregate, materially detract from
the value of the assets subject thereto or materially impair the operations of
Seller).
Except as may be required by the Exchange Act, the DGCL (solely with
respect to the obligations of Seller under Section 3.2(g) above), the rules of
the NASD and the HSR Act, and except as listed in Part 4.24 of the Disclosure
Schedule, Seller was not, is not, nor or will it be required to make any filing
with or give any notice to, or to obtain any Consent from, any Person in
connection with (x) the execution, delivery or performance of this Agreement or
any of the other agreements referred to in this Agreement or (y) the
consummation of any of the transactions contemplated by this Agreement.
4.25 [Intentionally left blank.]
4.26 FINANCIAL ADVISOR. Except for Broadview Associates, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with any of the transactions contemplated by this
Agreement or the Merger Agreement based upon arrangements made by or on behalf
of Seller. None of such fees, commissions or other amounts are "Assumed
Liabilities."
4.27 SURVIVING CORPORATION LIABILITIES. Except as disclosed on Part
4.27 of the Disclosure Schedule, after the consummation of the transaction
contemplated by this Agreement, to Seller's knowledge, Seller will not have any
Liabilities, except for normal and recurring Liabilities that have been incurred
by Seller since the date of Seller's Unaudited Interim Balance Sheet in the
ordinary course of the Software Business consistent with past practices.
4.28 [Intentionally left blank.]
4.29 FULL DISCLOSURE.
(a) This Agreement (including the Disclosure Schedule) does
not (i) contain any representation, warranty or information that is false or
misleading with respect to any material fact, or (ii) omit to state any material
fact necessary in order to make the representations, warranties and information
contained and to be contained herein and therein (in the light of the
circumstances under which such representations, warranties and information were
or will be made or provided) not false or misleading.
(b) Seller has provided Buyer and Buyer's Representatives with
reasonable access to Seller's Representatives, Personnel and assets and to all
existing books, records, Tax Returns, work papers and other documents and
information relating to Seller; and (b) provided Buyer and Buyer's
Representatives with such copies of the existing books, records, Tax Returns,
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work papers and other documents and information relating to Seller, and with
such additional financial, operating and other data and information regarding
Seller, as Buyer has requested.
5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to
Seller as follows:
5.1 ORGANIZATION. Buyer is a corporation duly formed and validly
existing under the State of California and has full corporate power and
authority and the legal right to execute and deliver this Agreement and all of
the other agreements and instruments to be executed and delivered by Buyer
pursuant hereto, and to consummate the transactions contemplated hereby and
thereby.
5.2 AUTHORITY. The execution and delivery of this Agreement (and all
other agreements and instruments contemplated hereunder) by Buyer, the
performance by Buyer of its obligations hereunder and thereunder, and the
consummation by Buyer of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action by the Board of Directors and sole
shareholder of Buyer, and no other act or proceeding on the part of Buyer is
necessary to approve the execution and delivery of this Agreement and such other
agreements and instruments, the performance by Buyer of its obligations
hereunder and thereunder and the consummation of the transactions contemplated
hereby and thereby. The signatory officers of Buyer have the power and authority
to execute and deliver this Agreement and all of the other agreements and
instruments to be executed and delivered by Buyer pursuant hereto, to consummate
the transactions hereby and thereby contemplated and to take all other actions
required to be taken by Buyer pursuant to the provisions hereof and thereof.
5.3 EXECUTION AND BINDING EFFECT. This Agreement has been duly and
validly executed and delivered by Buyer and constitutes, and the other
agreements and instruments to be executed and delivered by Buyer pursuant
hereto, upon their execution and delivery by Buyer, will constitute (assuming,
in each case, the due and valid authorization, execution and delivery thereof by
Seller), legal, valid and binding agreements of Buyer, enforceable against Buyer
in accordance with their respective terms, except as enforceability may be
limited by bankruptcy, insolvency, moratorium, or other laws affecting the
enforcement of creditors' rights generally or provisions limiting competition,
and by equitable principles.
5.4 CONSENT AND APPROVALS. There is no requirement applicable to Buyer
to make any filing, declaration or registration with, or to obtain any permit,
authorization, consent or approval of, any Governmental Entity as a condition to
the lawful consummation by Buyer of the transactions contemplated by this
Agreement and the other agreements and instruments to be executed and delivered
by Buyer pursuant hereto, except as may be required by the Exchange Act, the
DCGL (with respect to the obligations of Seller under Section 3.2(g) above), the
rules of the NASD and the HSR Act.
5.5 NO VIOLATION. Neither the execution, delivery and performance of
this Agreement and of all the other agreements and instruments to be executed
and delivered pursuant hereto, nor the consummation of the transactions
contemplated hereby or thereby, will, with or without the passage of time or the
delivery of notice or both, (a) conflict with, violate or result in any breach
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<PAGE> 27
of the terms, conditions or provisions of the Articles of Incorporation or
Bylaws of Buyer, (b) conflict with or result in a violation or breach of, or
constitute a default or require consent of any Person (or give rise to any right
of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any notice, bond, mortgage, indenture, license,
franchise, permit, agreement, lease or other instrument or obligation to which
Buyer is a party or by which Buyer or any of its properties or assets may be
bound, or (c) violate any statute, ordinance or law or any rule, regulation,
order, writ, injunction or decree of any Governmental Entity applicable to Buyer
or by which any of its properties or assets may be bound.
6. COVENANTS.
6.1 ACCESS TO INFORMATION. Prior and subsequent to the Closing, Seller
will permit Buyer to make a full and complete investigation of the Purchased
Assets and Assumed Liabilities and to receive from Seller all information of
Seller relating to the Purchased Assets and Assumed Liabilities or reasonably
related to Seller's conduct of the hardware Business. Without limiting this
right, Seller will give to Buyer and its accountants, legal counsel, and other
representatives full access, during normal business hours, at a mutually
agreeable location arranged in advance, to all of the books, records, files,
documents, properties, and Contracts of Seller relating to the Purchased Assets
and Assumed Liabilities or reasonably related to Seller's conduct of the
Hardware Business and allow Buyer and any such representatives to make copies
thereof, all of which shall be made available in an organized fashion and so as
to facilitate an orderly review. This Section 6.1 shall not affect or be deemed
to modify any representation or warranty contained herein or the conditions to
the obligations of the parties to consummate the transactions contemplated by
this Agreement. Seller shall maintain and make available the information and
records specified in this Section 6.1(a) in the ordinary course of Seller's
business and document retention policies, as if the transactions contemplated by
this Agreement had not occurred.
6.2 THIRD PARTY CONSENTS. Seller and Buyer shall use commercially
reasonable efforts to obtain, within the applicable time periods required, all
Consents, waivers, permits, consents and approvals and to effect all
registrations, filings and notices with or to third parties or Governmental
Entities which are necessary to consummate the transactions contemplated by this
Agreement so as to preserve all rights of and benefits to, and all obligations
of, the Buyer in the Purchased Assets and under the Assumed Liabilities,
respectively.
6.3 CERTAIN NOTIFICATIONS. At all times prior to the Closing, Seller
and Buyer shall promptly notify the other party in writing of the occurrence of
any event which will result, or has a reasonable prospect of resulting, in the
failure to satisfy any of the conditions specified in Section 8 or Section 9 of
this Agreement.
6.4 BEST EFFORTS. Except where otherwise expressly stated, Seller and
the Buyer shall use their best efforts to cause to be fulfilled and satisfied
all of the conditions to the Closing set forth in Section 8 and Section 9 below,
respectively and to cause to be performed all of the matters required by them at
the Closing.
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6.5 SELLER'S CONDUCT OF THE BUSINESS PRIOR TO CLOSING. During the
period from the date of this Agreement to the Closing Date, Seller will conduct
the Business in its ordinary and usual course, consistent with past practice,
and will use all commercially reasonable efforts to preserve intact all rights,
privileges, franchises and other authority of the Business, to retain employees,
and to maintain favorable relationships with licensors, licensees, suppliers,
Contractors, distributors, customers, and others having relationships with the
Business. Seller shall promptly notify Buyer of any event or occurrence or
emergency not in the ordinary course of business, and any material event
involving the Hardware Business, the Purchased Assets or the Assumed
Liabilities. Without limiting the generality of the foregoing, and except as
approved in writing by Buyer in advance, prior to the Closing or as provided in
this Agreement, Seller:
(a) will not create, incur or assume (i) any borrowings under
capital leases, or (ii) any obligation which would in any material way affect
the Hardware Business, the Purchased Assets, the Assumed Liabilities or Buyer's
ability to conduct the Hardware Business in substantially the same manner and
condition as conducted by Seller on the date of this Agreement;
(b) will not change in any manner the compensation of, or
agree to provide additional benefits to, or enter into any employment agreement
with, any Hardware Employee;
(c) will maintain insurance coverage in amounts adequate to
cover the reasonably anticipated risks of the business conducted with the
Purchased Assets;
(d) will not acquire or agree to acquire by merging or
consolidating with, or by purchasing any assets or equity securities of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any assets which are material, individually or in the aggregate, to
the Hardware Business;
(e) will not sell, dispose of or encumber any of the Purchased
Assets or license any Purchased Assets to any Person except for the sale of
Inventory in the normal course of business;
(f) will not enter into any agreements or commitments relating
to the Hardware Business, except on commercially reasonable terms in the
ordinary course of business of the Hardware Business;
(g) will comply in all material respects with all laws and
regulations applicable to the Business;
(h) will use reasonable efforts to assist Buyer in employing
the Hardware Employees;
(i) will not change or announce any change to the products or
services sold by the Hardware Business;
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(j) will not violate, amend or otherwise change in any
material way the terms of any of the Material Contracts that constitute
Purchased Assets;
(k) will not commence a lawsuit related to or involving the
Hardware Business, the Purchased Assets or the Assumed Liabilities other than
(a) for the routine collection of bills; (b) for injunctive relief on the
grounds that Seller has suffered immediate and irreparable harm not compensable
in money damages, provided that Seller has obtained the prior written consent of
Buyer, such consent not to be unreasonably withheld; or (c) for a breach of this
Agreement, the Merger Agreement or any of the transactions contemplated thereby;
or
(l) will not assign, sell or otherwise convey to any third
party, any of the accounts receivable relating to the Hardware Business prior to
the Closing Date.
6.6 NO OTHER BIDS. Until the earlier to occur of (a) the Closing or (b)
the termination of this Agreement pursuant to its terms, Seller shall not, and
Seller shall not authorize any of its Representatives to, directly or
indirectly, (i) initiate, solicit or encourage (including by way of furnishing
information regarding the Hardware Business or the Purchased Assets) any
inquiries, or make any statements to third parties which may reasonably be
expected to lead to any proposal concerning the sale of the Hardware Business or
the Purchased Assets (other than to Merger Party and its Representatives in
connection with the Merger), or (ii) negotiate, engage in any substantive
discussions, or enters into any agreement, with any Person concerning the sale
of Seller, the Business or the Purchased Assets (other than with the Merger
Party and its Representatives). Notwithstanding the foregoing, if Seller or any
of its Representatives shall receive an unsolicited set of terms, expression of
interest, inquiry, proposal or offer from any Person, entity or group (other
than Buyer and its Representations) relating to possible acquisition of the
Business or the Hardware Business ( an "Alternative Proposal"), then, (i) Seller
will give Buyer Parent prompt written notice thereof, providing the identity of
the other Person, entity or group, and a detailed description of the material
terms of such Alternative Proposal, and (ii) to the extent the Board of
Directors of Seller believes in good faith that such Alternative Proposal
represents a Superior Offer, and the Board of Directors of Seller determines in
good faith after consultation with outside legal counsel that it is necessary
for the Board of Directors of Seller to comply with its fiduciary duties to
Seller's stockholders under applicable law, Seller and its Representatives may
furnish in connection therewith information and take such other actions
consistent with the fiduciary obligations of the Board of Directors of Seller,
and such actions shall not be considered a breach of any obligations of Seller
hereunder. Notwithstanding the foregoing, if Buyer delivers to Seller a detailed
written proposal within five (5) business days of Buyer's receipt of the
material terms of the Alternative Proposal, and for which the economic value to
Seller is substantively the same or better than the economic value of a Superior
Offer as determined in good faith by Seller's outside legal counsel and
financial advisors ("Buyer's Proposal"), Seller shall accept Buyer's Proposal
and shall not accept the Superior Offer, and Buyer and Seller shall in good
faith and within five (5) business days of Seller's acceptance of Buyer's
Proposal amend this Agreement or enter into any additional agreements to reflect
the terms of Buyer's Proposal. In the event Seller does not receive Buyer's
Proposal within such period of time, or if Seller does so receive Buyer's
Proposal and Buyer and Seller are unable to amend this Agreement or enter into
any additional agreements within such period of time, Seller
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shall have no further obligation to negotiate with Buyer under this Section 6.6,
and shall have the right to take such actions consistent with the fiduciary
obligations of the Board of Directors of Seller.
6.7 TAX RETURNS. Seller shall, to the extent that failure to do so
could adversely affect the Business or the Purchased Assets following Closing,
provide reasonable assistance to Buyer upon its request to enable Buyer to file
in a timely manner all returns and reports relating to Taxes, and such returns
and reports shall be true, correct and complete and shall be subject to the
review and consent of Buyer which consent shall not be unreasonably withheld.
6.8 NO POST-CLOSING RETENTION OF COPIES. Immediately after the Closing,
Seller shall deliver to Buyer or destroy copies of Purchased Assets in Seller's
possession that are in addition to copies delivered to Buyer as part of the
Closing, whether such copies are in paper form, on computer media or stored in
another form; provided, however, that Seller may retain and use copies of all
books, records, files and papers, whether in hard copy or electronic format,
used in the Hardware Business listed in Section 2.1(a)(xiii) above as well as
other documents required by law to be kept by Seller for the sole purpose of
preparing its statutory accounts; and provided further, that Seller may retain
copies of and use in a manner that is reasonably related to the conduct of its
business (other than for distribution, marketing or sale of an imaging hardware
device (as defined in the Software License Agreement) with a retail price of
$300 or less) the customer lists included in Section 2.1(a)(xiii) as Purchased
Assets.
6.9 CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS. Buyer and Seller acknowledge
that they previously executed a Mutual Nondisclosure Agreement, dated as of
September 29, 1998, and agree that such agreement will continue in full force
and effect in accordance with its terms. Buyer and Seller will have agreed to
the text of a joint press release announcing the signing of this Agreement and,
if required by Seller, the Merger Agreement. Buyer and Seller shall consult with
each other before issuing any other press release or otherwise making any public
statement with respect to this Agreement, the Merger, or any of the other
transactions contemplated by this Agreement or the Merger Agreement. Without
limiting the generality of the foregoing, neither party shall or shall permit
any of its Representatives to make any disclosure regarding this Agreement, the
Merger or any of the other transactions contemplated by this Agreement or the
Merger Agreement unless (a) the other party shall have approved such disclosure
or (b) the other party shall have been advised in writing by its outside legal
counsel that such disclosure is required by applicable law; provided that such
party notifies the other party prior to making such disclosure.
6.10 POST-CLOSING ACTIONS. Subsequent to the Closing Date, Seller
shall, from time to time, execute and deliver, upon the request of Buyer, all
such other and further materials and documents and instruments of conveyance,
transfer or assignment as may reasonably be requested by Buyer to effect, record
or verify the transfer to, and vesting in Buyer, of Seller's right, title and
interest in and to the Purchased Assets, free and clear of all Liens, in
accordance with the terms of this Agreement.
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6.11 PERMITS. Seller will assist Buyer in obtaining any licenses,
permits or authorizations, consents and approvals required for carrying on the
Hardware Business but which are not transferable.
6.12 TAXES. Buyer shall be responsible for paying, shall promptly
discharge when due, and shall reimburse, indemnify and hold harmless Seller
from, any sales or use, transfer, excise or other similar Taxes (excluding taxes
based on or measured by Seller's net income) arising from, imposed on or
attributable to the transactions contemplated by this Agreement. Buyer shall
provide Seller with a resale certificate within thirty (30) days following the
Closing Date to the extent Buyer determines that no sales tax is required to be
paid with regard to the transfer of the Purchased Assets to Buyer.
6.13 FIRPTA COMPLIANCE. On or prior to the Closing Date, Buyer shall
deliver to Seller a properly executed statement in a form reasonably acceptable
to Seller for purposes of satisfying Seller's obligations under Treasury
Regulation Section 1.1445-2(c)(3).
6.14 BULK SALES LAWS. Buyer and Seller shall comply with applicable
bulk sales laws with respect to the transfer of the Purchased Assets and Assumed
Liabilities to Buyer.
6.15 SERVICES AGREEMENT. Prior to the Closing Date, Buyer and Seller
shall negotiate in good faith to enter into a services agreement pursuant to
which Buyer shall provide to Seller certain administrative services to be agreed
upon between Buyer and Seller at Buyer's actual cost to enable Seller to
continue to operate its Software Business after the Closing Date and for a
period of six (6) months following the effective time of the Merger in a manner
substantially similar to the manner in which it was operated prior to the
Closing Date, which services shall include, among other things, office and
conference space at Seller's current facilities, provided Buyer maintains a
lease at such address; use of the telephone system, computer systems and other
infrastructure at Seller's current facilities; payroll services; accounting
services; and customer and technical support services (the "Services
Agreement").
6.16 ASSIGNMENT OF BUILDING LEASE. Prior to signing this Agreement,
Seller shall obtain an executed consent to assignment from its landlord in
connection with Seller's assignment to Buyer of that certain Lease Agreement
dated May 21, 1996 between Seller and Landlord (as that term is defined in the
Lease Agreement).
7. EMPLOYEE MATTERS.
7.1 TRANSFERRED EMPLOYEES.
(a) Prior to Closing, Buyer shall offer (the "Offer") all
employees and consultants of Seller listed on Exhibit D (the "Hardware
Employees") employment as of 12:01 a.m. on the day following the Closing Date.
The terms and conditions of such Offer to each Hardware Employee shall be in
writing, and, except as otherwise specifically agreed to by such Hardware
Employee, Buyer shall hire all Hardware Employees to whom it has made such an
Offer in accordance with this Section 7.1 (excluding any who were no longer
employees of Seller immediately prior to the Closing) and who accept such Offer
in the manner and within the time
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frame specified by this Section 7.1 (such Transferred Employees hired by Buyer
being hereinafter referred to as the "Hired Employees"). The terms and
conditions of Buyer's Offer to the Hardware Employees shall include the
following:
(i) For six months following the Closing Date, Buyer
shall pay each such Hired Employee at the applicable salary rate which is not
less than the rate paid by the Company to him or her immediately preceding the
Closing Date;
(ii) Buyer agrees not to terminate any Hired Employee
other than for Cause during the six month period following the Closing Date
unless it provides such terminated employee a severance benefit equal to the
remaining amount of salary such Hired Employee would have been paid if such
Hired Employee remained employed with Buyer until the end of such six month
period. "Cause" means fraud, theft, the commission of any crime or similar act
or a material violation of any employment practice or policy of Buyer, any of
which result in material injury to Buyer;
(iii) Hired Employees shall be assigned to positions
with responsibilities and duties approximately comparable to those such Hired
Employees had at Seller immediately prior to the Closing Date, except as
otherwise specifically agreed to by such Hired Employee;
(iv) No Hired Employee shall, as a condition of
initial employment by Buyer, be required to take a drug test or a physical
examination; and
(v) Hired Employees shall be eligible to participate
in the employee benefit plans offered to comparably situated employees of Buyer
beginning on the date of commencement of employment with Buyer in accordance
with the terms and conditions of such plans.
(b) ACCEPTANCE OF OFFER. Buyer shall have no duty to hire any
Hardware Employee who has not signed and returned to Buyer a written form of
acceptance of the Offer on or before the Closing Date.
8. CONDITIONS TO BUYER'S OBLIGATIONS.
The obligations of Buyer under this Agreement are subject to the
fulfillment, prior to or on the Closing Date, of each of the following
conditions, all or any of which may be waived by Buyer in writing, except as
otherwise provided by law:
8.1 REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF COVENANTS;
MATERIAL ADVERSE EFFECT.
(a) The representations and warranties of Seller contained in
this Agreement shall have been accurate in all material respects as of the date
of this Agreement except that any inaccuracies in such representations and
warranties will be disregarded if the circumstances giving rise to such
inaccuracies (considered collectively) do not constitute, and are not
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reasonably expected to result in, a Material Adverse Effect on the Hardware
Business or Purchased Assets satisfying the conditions set forth in Section
8.1(c) below;
(b) Seller shall have substantially performed and complied
with all of its materials agreements, covenants and conditions required by this
Agreement to be performed or complied with by Seller in all material respects
prior to or on the Closing Date; and
(c) No Material Adverse Effect on the Hardware Business or
Purchased Assets resulting (or which could reasonably be expect to result) in
actual and demonstrable out-of-pocket costs and expenses incurred (or to be
incurred) by Seller in excess of $2 million shall have occurred after the date
of this Agreement and prior to the Closing Date. Any decline in Seller's gross
revenues shall not be considered in determining whether such Material Adverse
Effect has occurred.
(d) Buyer shall have received a certificate, dated as of the
Closing Date, signed and verified by an officer of Seller on behalf of Seller
certifying as to the matter set forth in Sections 8.1(a), (b) and (c) above.
8.2 NO PROCEEDINGS OR LITIGATION.
(a) No preliminary or permanent injunction or other order
shall have been issued by any Governmental Entity, nor shall any statute, rule,
regulation or executive order be promulgated or enacted by any Governmental
Entity which prevents the consummation of the transactions contemplated by this
Agreement.
(b) No suit, action, claim, proceeding or investigation before
any Governmental Entity shall have been commenced and be pending against any of
the parties, or any of their respective Affiliates, associates, officers or
directors, seeking to prevent transactions contemplated by this Agreement,
including, without limitation, the sale of the Purchased Assets or asserting
that the sale of the Purchased Assets would be illegal or create liability for
damages or which may have a Material Adverse Effect on the Hardware Business or
the Purchased Assets satisfying the conditions set forth in Section 8.1(c)
above.
8.4 GOVERNMENTAL FILINGS. The parties shall have made any required
filing with Governmental Entities in connection with this Agreement, and any
approvals related thereto shall have been obtained or any applicable waiting
periods shall have expired. If a proceeding or review process by a Governmental
Entity is pending in which a decision is expected, Buyer shall not be required
to consummate the transactions contemplated by this Agreement until such
decision is reached or rendered, notwithstanding Buyer's legal ability to
consummate the transactions contemplated by this Agreement prior to such
decision being reached or rendered.
8.5 LICENSE AGREEMENT. Unless executed at the time of execution of this
Agreement, Seller shall have entered into a License Agreement substantially in
the form attached hereto as Exhibit E.
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8.6 RELEASE OF SECURITY INTEREST. The Purchased Assets shall be free of
all Liens created by Silicon Valley Bank, and Seller shall have provided to
Buyer and Buyer Parent executed UCC-3 termination statements or other reasonable
evidence thereof.
9. CONDITIONS TO SELLER'S OBLIGATIONS. The obligations of Seller under this
Agreement are subject to the fulfillment, prior to or on the Closing Date, of
each of the following conditions, all or any of which may be waived in writing
by Seller, except as otherwise provided by law:
9.1 REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF COVENANTS;
MATERIAL ADVERSE EFFECT.
(a) The representations and warranties of Buyer contained in
this Agreement shall have been accurate in all material respects as of the date
of the Agreement;
(b) Buyer shall have substantially performed and complied with
all of its material agreements, covenants and conditions required by this
Agreement to be performed or complied with by Buyer in all material respects
prior to or on the Closing Date; and
(c) Seller shall have received a certificate, dated as of the
Closing Date, signed and verified by an officer of Buyer on behalf of Buyer
certifying to the matters set forth in Sections 9.1(a) and 9.1(b) above.
9.2 [Intentionally left blank.]
9.3 NO PROCEEDING OR LITIGATION.
(a) No preliminary or permanent injunction or other order
shall have been issued by any Governmental Entity, nor shall any statute, rule,
regulation or executive order be promulgated or enacted by any Governmental
Entity which prevents the consummation of the transactions contemplated by this
Agreement.
(b) No suit, action, claim, proceeding or investigation before
any Governmental Entity shall have been commenced and be pending against any of
the parties, or any of their respective Affiliates, associates, officers or
directors, seeking to prevent transactions contemplated by this Agreement,
including, without limitation, the sale of the Purchased Assets or asserting
that the sale of the Purchased Assets would be illegal or create liability for
damages or which may have a Material Adverse Effect on the Hardware Business or
the Purchased Assets satisfying the conditions set forth in Section 9.1(a)
above.
9.4 GOVERNMENTAL FILINGS. The parties shall have made any filing
required with Governmental Entities in connection with this Agreement, and any
approvals related thereto shall have been obtained or any applicable waiting
periods shall have expired. If a proceeding or review process by a Governmental
Entity is pending in which a decision is expected, Seller shall not be required
to consummate the transactions contemplated by this Agreement until such
decision is reached or rendered, notwithstanding Seller's legal ability to
consummate the transactions contemplated by this Agreement prior to such
decision being reached or rendered.
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9.5 PURCHASE PRICE. In the event that the Purchase Price shall be paid
in funds other than U.S. dollars, such currency shall have been exchanged for
U.S. dollars in the full amount of the Purchase Price.
9.6 LICENSE AGREEMENT. Unless executed at the time of execution of this
Agreement, Buyer shall have entered into a License Agreement substantially in
the form attached hereto as Exhibit G.
10. TERMINATION.
10.1 TERMINATION OF AGREEMENT. This Agreement may be terminated at any
time prior to the Closing:
(a) by mutual written consent of the Boards of Directors of
Buyer and Seller;
(b) by either Buyer or Seller if the Closing shall not have
been consummated by March 15, 1999 (unless the failure to consummate the Closing
is attributable to a failure on the part of the party seeking to terminate this
Agreement to perform any material obligation required to be performed by such
party at or prior to the Closing Date);
(c) by either Buyer or Seller if a court of competent
jurisdiction or other Governmental Body shall have issued a final and
non-appealable order, decree or ruling, or shall have taken any other action,
having the effect of permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement;
(d) by Seller if Seller enters into an agreement to sell the
Hardware Business or the Purchased Assets on terms constituting a Superior Offer
in accordance with terms contained in Section 6.6; or
(e) by Buyer upon the occurrence of a Material Adverse Effect
satisfying the conditions set forth in Section 8.1(c) above.
10.2 NOTICE OF TERMINATION; EFFECT OF TERMINATION. Any termination
under Section 10.1 above will be effective immediately upon the delivery of
written notice of the terminating party to the other parties hereto. In the
event of the termination of this Agreement as provided in Section 10.1, this
Agreement shall be of no further force or effect; provided, however, that (i)
this Section 10.2, Section 10.3 and Section 11 shall survive the termination of
this Agreement and shall remain in full force and effect, (ii) the termination
of this Agreement shall not relieve any party from any liability for any breach
of this Agreement and (iii) no termination of this Agreement shall affect the
obligations of the parties contained in the Mutual Nondisclosure Agreement, all
of which obligations shall survive termination of this Agreement in accordance
with their terms.
10.3 TERMINATION OF REPRESENTATION AND WARRANTIES. The representations
and warranties of Seller and Buyer made in this Agreement shall terminate as of
the Closing, and shall have no further force or effect, except in the cause of
fraud.
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10.4 TERMINATION FEES. If this Agreement is terminated by Seller
pursuant to Section 10.1(d) above, Seller shall pay to Buyer a nonrefundable fee
in cash equal to $600,000 in cash within three (3) days of such termination,
which fee shall constitute liquidated damages to Buyer and the exclusive remedy
of Buyer for Seller's termination of this Agreement.
11. MISCELLANEOUS.
11.1 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
or waived with the written consent of the parties or their respective successors
and assigns. Any amendment or waiver effected in accordance with this Section
11.1 shall be binding upon the parties and their respective successors and
assigns.
11.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective permitted
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.
11.3 GOVERNING LAW; JURISDICTION. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of California, without giving effect to principles of conflicts of
law. Each of the parties to this Agreement consents to the exclusive
jurisdiction and venue of the courts of the state and federal courts of the
state of California.
11.4 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.
11.5 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.
11.6 NOTICES. Any notice required or permitted by this Agreement shall
be in writing and shall be deemed sufficient upon receipt, when delivered
Personally or by courier, overnight delivery service or confirmed facsimile, or
forty-eight (48) hours after being deposited in the regular mail as certified or
registered mail (airmail if sent internationally) with postage prepaid, if such
notice is addressed to the party to be notified at such party's address or
facsimile number as set forth below, or as subsequently modified by written
notice, and (a) if to Seller, with a copy to Venture Law Group, 2775 Sand Hill
Road, Menlo Park, CA 94025, Attention: Josh Green or (b) if to Buyer, with a
copy to The Law Offices of Robert D. Cochran, 5201 Great America Parkway, Suite
320, Santa Clara, CA 95054.
11.7 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 order to maintain the economic position enjoyed by
each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually
-36-
<PAGE> 37
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
11.8 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein are the product of both of the parties hereto, and constitute the entire
agreement between such parties pertaining to the subject matter hereof and
thereof, and merge all prior negotiations and drafts of the parties with regard
to the transactions contemplated herein and therein.
11.9 ADVICE OF LEGAL COUNSEL. Each party acknowledges and represents
that, in executing this Agreement, it has had the opportunity to seek advice as
to its legal rights from legal counsel and that the Person signing on its behalf
has read and understood all of the terms and provisions of this Agreement. This
Agreement shall not be construed against any party by reason of the drafting or
preparation thereof.
11.10 COSTS AND EXPENSES. Each party hereto shall pay its own costs and
expenses incurred in connection herewith, including the fees of its counsel,
auditors and other representatives, whether or not the transactions contemplated
herein are consummated.
11.11 FINDER'S FEE. Except for Broadview Associates LLC, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with any of the transactions contemplated by this
Agreement or the Merger Agreement based upon arrangements made by or on behalf
of Buyer or Seller. Seller has communicated to Buyer and Merger Party the fee
formula pursuant to which fees, commissions and other amounts will be paid by
Seller to Broadview Associates LLC if the transactions contemplated by the
Merger Agreement and this Agreement are consummated. Seller has furnished to
Buyer accurate and complete copies of all agreements under which any such fees,
commissions or other amounts have been paid or may become payable and all
indemnification and other agreements relating to the engagement of Broadview
Associates LLC.
[Signature pages follow]
-37-
<PAGE> 38
This Agreement has been duly executed and delivered by the duly
authorized officers of Seller and Buyer (and by Buyer Parent with respect to its
obligations under Section 3.2(f) of this Agreement ) as of the date first above
written.
PRIMAX ELECTRONICS LTD.,
A CORPORATION ORGANIZED UNDER THE
LAWS OF TAIWAN
By: /s/ RAYMOND LIANG
-----------------------------------------
Name: Raymond Liang
----------------------------------------
Title: President and Chief Executive Officer
----------------------------------------
Address: 6F No. 159 Kang Ning Street
Hsi Chih Town Taipie Hsien Taiwan ROC
-------------------------------------
Telephone: (886) 2-2695-3073
------------------------------------
Fax Number: (886) 2-2695-3071
-----------------------------------
PRIMAX V ACQUISITION CORP.,
A CALIFORNIA CORPORATION
By: /s/ RAYMOND LIANG
------------------------------------------
Name: Raymond Liang
----------------------------------------
Title: President and Chief Executive Officer
---------------------------------------
Address:
--------------------------------------
Telephone:
------------------------------------
Fax Number:
-----------------------------------
[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]
-38-
<PAGE> 39
This Agreement has been duly executed and delivered by the duly
authorized officers of Seller and Buyer (and by Buyer Parent with respect to its
obligations under Section 3.2(f) of this Agreement ) as of the date first above
written.
VISIONEER, INC.
By: /s/ J. LARRY SMART
------------------------------------------
Name: J. Larry Smart
----------------------------------------
Title: President and CEO
---------------------------------------
34800 Campus Drive
Address: Fremont, CA 94555
-------------------------------------
Telephone: 510-608-6300
-----------------------------------
Fax Number: 510-608-0305
----------------------------------
[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]
-39-
<PAGE> 40
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUISITION PROPOSAL. "Acquisition Proposal" shall mean any offer or
proposal (other than an offer or proposal by Buyer) contemplating or otherwise
relating to any Acquisition Transaction.
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction or series of related transactions other than the transactions
contemplated by this Agreement involving any sale, lease (other than in the
ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition or disposition of more than 50% of the
assets, properties, or business of Seller relating to the Hardware Business.
AFFILIATE. "Affiliate" means with respect to any Person, a Person
directly or indirectly controlling or controlled by or under common control with
such Person.
AGREEMENT. "Agreement" shall mean the Asset Purchase Agreement to which
this Exhibit A is attached (including the Disclosure Schedule), as it may be
amended from time to time.
CLOSING. "Closing" means the consummation of the transactions
contemplated by this Agreement.
CLOSING BALANCE SHEET. "Closing Balance Sheet" means the unaudited
balance sheet of the Business prepared by the Buyer in accordance with GAAP,
consistently applied, and delivered to Seller on the Closing Date which includes
the asset and liability accounts of the Business as of the Closing Date,
inclusive of any adjustment from the Seller Balance Sheet.
CLOSING DATE. "Closing Date" means the date of the Closing.
CODE. "Code" means the Internal Revenue Code of 1986, as amended.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.
DAMAGES. "Damages" shall mean any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature.
A-1
<PAGE> 41
DISCLOSURE SCHEDULE. "Disclosure Schedule" shall mean the schedule
(dated as of the date of the Agreement) delivered to Buyer on behalf of Seller.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
ENVIRONMENTAL LAW. "Environmental Law" shall mean any federal, state,
local or foreign Legal Requirement relating to pollution or protection of human
health or the environment (including ambient air, surface water, ground water,
land surface or subsurface strata), including any law or regulation relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any: (a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality, district or
other jurisdiction of any nature; (b) federal, state, local, municipal, foreign
or other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
A-2
<PAGE> 42
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
LIABILITY. "Liability" shall mean any debt, obligation, duty or
liability of any nature (including any unknown, undisclosed, unmatured,
unaccrued, unasserted, contingent, indirect, conditional, implied, vicarious,
derivative, joint, several or secondary liability) relating to the any business
or activity of Seller, regardless of whether such debt, obligation, duty or
liability would be required to be disclosed on a balance sheet prepared in
accordance with GAAP and regardless of whether such debt, obligation, duty or
liability is immediately due and payable.
LIEN. "Lien" means any mortgage, pledge, lien, security interest,
option, covenant, condition, restriction, encumbrance, charge or other
third-party claim of any kind.
MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to
have a "Material Adverse Effect" on Seller if such violation or other matter
(considered together with all other matters that would constitute exceptions to
the representations and warranties set forth in the Agreement but for the
presence of "Material Adverse Effect" or other materiality qualifications, or
any similar qualifications, in such representations and warranties) would have a
material adverse effect on Seller's business, condition, assets, Liabilities,
operations, financial performance or prospects either before or after giving
effect to the transaction contemplated by this Agreement.
MATERIALS OF ENVIRONMENTAL CONCERN. "Materials of Environmental
Concern" shall include chemicals, pollutants, contaminants, wastes, toxic
substances, petroleum and petroleum products and any other substance that is now
or hereafter regulated by any Environmental Law or that is otherwise a danger to
health, reproduction or the environment.
MERGER. "Merger" shall mean the Merger contemplated under the Merger
Agreement.
MERGER AGREEMENT. "Merger Agreement" shall mean the Agreement and Plan
of Merger and Reorganization between the Merger Party and Seller which Seller
contemplates it will enter into as of or shortly following the date of this
Agreement.
MERGER PARTY. "Merger Party" shall mean the third party, including any
affiliated entities of such third party, that have entered into the Merger
Agreement with Seller.
PERSON. "Person" shall mean any individual, Entity or Governmental
Body.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent,
patent application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software,
A-3
<PAGE> 43
computer program (in source and executable form), algorithm, invention, design,
blueprint, engineering drawing, proprietary product, technology, proprietary
right or other intellectual property right or intangible asset in any
jurisdiction in the world; or (b) right to use or exploit any of the foregoing
in any jurisdiction in the world.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933,
as amended.
SELLER CONTRACT. "Seller Contract" shall mean any Contract: (a) to
which Seller is a party; (b) by which Seller or any asset of Seller is or may
become bound or under which Seller has, or may become subject to, any
obligation; or (c) under which Seller has or may acquire any right or interest.
SELLER PROPRIETARY ASSET. "Seller Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to Seller or otherwise used by Seller.
SUBSIDIARY. An entity shall be deemed to be a "Subsidiary" of another
Person if such Person directly or indirectly owns, beneficially or of record, an
amount of voting securities of other interests in such Entity that is sufficient
to enable such Person to elect at leased a majority of the members of such
Entity's board of directors or other governing body.
SUPERIOR OFFER. "Superior Offer" shall mean an unsolicited, bona fide
written offer made by a third party to consummate any of the following
transactions: (i) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
Seller pursuant to which the stockholders of Seller immediately preceding such
transaction hold less than 50% of the equity interests in the surviving or
resulting entity of such transaction; (ii) a sale or other disposition by Seller
of assets (excluding inventory and used equipment sold in the ordinary course of
business) representing in excess of 50% of the fair market value of Seller's
business immediately prior to such sale, or (iii) the acquisition by any Person
or group (including by way of a tender offer or an exchange offer or issuance by
Seller), directly or indirectly, of beneficial ownership or a right to acquire
beneficial ownership of shares representing in excess of 50% of the voting power
of the then outstanding shares of capital stock of Seller, on terms that the
board of directors of Seller determines, in its reasonable judgment, after
consultation with its financial advisor, to be, if such offer is consummated,
more favorable to Seller's stockholders than the terms set forth in this
Agreement and/or the Merger Agreement.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
A-4
<PAGE> 44
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
A-5
<PAGE> 45
Exhibits B-E have been omitted pursuant to S-K Item 601(b)(2). We agree to
furnish supplementally to the Commission any exhibits upon request.
<PAGE> 46
SCHEDULE 2.1 (c)
OTHER INCLUDED ASSETS
None
<PAGE> 47
SCHEDULE 2.2
OTHER EXCLUDED ASSETS
1. All cash and cash equivalents set forth on the Closing Balance Sheet.
2. OneTouch software module.
<PAGE> 48
SCHEDULE 2.3(b)
OTHER INCLUDED LIABILITIES
1. Any sales or use, transfer, excise, or other similar Taxes (excluding
federal and state income taxes) arising from, unpaid on or attributable
to the transactions contemplated by this Agreement (but not the
transactions contemplated by the Merger Agreement).
<PAGE> 49
SCHEDULE 2.4
OTHER EXCLUDED LIABILITIES
1. All obligations of the Company under the Merger Agreement, the Asset
Purchase Agreement and any agreements contemplated thereby.
2. Taxes imposed on the Company and arising from or attributable to the
actions contemplated by the Merger and the Merger Agreement.
3. Taxes imposed on the Company relating to its corporate existence, such
as state franchise taxes and fees based on state of incorporation,
capital structure, and doing business as a foreign corporation.
4. All obligations in favor of past and current directors and officers of
the Company for acts and omissions occurring prior to the Effective
Time, as provided in the Company's Bylaws and as provided in any
indemnification agreements between the Company and said officers and
directors.
5. Litigation expenses, including attorneys' fees, incurred by the Company
in connection with any shareholder derivative action.
6. Liabilities of the Company relating to the exercise of appraisal rights
by the Company's stockholders in connection with the Merger and the
Asset Purchase Agreement.
7. Costs and expenses of the Company associated with the Merger and the
Asset Purchase Agreement.
8. Liabilities of the Company in respect of employees that are not
Hardware Employees.
9. Liabilities of the Company to Silicon Valley Bank.
10. Without limiting item 7 above, any fees, commissions, expenses or other
obligations of the Company to Broadview Associates and Venture Law
Group.
11. Liabilities arising under any Material Contracts that are not
"Purchased Assets and Assumed Liabilities" as set forth in the
Disclosure Schedule.
<PAGE> 50
SCHEDULE 2.7
ALLOCATION OF PURCHASE PRICE
<PAGE> 51
WAIVER OF CLOSING CONDITION
AND
AMENDMENT TO ASSET PURCHASE AGREEMENT
WHEREAS, Visioneer, Inc., a Delaware corporation ("Seller"), Primax V
Acquisition Corp., a California corporation ("Buyer") and Primax Electronics
Ltd., a corporation organized under the laws of Taiwan ("Buyer Parent") executed
that certain Asset Purchase Agreement dated December 2, 1998 (the "Agreement")
pursuant to which Seller agreed to sell to Buyer and Buyer agreed to purchase
from Seller certain Purchased Assets in connection with Seller's Hardware
Business, all as more fully set forth in the Agreement;
WHEREAS, pursuant to Section 6.15 of the Agreement, Buyer and Seller
agreed that prior to the Closing Date they would negotiate in good faith to
enter into a services agreement pursuant to which Buyer would provide to Seller
certain administrative services to be agreed upon between Buyer and Seller at
Buyer's actual cost to enable Seller to continue to operate its Software
Business after the Closing Date for a period of six (6) months following the
effective time of a proposed merger between Seller and a third party in a manner
substantially similar to the manner in which it was operated prior to the
Closing Date (the "Services Agreement");
WHEREAS, Seller, Buyer and Buyer Parent wish to waive the respective
obligations of each party under Section 6.15 of the Agreement prior to the
Closing Date, and amend such obligations in the manner set forth herein below
pursuant to the terms of this Waiver of Closing Condition and Amendment to Asset
Purchase Agreement (this "Waiver and Amendment");
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged by each party, the parties agree as follows:
1. WAIVER. The respective obligations of Buyer and Seller as set forth
in Section 6.15 of the Agreement to negotiate in good faith to enter into the
Services Agreement prior to the Closing Date are hereby waived, and the
execution and delivery of the Services Agreement shall not be condition to the
Closing of the Agreement anticipated to take place on January 6, 1998.
2. AMENDMENT. Section 6.15 of the Agreement is hereby amended and
restated in its entirety as set forth below:
"6.15 SERVICES AGREEMENT. As soon as practicable following the Closing
Date and in any event no later than January 31, 1999, Buyer and Seller
shall negotiate in good faith to enter into a services agreement
pursuant to which Buyer shall provide to Seller certain administrative
services to be agreed upon between Buyer and Seller at Buyer's actual
cost to enable Seller to continue to operate its Software Business after
the Closing Date and for a period of six (6) months following the
effective time of the Merger in a manner substantially similar to the
manner in which it was operated prior to the Closing Date, which
services shall include, among other things, office and conference space
at Seller's
<PAGE> 52
current facilities, provided Buyer maintains a lease at such address;
use of the telephone system, computer systems and other infrastructure
at Seller's current facilities; payroll services; accounting services;
and customer and technical support services (the "Services Agreement")."
3. DEFINITIONS. Unless specifically designated otherwise, all
capitalized terms used herein shall have the same meanings attributed to them in
the Agreement.
4. EFFECT OF WAIVER AND AMENDMENT. Except as specifically set forth
herein, the terms and conditions contained in the Agreement shall continue in
full force and effect.
5. MISCELLANEOUS.
5.1 THIRD PARTIES. Nothing in this Waiver and Amendment, express
or implied, is intended to confer upon any party, other than the parties hereto,
and their respective successors and assigns, any rights, remedies, obligations
or liabilities under or by reason of this Waiver and Amendment, except as
expressly provided herein.
5.2 GOVERNING LAW. This Waiver and Amendment shall be governed by
and construed under the laws of the State of California in the United States of
America as applied to agreements among California residents entered into and to
be performed entirely within California.
5.3 COUNTERPARTS. This Waiver and Amendment 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.
5.4 SEVERABILITY. If one or more provisions of this Waiver and
Amendment are held to be unenforceable under applicable law, portions of such
provisions, or such provisions in their entirety, to the extent necessary, shall
be severed from this Waiver and Amendment, and the balance of this Amendment
shall be enforceable in accordance with its terms.
[SIGNATURE PAGES FOLLOW]
<PAGE> 53
This Waiver and Amendment has been duly executed and delivered by the
duly authorized officers of Seller, Buyer and Buyer Parent as of January 6,
1999.
PRIMAX ELECTRONICS LTD.,
A CORPORATION ORGANIZED UNDER THE
LAWS OF TAIWAN
By: /s/ RAYMOND LIANG
---------------------------------
Name: RAYMOND LIANG
-------------------------------
Title: CEO
------------------------------
Address: 6F. No. 159 Kang Ning St
----------------------------
Hsi Chih Town Taipei Taiwan
----------------------------
Telephone: 886-2-26953073
--------------------------
Fax Number: 886-2-26953071
--------------------------
PRIMAX V ACQUISITION CORP.,
A CALIFORNIA CORPORATION
By: /s/ RAYMOND LIANG
---------------------------------
Name: RAYMOND LIANG
-------------------------------
Title: CEO
------------------------------
Address:
----------------------------
----------------------------
Telephone:
--------------------------
Fax Number:
--------------------------
[SIGNATURE PAGE TO WAIVER AND AMENDMENT]
<PAGE> 54
This Waiver and Amendment has been duly executed and delivered by the
duly authorized officers of Seller, Buyer and Buyer Parent as of January 6,
1999.
VISIONEER, INC.
By: /s/ J. LARRY SMART
---------------------------------
Name: J. LARRY SMART
-------------------------------
Title: CEO
------------------------------
Address: 24800 CAMPUS DR.
----------------------------
FREMONT, CA.
----------------------------
Telephone: 510 608 0300
--------------------------
Fax Number: 510 608 0411
--------------------------
[SIGNATURE PAGE TO WAIVER AND AMENDMENT]
<PAGE> 1
EXHIBIT 10.36
November 30, 1998
Mr. Drew C. Nixon
Decibel Instruments, Inc.
34800 Campus Drive
Fremont, CA 94555
CONSENT TO ASSIGNMENT OF STANDARD SUBLEASE DATED AUGUST 27,1997
Dear Mr. Nixon:
1. Visioneer, Inc. ("Visioneer" or the "Company") is in the process of
consummating a sale of substantially all of the Company's hardware business
assets and liabilities (the "Hardware Sale") to Primax V Acquisition Corp., a
California corporation ("Buyer") and a wholly owned subsidiary of Primax
Electronics, Ltd. a corporation organized under the laws of Taiwan ("Buyer
Parent"). As part of this purchase and sale, certain contracts will be
transferred and/or assigned to Buyer, including without limitation that Standard
Sublease dated August 27, 1997 (the "Sublease") (for space located at 34800
Campus Drive, Fremont, CA) between Visioneer, Inc., as "Sublessor", and Decibel
Instruments, Inc., as "Sublessee". In connection with the above Hardware Sale,
Visioneer would like to obtain your written consent to the assignment of the
Sublease to Buyer and Buyer Parent (the "Assignees"), and to the modification of
the Sublease as set forth below. Upon execution of this letter in the spaces
provided below, this letter shall become a binding agreement between Visioneer
and Sublessee with respect to the matters set forth herein.
2. Sublessee hereby consents and agrees to the assignment of the Sublease
to Assignees and further acknowledges and agrees that effective upon the closing
of the Hardware Sale pursuant to the Asset Purchase Agreement to be executed
between Visioneer and Buyer, Visioneer, Inc. shall have no further rights,
duties, liabilities or obligations under the Sublease, Assignees shall have
rights under the Sublease (including without limitation, the right to receive
rent from Sublessee thereafter) and Sublessee shall look solely to the Assignees
with respect to the performance of all such duties, liabilities and obligations.
3. In connection with assignment of the Sublease hereunder, the remaining
balance of Sublessee's Security Deposit will be transferred to Assignees upon
consummation of the Hardware Sale.
4. Except as amended hereby, the Sublease shall remain in full force and
effect. This letter agreement shall be governed by California law, and may be
executed in any number of counterparts, each of which shall be deemed an
original and all of which together shall constitute one and the same instrument.
<PAGE> 2
Please execute this letter agreement as soon as possible and return the
executed signature pages to me either by courier or by facsimile at (510)
608-0411 (with the original, executed pages to follow by (U.S. mail). If you
have any questions regarding the above, please feel free to contact me.
Sincerely,
VISIONEER, INC.
By: /s/ Richard Brenner
-------------------------------------
Title: Chief Financial Officer
ACCEPTED AND AGREED BY:
ASSIGNEES:
PRIMAX V ACQUISITION CORP.,
a California corporation
By: /s/ Sherman Lee
------------------------------------------
Title: Director Corporate Development
Date: 12-2-98
PRIMAX ELECTRONICS, LTD.,
a Taiwanese corporation
By: /s/ Sherman Lee
------------------------------------------
Title: Director of Corporate Development
Date: 12-2-98
"SUBLESSEE":
DECIBEL INSTRUMENTS, INC.
By: /s/ Decibel Instruments, Inc.
------------------------------------------
Title:
Date: November 24, 1998
<PAGE> 1
EXHIBIT 10.37
[GRAPHIC OMITTED]
November 12, 1998
Mr. Greg Elder
Controller
VISIONEER, INC.
34800 Campus Drive
Fremont, CA 94555-3652
RE: CONSENT TO ASSIGNMENT RELATED TO ACQUISITION OF SUBSTANTIALLY ALL OF
THE HARDWARE ASSETS OF Visioneer, Inc., a DELAWARE CORPORATION BY
Primax V ACQUISITION CORP., A CALIFORNIA CORPORATION AND A WHOLLY
OWNED SUBSIDIARY OF Primax Electronics, Ltd., a TAIWANESE CORPORATION
with respect to Lease Agreement Dated May 21, 1996 By and Between the
John Arrillaga Survivor's Trust (previously known as the "Arrillaga
Family Trust") and the Richard T. Perry Separate Property Trust, as
Landlord, and Visioneer, Inc., as Tenant, for Leased Premises at 34800
Campus Drive, Fremont, California
Gentlemen:
As an accommodation to Visioneer, Inc., and pursuant to Tenant's request to
assign said Lease from Visioneer, Inc., a Delaware corporation, as Tenant under
the above-referenced Lease Agreement, to (i) Primax V Acquisition Corp., a
California corporation and a wholly owned subsidiary of Primax Electronics,
Ltd., a Taiwanese corporation (Primax V") and (ii) Primax Electronics, Ltd., a
Taiwanese corporation, it is agreed as follows:
Notwithstanding anything to the contrary contained in said May 21, 1996 Lease
Agreement and pursuant to Tenant's notice to Landlord dated November 11, 1998,
Landlord acknowledges that on January 2, 1999, substantially all of the hardware
assets of Visioneer, Inc., a Delaware corporation ("Assignor"), shall be
completely acquired by Primax V, and that upon such acquisition, said Lease
Agreement shall be assigned to Primax V Acquisition Corp., a California
corporation and Primax Electronics, Ltd., a Taiwanese corporation (collectively
"Assignees") and said Assignees shall become the Tenant under the' Lease
Agreement and shall jointly and severally assume all obligations of Tenant under
the Lease Agreement from May 21, 1996.
Landlord's Consent shall in no way void or alter any of the terms of the Lease
by and between Landlord and Tenant, nor shall this Consent alter or diminish in
any way Tenant's obligations to Landlord.
Landlord has not reviewed the terms of any agreement between Tenant and
Assignees,. and Landlord shall not be bound by any agreement other than the
terms of the Lease between Landlord and Tenant. Landlord does not make any
warranties or representations as to the condition of the lease Premises or the
terms of the Lease between Landlord and Tenant. Landlord's consent to the
assignment shall in no way obligate Landlord to any further consents or
agreements between Tenant and/or Assignees.
Assignees represent and warrant that upon the completion of the acquisition of
the hardware assets, the combined net worth of Primax V Acquisition Corp., a
California corporation and Primax Electronics, Ltd., a Taiwanese corporation
shall be equal to or greater than the net worth of Visioneer, Inc. at the time
of such acquisition.
It is further understood that the Security Deposit of Visioneer, Inc. is being
transferred to Primax V and Primax Electronics, Ltd.
<PAGE> 2
This Consent is conditional upon Landlord's receipt of Landlord's reasonable
costs and attorney's fees, to which Landlord is entitled under Paragraph 16 of
the Lease. Tenant and/or Assignor shall immediately reimburse Landlord for such
fees and costs pursuant to the enclosed invoice.
Except as modified herein, all other terms, covenants, and conditions of said
May 21, 1996 Lease Agreement shall remain in full force and effect.
Please execute this letter in the space provided below and return all three
copies to us. We will then return a fully executed copy to you.
Respectfully yours,
JOHN ARRILLAGA SEPARATE PROPERTY TRUST
By: /s/ John Arrillaga
-------------------------------------
John Arrillaga, Trustee
Dated: 12/2/98
RICHARD T. PERRY SEPARATE PROPERTY TRUST
By: /s/ Richard T. Perry
-------------------------------------
Richard T. Perry, Trustee
Dated: 12/2/98
(Signatures Continued on Following Page)
<PAGE> 3
AGREEMENT:
ASSIGNOR: ASSIGNEES:
VISIONEER, INC. PRIMAX V ACQUISITION CORP.
a Delaware corporation a California corporation
By: /s/ J. Larry Smart By: /s/ Sherman Lee
------------------------ ------------------------
Dated: 12-1-98 Dated: 12-2-98
PRIMAX ELECTRONICS, LTD.,
a Taiwanese corporation
By: /s/ Sherman Lee
------------------------
Dated: 12-2-98
<PAGE> 1
EXHIBIT 10.38
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement (the "Agreement") is entered into by
and among Visioneer, Inc. ("Seller"), a Delaware corporation, Primax V
Acquisition Corp., a California corporation ("Buyer"), Primax Electronics Ltd.,
a corporation organized under the laws of Taiwan ("Buyer Parent") and J. Larry
Smart ("Mr. Smart") as of December 2, 1998 (the "Effective Date").
RECITALS
A. Pursuant to that certain Asset Purchase Agreement between
Seller, Buyer and Buyer Parent dated as of the date hereof (the "Purchase
Agreement"), Seller is selling to Buyer and Buyer is purchasing from Seller
substantially all of the "Hardware Assets", "Visioneer Name" and "Other Assets"
set forth as Purchased Assets in the Purchase Agreement. Any capitalized terms
not otherwise defined herein shall have those meanings attributed to them in the
Purchase Agreement.
B. Concurrently with the sale of the Purchased Assets to Buyer
pursuant to the Purchase Agreement, Seller is entering into an Agreement and
Plan of Merger between [Saturn] and Seller dated as of the date hereof, whereby
[Saturn] will merge with and into Seller [the "Merger"]. The Merger is subject
to Seller stockholder approval, and will not close until such approval has been
obtained (the "Merger Closing Date").
C. In connection with and at the time of the execution of the
Purchase Agreement, Mr. Smart, the current President and Chief Executive Officer
of Seller, has entered into that certain Employment and Non-Compete Agreement by
and between Mr. Smart and Buyer (the "Employment Agreement"), pursuant to which,
among other things, Buyer has agreed to employ Mr. Smart, and Mr. Smart has
agreed to accept employment with Buyer, in the capacity as the Chief Executive
Officer of Buyer, with such employment to commence upon the Employment
Commencement Date (as defined below). Until that time, Mr. Smart will retain his
current position with Seller, but will also render services to Buyer pursuant to
the terms of this Agreement.
* * * * *
In consideration of the foregoing and the mutual covenants
contained herein, the parties hereto agree as follows:
1. MANAGEMENT SERVICES. During the term of this agreement, Seller will
cause Mr. Smart to provide, and Mr. Smart hereby agrees that he will provide,
management services (the "Services") to Buyer as described on Exhibit A attached
to this Agreement. Seller shall use best efforts to cause Mr. Smart to perform
the Services in a manner satisfactory to Buyer.
2. FEES; SUPPORT. As consideration for the Services to be provided
hereunder and other obligations, Buyer will compensate Seller for the services
of Mr. Smart in accordance with
<PAGE> 2
the terms set forth in Exhibit B to this Agreement. In addition, Buyer will
provide Mr. Smart with such support facilities and space as may be required in
Buyer's judgment to enable him to properly perform the Services.
3. EXPENSES. Buyer agrees to reimburse any and all expenses incurred by
Seller or Mr. Smart pursuant to the terms set forth in Exhibit B. As a condition
to receipt of reimbursement, Seller or Mr. Smart shall be required to submit to
Buyer reasonable evidence that the amount involved was expended and related to
the Services provided under this Agreement.
4. TERM AND TERMINATION. The obligation to provide the Services
described hereunder shall commence at 12:01 a.m. on the day following the
Closing Date (as that term is defined in the Purchase Agreement) and shall
continue until the Employment Commencement Date, as defined herein (the
"Management Services Period").
5. INDEPENDENT CONTRACTOR. The relationship of Seller and of Mr. Smart
to Buyer will be that of an independent contractor and not that of an employee.
Neither Seller nor Mr. Smart will be eligible for any employee benefits during
the Management Services Period, nor will Buyer make deductions from payments
made to Seller for taxes, all of which will be Seller's responsibility. Seller
agrees to indemnify and hold Buyer harmless from any liability for, or
assessment of, any such taxes imposed on Buyer by relevant taxing authorities.
6. SUPERVISION OF MANAGEMENT SERVICES. All Management Services to be
performed hereunder will be as agreed between Seller or Mr. Smart on the one
hand and Raymond Liang of Buyer. Mr. Smart will be required to report to Mr.
Liang concerning the Management Services performed under this Agreement. The
nature and frequency of these reports will be left to the mutual agreement of
Mr. Liang and Mr. Smart.
7. EMPLOYMENT COMMENCEMENT DATE. The Employment Commencement Date as
that term is used in this Agreement shall mean 12:01 a.m. on the day following
the earliest of (a) the Merger Closing Date, (b) any day prior to the Merger
Closing Date on which the Agreement and Plan of Merger referred to above is
terminated by either party in accordance with its terms, or (c) March 31, 1999.
On the Employment Commencement Date, Mr. Smart shall become a full-time employee
in accordance with the terms of the Employment Agreement, the employment of Mr.
Smart by Seller shall cease, and Mr. Smart shall resign any and all positions as
an officer of Seller or any successor to Seller.
8. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the parties.
(b) SOLE AGREEMENT. This Agreement, including the Exhibits
hereto, constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.
-2-
<PAGE> 3
(c) NOTICES. Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient upon receipt, when
delivered personally or by courier, overnight delivery service or confirmed
facsimile, or forty-eight (48) hours after being deposited in the regular mail
as certified or registered mail (airmail if sent internationally) with postage
prepaid, if such notice is addressed to the party to be notified at such party's
address or facsimile number as set forth below, or as subsequently modified by
written notice.
(d) CHOICE OF LAW. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.
(e) 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
(i) such provision shall be excluded from this Agreement, (ii) the balance of
the Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with its
terms.
(f) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
(g) ARBITRATION. Any dispute or claim arising out of or in
connection with any provision of this Agreement will be finally settled by
binding arbitration in San Jose, California in accordance with the rules of the
American Arbitration Association by one arbitrator appointed in accordance with
said rules. The arbitrator shall apply California law, without reference to
rules of conflicts of law or rules of statutory arbitration, to the resolution
of any dispute. Judgment on the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof. Notwithstanding the foregoing, the
parties may apply to any court of competent jurisdiction for preliminary or
interim equitable relief, or to compel arbitration in accordance with this
paragraph, without breach of this arbitration provision. This Section 9(g) shall
not apply to the Confidentiality Agreement.
(h) ADVICE OF COUNSEL. EACH PARTY ACKNOWLEDGES THAT, IN
EXECUTING THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK THE ADVICE
OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE TERMS AND
PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY
PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.
[Signature Page Follows]
-3-
<PAGE> 4
The parties have executed this Agreement on the respective dates set
forth below.
VISIONEER, INC. PRIMAX V ACQUISITION CORP.
By: /s/ J. LARRY SMART By:
----------------------------- ------------------------------------
Title: President and CEO Title:
-------------------------- ---------------------------------
Address: 34800 Campus Drive Address:
------------------------ -------------------------------
Fremont, CA 94555
- -------------------------------- ---------------------------------------
Date: Date:
--------------------------- ----------------------------------
PRIMAX ELECTRONICS LTD. J. LARRY SMART
By: /s/ J. LARRY SMART
----------------------------- ---------------------------------------
Title:
--------------------------
Address: Address: 21245 COMER Dr
------------------------ -------------------------------
Saratoga, CA 95070
- -------------------------------- ---------------------------------------
Date: Date:
--------------------------- ----------------------------------
SIGNATURE PAGE TO MANAGEMENT SERVICES AGREEMENT
<PAGE> 5
The parties have executed this Agreement on the respective dates set
forth below.
VISIONEER, INC. PRIMAX V ACQUISITION CORP.
By: By: /s/ RAYMOND LIANG
----------------------------- --------------------------------------
Title: Title: Raymond Liang, President and CEO
-------------------------- -----------------------------------
Address: Address:
------------------------ ---------------------------------
- -------------------------------- -----------------------------------------
Date: Date:
--------------------------- ------------------------------------
PRIMAX ELECTRONICS LTD. J. LARRY SMART
By: /s/ RAYMOND LIANG
----------------------------- -----------------------------------------
Title: Raymond Liang,
President and CEO
--------------------------
Address: Address:
------------------------ ---------------------------------
- -------------------------------- -----------------------------------------
Date: Date:
--------------------------- ------------------------------------
SIGNATURE PAGE TO MANAGEMENT SERVICES AGREEMENT
<PAGE> 6
EXHIBIT A
DESCRIPTION OF MANAGEMENT SERVICES
Seller will make available to Buyer the management services of Larry Smart, who
shall perform services commensurate with the position of President and Chief
Executive Officer of the Hardware Business, in the same manner as Mr. Smart
performed such services for Seller prior to consummation of the Purchase
Agreement.
<PAGE> 7
EXHIBIT B
COMPENSATION
In consideration of the performance of the Management Services
set forth in Exhibit A, Buyer shall pay to Seller a fee payable as follows:
(1) Management Service Fees. Subject to reimbursement of
expenses as set forth in Section (2) below, during the Management Services
Period Buyer shall reimburse Seller for one-half of Mr. Smart's current salary,
payable on a [bi-weekly] basis.
(2) Direct Expenses. Buyer shall reimburse Seller for all
direct expenses incurred by Seller or Mr. Smart on behalf of Buyer in connection
with performance of the Management Services under this Agreement, in accordance
with Buyer's standard expense reimbursement policies. Payment shall be made
within fifteen (15) days of receipt of invoice.
<PAGE> 1
EXHIBIT 10.39
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This Settlement Agreement and Mutual Release ("Agreement") is entered
into by and between Visioneer, Inc. ("Visioneer"), Primax V Acquisition
Corp., a California company ("Purchaser"), Primax Electronics, Ltd., a
company organized under the laws of Taiwan ("Purchaser Parent") and Michael
T. Burt ("Employee").
WHEREAS, Employee has been employed by Visioneer;
WHEREAS, Visioneer, Purchaser and Purchaser Parent have entered into that
certain Asset Purchase Agreement dated December 2, 1998 (the "Purchase
Agreement") pursuant to which Visioneer has agreed to sell and transfer to
Purchaser and Purchaser has agreed to purchase and assume from Visioneer
substantially all of the assets and liabilities associated with Visioneer's
Hardware Business (as defined in the Purchase Agreement);
WHEREAS, Visioneer and Employee have mutually agreed to terminate the
current employment relationship between Employee and Visioneer;
WHEREAS, Purchaser, Purchaser Parent and Employee have mutually agreed not
to enter into any future employment relationship between Employee and either of
Purchaser or Purchaser Parent; and
WHEREAS, Employee on the one hand, and Visioneer, Purchaser and Purchaser
Parent on the other hand, wish to release each other from any claims arising
from or related to any current or anticipated employment relationship;
NOW, THEREFORE, in consideration of the mutual promises made herein,
Visioneer, Purchaser, Purchaser Parent and Employee (collectively referred to as
the "Parties") hereby agree as follows:
1. Termination. The Parties acknowledge and agree that Employee's
employment relationship with Visioneer will terminate effective as of the
Closing Date (as defined in Section 3.1 of the Purchase Agreement) (the
"Termination Date").
2. Consideration. In consideration for the release of claims set forth
below and other obligations under this Agreement, Visioneer, Purchaser and
Purchaser Parent collectively agree to pay Employee a lump sum amount of
$70,000.02, which is equal to six months of Employee's regular base salary (less
applicable tax withholding).
3. Stock Options.
(a) Acceleration of Vesting. Employee acknowledges and agrees that
in accordance with the terms of those certain stock options granted to Employee
under Visioneer's 1993 Incentive Stock Option Plan to purchase a total of
130,715 shares of Visioneer Common
<PAGE> 2
Stock, as evidenced by Stock Option Agreements issued to Employee, 42,901 shares
will have vested as of the Termination Date and 87,814 shares will remain
unvested (the "Unvested Shares"). In further consideration for the release of
claims set forth below and other obligations under this Agreement, the Parties
agree that fifty percent (50%) of Employee's Unvested Shares shall become
immediately vested and exercisable as of the Termination Date. No additional
option shares shall vest after the Termination Date. In accordance with the
terms of the Option Agreements issued to Employee, vested options will be
exercisable for ninety (90) days following the Termination Date.
(b) Option Buy-Back. The requirement that Employee continue to be
employed by Visioneer as of January 31, 1999 in order to qualify to sell any or
all of his vested, unexercised stock options back to Visioneer at a purchase
price of $0.20 per share is hereby waived, and Employee shall hereafter be
eligible to participate in the proposed Option Buy-Back (pursuant to its
specified terms) at his sole election.
4. Benefits. Employee shall continue to receive Visioneer's standard
medical and dental insurance benefits at Visioneer's expense through the
Termination Date. After such date, Employee shall have the right to continue, at
his own expense, coverage under Visioneer's health insurance as provided by the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA").
5. No Other Payments Due. Employee acknowledges and agrees that he has
received, or will receive as of the Termination Date, all salary, accrued
vacation, commissions, bonuses, compensation, shares of stock options therefore
or other such sums due to Employee other than the amounts to be paid pursuant to
Sections 2 and 3 of this Agreement. In light of all such payments by or on
behalf of Visioneer, Purchaser and/or Purchaser Parent of all wages due, or to
become due to the Employee, the Parties further acknowledge and agree that
California Labor Code Section 206.5 is not applicable to the Parties hereto.
That section provides in pertinent part as follows:
No employer shall require the execution of any release of any
claim or right on account of wages due, or to become due, or
made as an advance on wages to be earned, unless payment of
such wages has been made.
6. Release of Claims. Employee agrees that the foregoing consideration
represents settlement in full of all outstanding obligations owed to Employee by
any of Visioneer, Purchaser and/or Purchaser Parent. Employee further agrees
that with respect to (i) any payment(s) made to Employee hereunder or (ii)
benefit(s) conferred upon Employee hereunder by either Visioneer, Purchaser or
Purchaser Parent, that the other two parties hereto (i.e., either (i) Visioneer
and Purchaser, or (ii) Purchaser and Purchaser Parent, or (iii) Visioneer and
Purchaser Parent) shall be deemed to be third-party beneficiaries of such
actions. Employee, on the one hand, and Visioneer, Purchaser and Purchaser
Parent, on the other hand, on behalf of themselves, and each of their respective
heirs, executors, officers, directors, employees, investors, shareholders,
administrators, predecessor and successor corporations and assigns,
<PAGE> 3
hereby fully and forever release each other and their respective heirs,
executors, officers, directors, employees, investors, shareholders,
administrators, predecessor and successor corporations and assigns from any
claim duty, obligation or cause of action relating to any matters of any kind,
whether known or unknown, suspected or unsuspected, that either of them may
possess arising from any omissions, acts or facts that have occurred up until
and including the Effective Date of this Agreement including, without
limitation:
(a) any and all claims relating to or arising from Employee's
employment relationship with Visioneer and termination of that relationship as
of the Termination Date, and any anticipated future employment relationship
between Employee and either of Purchaser or Purchaser Parent;
(b) any and all claims relating to, or arising from, Employee's
right to purchase, or actual purchase of shares of stock of Visioneer (other
than as specifically set forth in Section 3 herein above);
(c) any and all claims for wrongful discharge of employment; breach
of contract, both express and implied; breach of a covenant of good faith and
fair dealing, both express and implied; negligent or intentional infliction of
emotional distress; negligent or intentional misrepresentation; negligent or
intentional interference with contract or prospective economic advantage; and
defamation;
(d) any and all claims for violation of any federal, state or
municipal statute, including, but not limited to, Title VII of the Civil Rights
Act of 1964, the Age Discrimination in Employment Act of 1967, and the
California Fair Employment and Housing Act;
(e) any and all claims arising out of any other laws and regulations
relating to employment or employment discrimination; and
(f) any and all claims for attorney's fees and costs.
The Parties agree that the release set forth in this section shall be and remain
in effect in all respects as a complete and general release as to the matters
released. This release does not extend to any obligations incurred under this
Agreement.
7. Civil Code Section 1542. The Parties represent that they are not aware
of any claim by either of them other than the claims that are released by this
Agreement. Employee, on the one hand, and Visioneer, Purchaser and Purchaser
Parent, on the other hand, acknowledge that they are familiar with the
provisions of California Civil Code Section 1542, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE,
<PAGE> 4
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT
WITH THE DEBTOR.
The Parties being aware of such code section, agree respectively to waive
any rights they may have thereunder, as well as under any other stature or
common law principles of similar effect.
8. Acknowledgment of Waiver of Claims under ADEA. Employee acknowledges
that he is waiving and releasing any rights he may have under the Age
Discrimination in Employment Act of 1967 ("ADEA") and that the waiver and
release is knowing and voluntary. The Parties agree that the waiver and release
does not apply to any rights or claims that may arise under ADEA after the
Effective Date (as defined below) of this Agreement. Employee acknowledges that
the consideration given for this waiver and release Agreement is in addition to
anything of value to which Employee was already entitled. Employee further
acknowledges that he has been advised by the writing that (a) he should consult
with an attorney prior to executing this Agreement; (b) he has at least
twenty-one (21) days within which to consider this Agreement; (c) he has at
least seven (7) days following the execution of this Agreement by the Parties to
revoke this Agreement (the "Revocation Period"); and (d) this Agreement shall
not be effective until the Revocation Period has expired.
9. Confidentiality. The Parties hereto each agree to use their best
efforts to maintain in confidence the existence of this Agreement, the contents
and terms of this Agreement, and the consideration for this Agreement
(hereinafter collectively referred to as "Settlement Information"). Each Party
hereto agrees to take every reasonable precaution to prevent disclosure of any
Settlement Information to third parties, and each agrees that there will be no
publicity, directly or indirectly, concerning any Settlement Information. The
Parties hereto agree to take every precaution to disclose Settlement Information
only to those employees, officers, directors, attorneys, accountants,
governmental entities, and family members who have a reasonable need to know of
such Settlement Information.
10. Nondisclosure of Confidential and Proprietary Information. Employee
understands and agrees that his obligations to Visioneer under the Confidential
Information and Assignment of Inventions Agreement previously executed by
Employee and Visioneer shall survive termination of Employee's relationship with
Visioneer under this Agreement and that Employee shall continue to maintain the
confidentiality of all confidential and propriety information of Visioneer,
Purchaser and Purchaser Parent to which he has had access. Employee agrees that
at all times hereafter, Employee shall not intentionally divulge, furnish or
make available to any party any of the trade secrets, patents, patent
applications, price decisions or determinations, inventions, customers,
proprietary information or other intellectual property rights of Visioneer,
Purchaser or Purchaser Parent, until after such time as such information has
become publicly known otherwise than by an act of collusion of Employee.
Employee further agrees that he will return all property and confidential and
proprietary information of Visioneer, Purchaser and Purchaser Parent in his
possession to such Party within five business days after the Termination Date.
<PAGE> 5
11. Breach of this Agreement. Employee acknowledges that upon breach of
the confidential and proprietary information provision contained in Section 10
of this Agreement, Visioneer, Purchaser and/or Purchaser Parent would sustain
irreparable harm from such breach, and, therefore, Employee agrees that in
addition to any other remedies which Visioneer, Purchaser and/or Purchaser
Parent may have for any breach of this Agreement or otherwise, including
termination of such Parties' respective obligations to provide benefits to
Employee as described in Sections 2, 3 and 4 of this Agreement, Visioneer,
Purchaser and Purchaser Parent shall be entitled to obtain equitable relief,
including specific performance and injunctions, restraining Employee from
committing or continuing any such violation of this Agreement.
12. Non-Disparagement. Each Party agrees to refrain from any
disparagement, criticism, defamation, slander of the others, or tortious
interference with the contracts and relationships of the others.
13.. No Admission of Liability. The Parties understand and acknowledge
that this Agreement constitutes a compromise and settlement of disputed claims.
No action taken by the Parties hereto, or either of them, either previously or
in connection with this Agreement shall be deemed or construed to be (a) an
admission of the truth or falsity of any claims heretofore made or (b) an
acknowledgment or admission by either party of any fault or liability whatsoever
to the other party or to any third party.
14. Authority. Each of Visioneer, Purchaser and Purchaser Parent
represents and warrants that the undersigned have the authority to act on behalf
of Visioneer, Purchaser and Purchaser Parent, respectively, and to bind
Visioneer, Purchaser and Purchaser Parent, respectively, and all who may claim
through any of them to the terms and conditions of this Agreement. Employee
represents and warrants that he has the capacity to act on his own behalf and on
behalf of all who might claim through him to bind them to the terms and
conditions of this Agreement. Each Party warrants and represents that there are
no liens or claims of lien or assignments in law or equity or otherwise of or
against any of the claims or causes of action released herein.
15. No Representations. Each Party represents that it has carefully read
and understands the scope and effect of the provisions of this Agreement. No
Party has relied upon any representations or statements made by the other
Parties which are not specifically set forth in this Agreement.
16. Costs. The Parties shall each bear their own costs, attorneys' fees
and other fees incurred in connection with this Agreement.
17. Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
18. Entire Agreement. This Agreement represents the entire agreement and
understanding between the Parties concerning Employee's separation from
Visioneer and
<PAGE> 6
supersedes and replaces any and all prior agreements and understandings
concerning Employee's relationship with any of Visioneer, Purchaser and/or
Purchaser Parent and his compensation by any of them other than any option
agreement as described in Section 3 and other than the Confidential Information
and Assignment of Inventions Agreement as described in Section 10.
19. No Oral Modification. This Agreement may only be amended in writing
signed by each of the Parties.
20. Governing Law. This Agreement shall be governed by the laws of the
State of California.
21. Effective Date. This Agreement shall be effective upon the expiration
of the Revocation Period described in Section 8 and such date is referred to
herein as the "Effective Date".
22. Counterparts. This Agreement may be executed in counterparts, and each
counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the
undersigned.
23. Assignment. This Agreement may not be assigned by any Party without
the prior written consent of each of the other Parties. Notwithstanding the
foregoing, this Agreement may be assigned by either Visioneer, Purchaser or
Purchaser Parent to a corporation controlling, controlled by or under common
control with such entity without the consent of Employee.
24. Voluntary Execution of Agreement. This Agreement is executed
voluntarily and without any duress or undue influence on the part or behalf of
the Parties hereto, with the full intent of releasing all claims. The Parties
acknowledge that:
(a) They have read this Agreement;
(b) They have been represented in the preparation, negotiation and
execution of this Agreement by legal counsel of their own choice or that they
have voluntarily declined to seek such counsel;
(c) They understand the terms and consequences of this Agreement and
of the releases it contains; and
(d) They are fully aware of the legal and binding effect of this
Agreement.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement on the
respective dates set forth below.
VISIONEER, INC.
By: /s/ J. LARRY SMART
----------------------------------
Title: President, Chief Executive
Officer
Dated: January 8, 1999
PRIMAX V ACQUISITION CORP.
By: /s/ J. LARRY SMART
----------------------------------
Title:
------------------------------
Dated: January 8, 1999
PRIMAX ELECTRONICS, LIMITED
By:
----------------------------------
Title:
------------------------------
Dated: January __, 1999
MICHAEL T. BURT:
/s/ MICHAEL T. BURT
--------------------------------------
Michael T. Burt
Dated: January 8, 1999
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of Visioneer, Inc. of our report dated January 22, 1998, appearing on page
24 of Visioneer, Inc.'s Annual Report on Form 10-K for the year ended December
31, 1997. We also consent to the reference to us under the heading "Experts" in
such Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
January 12, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
ScanSoft, Inc. and Subsidiaries:
We consent to the use of our report included herein in the registration
statement on Form S-4 of Visioneer, Inc. of our report dated November 30, 1998,
except for Note 11 which is as of December 2, 1998, with respect to the
consolidated balance sheets of ScanSoft, Inc. and subsidiaries as of December
31, 1997 and September 30, 1998, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the years
in the two-year period ended December 31, 1997 and for the nine months ended
September 30, 1998, and to the reference to our firm under the heading "Experts"
in the registration statement.
/s/ KPMG Peat Marwick LLP
Boston, Massachusetts
January 14, 1999
<PAGE> 1
EXHIBIT 99.1
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF VISIONEER, INC. FOR THE
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD FEBRUARY 23, 1999
The undersigned stockholder of Visioneer, Inc., a Delaware corporation, (the
"Company") hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and Proxy Statement/Prospectus, each dated January 19, 1999, and
hereby appoints J. Larry Smart, proxy and attorney-in-fact, with full power of
substitution, on behalf and in the name of the undersigned, to represent the
undersigned at the Special Meeting of Stockholders of the Company to be held on
February 23, 1999 at 10:00 a.m., local time, at the principal executive offices
of the Company, 34800 Campus Drive, Fremont, California 94555 and at any
adjournment or postponement thereof, and to vote all shares of Common Stock
which the undersigned would be entitled to vote if then and there personally
present, on the matters set forth below:
1. To approve the proposal to approve and adopt the Agreement and Plan of
Merger between ScanSoft, Inc. and the Company, dated as of December 2, 1998, the
merger, and the amendment to the Company's certificate of incorporation to
increase the authorized common and preferred stock, and to set forth the rights,
preferences and privileges of the Series B preferred stock to be issued in the
merger, and to approve other transactions contemplated by the merger agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PLEASE SIGN ON REVERSE SIDE AND RETURN IMMEDIATELY
<PAGE> 2
This proxy will be voted as directed or, if no contrary direction is
indicated, will be voted FOR Proposal 1.
Date:
------------------------
Signature
Date:
------------------------
Signature
(This proxy should be
marked, dated, signed by
the stockholder(s)
exactly as his or her
name appears hereon, and
returned promptly in the
enclosed envelope.
Persons signing in a
fiduciary capacity
should so indicate. If
shares are held by joint
tenants or as community
property, both should
sign.)
<PAGE> 1
EXHIBIT 99.2
FORM OF ELECTION
TO ACCOMPANY CERTIFICATES REPRESENTING SHARES OF COMMON STOCK OF
VISIONEER, INC.
Please read and follow carefully the Instructions set forth below, which
set forth the requirements that need to be complied with in order to make an
effective election. Nominees, trustees or other persons who hold shares of
Visioneer, Inc. ("Visioneer") Common Stock, par value $0.001 per share
("Visioneer Common Stock"), in a representative capacity are directed to
Instruction G(4).
TO BE EFFECTIVE, THIS FORM OF ELECTION, PROPERLY COMPLETED AND SIGNED IN
ACCORDANCE WITH THE ACCOMPANYING INSTRUCTIONS, TOGETHER WITH CERTIFICATES FOR
THE VISIONEER COMMON STOCK COVERED HEREBY (UNLESS DELIVERY IS GUARANTEED IN BOX
E BELOW IN ACCORDANCE WITH INSTRUCTION A), MUST BE RECEIVED BY THE EXCHANGE
AGENT NAMED BELOW, AT THE APPROPRIATE ADDRESS SET FORTH BELOW, NO LATER THAN THE
ELECTION DEADLINE (AS DEFINED IN INSTRUCTION A). DELIVERIES MADE TO ADDRESSES
OTHER THAN THE ADDRESS FOR THE EXCHANGE AGENT SET FORTH BELOW DO NOT CONSTITUTE
VALID DELIVERIES AND THE EXCHANGE AGENT WILL NOT BE RESPONSIBLE THEREFOR.
U.S. STOCK TRANSFER CORPORATION (THE "EXCHANGE AGENT")
1745 GARDENA AVENUE
2ND FLOOR
GLENDALE, CA 91204
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS.
<PAGE> 2
Ladies and Gentlemen:
This Form of Election is being delivered in connection with the merger (the
"Merger") of ScanSoft, Inc. ("ScanSoft") with and into Visioneer, pursuant to
the Agreement and Plan of Merger, dated as of December 2, 1998 (the "Merger
Agreement").
The undersigned, subject to the Election and Allocation Procedures (as
defined below) and the other terms and conditions set forth in this Form of
Election, including the documents incorporated herein by reference, hereby (a)
surrenders the certificate(s) (the "Certificates") representing the shares of
Visioneer Common Stock listed in Box A below and (b) elects (an "Election"), as
indicated below, upon consummation of the Merger, to have the shares of
Visioneer Common Stock represented by the Certificates (the "Visioneer Shares")
converted into the right:
(CHECK ONLY ONE)
[ ] to receive $2.06 in cash for each of the Visioneer Shares, without interest
(a "Cash Election"); or
[ ] to receive shares of Common Stock, par value $.001 per share, of the
surviving corporation ("Surviving Corporation common stock") for each of the
Visioneer Shares (a "Stock Election"); or
[ ] to receive (i) $2.06 in cash for each of the Visioneer Shares, up to a
percentage of the total number of Visioneer Shares (as indicated immediately
below), and (ii) Surviving Corporation common stock for each of the
remaining the Visioneer Shares (as indicated immediately below) (a "Mixed
Election").
Complete this box only if you have checked the box indicating a Mixed Election:
(i) ____% of Visioneer Shares to be exchanged for cash;
(ii) ____% of Visioneer Shares to be exchanged for Surviving Corporation
Shares.
The numbers filled in (i) and (ii) above must add up to 100%
IF THE NUMBERS FILLED IN ABOVE DO NOT ADD UP TO 100%, YOU WILL BE DEEMED TO HAVE
MADE A SHARE ELECTION FOR ALL SHARES NOT DESIGNATED TO BE EXCHANGED FOR CASH.
A HOLDER OF SHARES OF VISIONEER COMMON STOCK THAT DOES NOT SUBMIT AN
EFFECTIVE FORM OF ELECTION PRIOR TO THE ELECTION DEADLINE (AS DEFINED IN
INSTRUCTION A) WILL BE DEEMED TO HAVE MADE A SHARE ELECTION.
If the Exchange Agent has not received your properly completed Form of
Election, accompanied by your Certificates, by the Election Deadline (unless Box
E (Guaranty of Delivery) has been properly completed and such certificates are
received by the Exchange Agent by the Guaranteed Delivery Deadline), you will be
deemed to have made a Stock Election.
2
<PAGE> 3
The undersigned hereby certifies: that this Election covers all of the
shares of Visioneer Common Stock registered in the name of the undersigned and
either (i) beneficially owned by the undersigned, or (ii) owned by the
undersigned in a representative or fiduciary capacity for a particular
beneficial owner or for one or more beneficial owners.
BOX A
CERTIFICATE INFORMATION
LIST BELOW THE CERTIFICATES TO WHICH THIS FORM OF ELECTION RELATES.
(ATTACH ADDITIONAL SHEETS IF NECESSARY.)
<TABLE>
<CAPTION>
NAME AND ADDRESS OF REGISTERED HOLDER(S) NUMBER OF SHARES
AS SHOWN ON THE SHARE RECORDS CERTIFICATE REPRESENTED BY
(PLEASE FILL IN, IF BLANK) NUMBER EACH CERTIFICATE
- ---------------------------------------- ----------- ----------------
<S> <C> <C>
----------- -------
----------- -------
----------- -------
----------- -------
----------- -------
----------- -------
Total Shares:
</TABLE>
This Election is subject to the terms and conditions set forth in the
Merger Agreement and the Proxy Statement/Prospectus, dated January 19, 1999 (the
"Proxy Statement/Prospectus"), furnished to stockholders of Visioneer in
connection with the Merger, all of which are incorporated herein by reference.
Receipt of the Proxy Statement/Prospectus, including the Merger Agreement
attached as Annex A thereto, is hereby acknowledged. Copies of the Proxy
Statement/Prospectus are available upon request from Visioneer (see Instruction
H(10)).
It is understood that because pursuant to the Merger Agreement the number
of shares of Visioneer Common Stock to be exchanged for shares of Surviving
Corporation common stock in the Merger and the number of shares of Visioneer
Common Stock to be converted into the right to receive $2.06 per share in cash
in the Merger are subject to limitations, no assurance can be given that an
Election by any given stockholder, including this Election by the undersigned,
can be accommodated. Rather, the Election by each holder of Visioneer Common
Stock, including this Election by the undersigned, will be subject to the
results of the election and allocation procedures set forth in the Merger
Agreement and described in the Proxy Statement/ Prospectus under the caption
"The Merger-Merger Consideration" (the "Election and Allocation Procedures").
3
<PAGE> 4
The undersigned hereby represents and warrants that the undersigned has
full power and authority to complete and deliver this Form of Election and to
deliver for surrender and cancellation the above-described Certificate(s)
delivered herewith and that the rights represented by the Certificate(s) are
free and clear of all liens, restrictions, charges and encumbrances and are not
subject to any adverse claim. The undersigned will, upon request, execute any
additional documents necessary or desirable to complete the surrender of the
Certificate(s) surrendered herewith. All authority herein conferred shall
survive the death or incapacity of the undersigned and all obligations of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Delivery of the Certificate(s) for
surrender and cancellation may be revoked only in accordance with Instruction
G(2).
BOX B
SIGN HERE
(TO BE COMPLETED BY ALL PERSON(S) SURRENDERING
CERTIFICATES AND EXECUTING THIS FORM OF ELECTION)
------------------------------------------------------------------
------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Dated:
- --------------------------------------------------------------------------------
Name(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
[ ] Check box if change of address
Phone:
--------------------------------------------------------------------------
(SO THE EXCHANGE AGENT CAN CONTACT YOU IN CASE OF QUESTIONS,
ALTHOUGH THE EXCHANGE AGENT IS UNDER NO OBLIGATION TO DO SO.)
Must be signed by registered holder(s) exactly as name(s) appear(s) on stock
certificate(s) or by person(s) authorized to become registered holders by
documents transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or in any
other fiduciary or representative capacity, please set forth full title. (See
Instruction G(4)).
Title:
- --------------------------------------------------------------------------------
(OTHER THAN SIGNATURE(S), PLEASE PRINT OR TYPE)
4
<PAGE> 5
BOX C
COMPLETE ONLY IF REQUIRED BY INSTRUCTION H(5).
SIGNATURE GUARANTEE
YOUR SIGNATURE MUST BE MEDALLION GUARANTEED
BY AN ELIGIBLE FINANCIAL INSTITUTION.
NOTE: A NOTARIZATION BY A NOTARY PUBLIC IS NOT ACCEPTABLE.
FOR USE BY FINANCIAL INSTITUTION ONLY.
PLACE MEDALLION GUARANTEE IN SPACE BELOW.
5
<PAGE> 6
IMPORTANT TAX INFORMATION
PLEASE PROVIDE YOUR SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION NUMBER
ON THIS SUBSTITUTE FORM W-9 AND CERTIFY THEREIN THAT YOU ARE NOT SUBJECT TO
BACKUP WITHHOLDING. FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY CASH PAYMENTS MADE TO YOU PURSUANT TO THE
MERGER.
BOX D
<TABLE>
<S> <C> <C>
PART I -- PLEASE PROVIDE YOUR
------------------------
TIN IN THE BOX AT RIGHT AND Social Security Number
CERTIFY BY SIGNING AND OR
DATING BELOW. See Instruction H(9)
------------------------------------------------------------------------------------
SUBSTITUTE
FORM W-9
DEPARTMENT OF
THE TREASURY
INTERNAL REVENUE PART II -- Awaiting TIN [ ] Employer Identification
SERVICE Number
</TABLE>
<TABLE>
<S> <C> <C>
PAYER'S REQUEST
FOR TAXPAYER
IDENTIFICATION
NUMBER (TIN)
</TABLE>
- --------------------------------------------------------------------------------
For Payees exempt from backup withholding, complete as directed in
Instruction H(9).
CERTIFICATION. Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not
been notified by the Internal Revenue Service ("IRS") that I am
subject to backup withholding as a result of failure to report all
interest or dividends, or the IRS has notified me that I am no
longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS. You must cross out item (2) above if you
have been notified by the IRS that you are subject to backup withholding
because of underreporting interest or dividends on your tax return. However,
if after being notified by the IRS that you were subject to backup
withholding you received another notification from the IRS that you are no
longer subject to backup withholding, do not cross out item (2).
SIGNATURE:
-------------------------------------------------------------- DATE:
--------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART II OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that, notwithstanding that I have checked the box in Part II (and
have completed this Certificate of Awaiting Taxpayer Identification Number),
31% of all reportable payments made to me will be withheld until I provide a
properly certified taxpayer identification number to the Exchange Agent.
SIGNATURE
-------------------------------------------------------------- DATE
--------------------
6
<PAGE> 7
BOX E
GUARANTY OF DELIVERY
(TO BE USED ONLY IF CERTIFICATES ARE NOT SURRENDERED HEREWITH)
(SEE INSTRUCTION A)
The undersigned (check appropriate boxes below) guarantees to deliver to the
Exchange Agent at the appropriate address set forth above the certificates for
shares of Visioneer Common Stock submitted with this Form of Election no later
than 5:00 p.m., Eastern Time, on the Guaranteed Delivery Deadline (as defined in
Instruction A).
<TABLE>
<S> <C>
[ ] a member of a registered national
securities exchange
-----------------------------------------------------------
(FIRM-PLEASE PRINT)
-----------------------------------------------------------
(AUTHORIZED SIGNATURE)
[ ] a member of the National Association of
Securities Dealers, Inc.
-----------------------------------------------------------
-----------------------------------------------------------
(ADDRESS)
[ ] a commercial bank or trust
company in the United States
-----------------------------------------------------------
(AREA CODE AND TELEPHONE)
</TABLE>
(PLEASE READ CAREFULLY THE GENERAL INSTRUCTIONS
CONTAINED ELSEWHERE HEREIN)
7
<PAGE> 8
SPECIAL ISSUANCE AND MAILING INSTRUCTIONS
The undersigned understands that the Surviving Corporation common stock to
be issued, a check issued as payment in cash, or the cash in lieu of fractional
shares check (such checks being referred to herein as "Payment Checks") with
respect to the Visioneer Common Stock surrendered will be issued in the same
name(s) as the certificate(s) surrendered and will be mailed to the address of
the registered holder(s) indicated above, unless otherwise indicated in Box F or
Box G below. If Box F is completed, the signature of the undersigned must be
guaranteed as set forth in Instruction H(5).
<TABLE>
<S> <C>
BOX F BOX G
SPECIAL PAYMENT INSTRUCTIONS SPECIAL MAILING INSTRUCTIONS
(SEE INSTRUCTION H(5)) (SEE INSTRUCTION H(7))
TO BE COMPLETED ONLY if the
TO BE COMPLETED ONLY if the certificate or Payment Check(s) is(are) to
certificate or Payment Check(s) is(are) to be delivered to the registered holder(s) or
be issued in the name(s) of someone other someone other than the registered holder(s)
than the registered holder(s) set forth above. at an address other than shown above.
ISSUE TO: MAIL TO:
Name: Name:
Address: Address:
(STREET AND NUMBER) (STREET AND NUMBER)
------------------------------------------------ ------------------------------------------------
(CITY, STATE AND ZIP CODE)
(CITY, STATE AND ZIP CODE) (PLEASE PRINT OR TYPE)
------------------------------------------------
TAXPAYER IDENTIFICATION OR
SOCIAL SECURITY NUMBER
(PLEASE PRINT OR TYPE)
</TABLE>
8
<PAGE> 9
INSTRUCTIONS
This Form of Election (or a facsimile thereof) should be properly filled
in, dated and signed, and should be delivered, together with all stock
certificates representing Visioneer Common Stock currently held by you (unless
delivery is guaranteed in Box E in accordance with Instruction A), to the
Exchange Agent at the appropriate address set forth on the front of this Form of
Election. Please read and follow carefully the instructions regarding completion
of this Form of Election set forth below. If you have any questions concerning
this Form of Election or require any information or assistance, see Instruction
H(10).
A. TIME IN WHICH TO ELECT
In order for an Election to be effective, the Exchange Agent must receive a
properly completed Form of Election, accompanied by all stock certificates
representing Visioneer Common Stock currently held by you, NO LATER THAN 5:00
P.M., EASTERN TIME, ON TUESDAY, FEBRUARY 23, 1999 (the "Election Deadline").
THUS, STOCKHOLDERS ARE URGED TO DELIVER A PROPERLY COMPLETED FORM OF ELECTION,
ACCOMPANIED BY STOCK CERTIFICATES (OR A PROPER GUARANTY OF DELIVERY, AS
DESCRIBED BELOW), NO LATER THAN 5:00 P.M., EASTERN TIME, ON FEBRUARY 23, 1999,
IN ORDER TO ASSURE THAT THEIR FORM OF ELECTION WILL BE RECEIVED BY THE ELECTION
DEADLINE. Stockholders whose stock certificates are not immediately available or
who cannot deliver their share certificates and all other required documents to
the Exchange Agent on or prior to the Election Deadline may tender their shares
pursuant to the following procedures: (1) Box E ("Guarantee of Delivery") must
be executed by either a member of a registered national securities exchange, a
member of the National Association of Securities Dealers, Inc., or a commercial
bank or trust company having an office or correspondent in the United States;
(2) the completed and executed Form of Election and Guarantee of Delivery must
be received by the Exchange Agent on or prior to the Election Deadline; and (3)
the certificates, any required signatures and any other documents required by
this Form of Election, must be received by the Exchange Agent no later than 5:00
p.m., Eastern Time, on the third Nasdaq trading day after the execution of such
Guarantee of Delivery ("Guarantee Delivery Deadline").
IF THE EXCHANGE AGENT HAS NOT RECEIVED YOUR PROPERLY COMPLETED FORM OF
ELECTION, ACCOMPANIED BY YOUR STOCK CERTIFICATES, BY THE ELECTION DEADLINE
(UNLESS BOX E (GUARANTY OF DELIVERY) HAS BEEN PROPERLY COMPLETED AND SUCH
CERTIFICATES ARE RECEIVED BY THE EXCHANGE AGENT BY THE GUARANTEED DELIVERY
DEADLINE), YOU WILL BE DEEMED TO HAVE MADE A NON-ELECTION.
For instructions regarding changes of Election and the time in which such
changes can be made, see Instruction G(1) below.
B. ELECTIONS
This Form of Election provides for your Election, subject to the Election
and Allocation Procedures and the other items and conditions set forth hereunder
and in the documents incorporated herein by reference, upon consummation of the
Merger to have the shares of Visioneer Common Stock covered by this Form of
Election (the "Visioneer Shares") converted into the right:
- to receive $2.06 in cash for each Visioneer Share (a "Cash Election"); or
- to receive Surviving Corporation Common Stock for each of the Visioneer
Shares (a "Stock Election"); or
- to receive $2.06 in cash for a desired percentage of the Visioneer Shares
and Surviving Corporation Common Stock for each of the remaining
Visioneer Shares (a "Mixed Election").
A HOLDER OF SHARES OF VISIONEER COMMON STOCK THAT DOES NOT SUBMIT AN
EFFECTIVE FORM OF ELECTION PRIOR TO THE ELECTION DEADLINE WILL BE DEEMED TO HAVE
MADE A STOCK ELECTION.
9
<PAGE> 10
You should understand that your Election is subject to certain terms and
conditions that are set forth in the Merger Agreement and described in the Proxy
Statement/Prospectus. The Merger Agreement is included as Annex A to the Proxy
Statement/Prospectus. Copies of the Proxy Statement/Prospectus may be requested
from Visioneer (see Instruction H(10)). The delivery of this Form of Election to
the Exchange Agent constitutes acknowledgment of the receipt of the Proxy
Statement/Prospectus. EACH HOLDER OF VISIONEER COMMON STOCK IS STRONGLY
ENCOURAGED TO READ THE PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY AND TO DISCUSS
THE CONTENTS THEREOF, THE MERGER AND THIS FORM OF ELECTION WITH HIS OR HER
PERSONAL FINANCIAL AND TAX ADVISORS PRIOR TO DECIDING WHAT ELECTION TO MAKE. THE
TAX CONSEQUENCES TO A HOLDER OF VISIONEER COMMON STOCK WILL VARY DEPENDING UPON
A NUMBER OF FACTORS, INCLUDING WHETHER SUCH HOLDER RECEIVES SURVIVING
CORPORATION COMMON STOCK, CASH OR A COMBINATION THEREOF. FOR CERTAIN INFORMATION
REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF AN ELECTION, SEE "THE
MERGER -- FEDERAL INCOME TAX CONSEQUENCES" IN THE PROXY STATEMENT/ PROSPECTUS.
C. CASH ELECTION
If you elect, subject to the Election and Allocation Procedures and the
other terms and conditions set forth in this Form of Election, including the
documents incorporated herein by reference, to receive cash for all of the
shares of Visioneer Common Stock covered by this Form of Election, you should
check the "Cash Election" box on the first page of this Form of Election.
D. STOCK ELECTION
If you elect, subject to the Election and Allocation Procedures and the
other terms and conditions set forth in this Form of Election, including the
documents incorporated herein by reference, to receive Surviving Corporation
common stock for all of the shares of Visioneer Common Stock covered by this
Form of Election, you should check the "Stock Election" box on the first page of
this Form of Election.
E. MIXED ELECTION
If you elect, subject to the Election and Allocation Procedures and other
terms and conditions set forth in this Form of Election, including the documents
incorporated herein by reference, to receive cash for some of the shares of
Visioneer Common Stock covered by this Form of Election and to receive Surviving
Corporation common stock for the remainder of the shares of Visioneer Common
Stock covered by this Form of Election, you should check the "Mixed Election"
box and complete the box immediately below such box on the first page of this
Form of Election.
No fractional Surviving Corporation common stock will be issued in
connection with the Merger. A holder of Visioneer Common Stock who makes a Stock
Election or Mixed Election, or who would otherwise receive a fractional share of
Surviving Corporation common stock in connection with the Merger, will instead
receive a cash payment equal to such fraction multiplied by $2.06.
If you have failed to make an effective Cash Election, Stock Election or
Mixed Election for all of the shares of Visioneer Common Stock required to be
covered by this Form of Election, or if your Election is deemed by the Exchange
Agent to be defective in any way, or if your Form of Election is not accompanied
by your certificates (unless Box E (Guaranty of Delivery) has been properly
completed and such certificates are received by the Exchange Agent by the
Guaranteed Delivery Deadline), you will be deemed to have made a Stock Election
for all of such shares.
G. SPECIAL CONDITIONS
(1) Change of Election. An effective Election may be changed by the person
or persons making such Election by a written notice signed and dated by such
person or persons received by the Exchange Agent no later than 5:00 Eastern Time
on the Election Deadline.
10
<PAGE> 11
(2) Nullification of Election. All Forms of Election will be void and of no
effect if the Merger is not consummated, and certificates submitted therewith
shall be promptly returned to the persons submitting the same.
(3) Elections Subject to Allocation. All Elections are subject to the
Election and Allocation Procedures set forth in the Merger Agreement and
described in the Proxy Statement/Prospectus under the caption "The Merger-Merger
Consideration" and to the other terms and conditions set forth thereunder and
hereunder, including the documents incorporated herein by reference.
(4) Shares Held by Nominees, Trustees or other Representatives. Holders of
record of shares of Visioneer Common Stock who hold such shares as nominees,
trustees or in other representative or fiduciary capacities (a "Representative")
may submit one or more Forms of Election covering the aggregate number of shares
of Visioneer Common Stock held by such Representative for the beneficial owners
for whom the Representative is making an Election; provided, that such
Representative certifies that each such Form of Election covers all the shares
of Visioneer Common Stock held by such Representative for a particular
beneficial owner. Any Representative who makes an Election may be required to
provide the Exchange Agent with such documents and/or additional certifications,
if requested, in order to satisfy the Exchange Agent that such Representative
holds such shares of Visioneer Common Stock for a particular beneficial owner of
such shares. If any shares held by a Representative are not covered by an
effective Form of Election, they will be deemed to be covered by a Share
Election.
H. GENERAL
(1) Execution and Delivery. In order to make an effective Election, you
must correctly fill out this Form of Election, or a facsimile thereof. After
dating and signing it, you are responsible for its delivery, accompanied by all
stock certificates representing Visioneer Common Stock currently held by you or
a proper Guaranty of Delivery of such stock certificates pursuant to Instruction
A, to the Exchange Agent at the address set forth on the front of this Form of
Election by the Election Deadline. YOU MAY CHOOSE ANY METHOD TO DELIVER THIS
FORM OF ELECTION; HOWEVER, YOU ASSUME ALL RISK OF NON-DELIVERY. IF YOU CHOOSE TO
USE THE MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL, RETURN RECEIPT
REQUESTED, AND THAT YOU PROPERLY INSURE ALL STOCK CERTIFICATES.
DELIVERY OF STOCK CERTIFICATES WILL BE DEEMED EFFECTIVE AND RISK OF LOSS
WITH RESPECT TO SUCH CERTIFICATES SHALL PASS ONLY WHEN SUCH CERTIFICATES ARE
ACTUALLY RECEIVED BY THE EXCHANGE AGENT.
(2) Signatures. Except as otherwise permitted below, you must sign this
Form of Election exactly the way your name appears on the face of your
certificates. If the shares are owned by two or more persons, each must sign
exactly as his or her name appears on the face of the certificates. If shares of
Visioneer Common Stock have been assigned by the registered owner, this Form of
Election should be signed in exactly the same way as the name of the assignee
appearing on the certificates or transfer documents. See Instructions H(5)(a)
and H(5)(b).
(3) Notice of Defects; Resolution of Disputes. Neither Visioneer nor the
Exchange Agent will be under any obligation to notify you or anyone else that
the Exchange Agent has not received a properly completed Form of Election or
that any Form of Election submitted is defective in any way.
Any and all disputes with respect to Forms of Election or to Elections made
in respect of Visioneer Common Stock (including but not limited to matters
relating to the Election Deadline, time limits, defects or irregularities in the
surrender of any stock certificate, effectiveness of any Election and
computations of allocations) will be resolved by Visioneer and its decision will
be conclusive and binding on all concerned. Visioneer may delegate this function
to the Exchange Agent in whole or in part. Visioneer or the Exchange Agent shall
have the absolute right in its sole discretion to reject any and all Forms of
Election and surrenders of stock certificates which are deemed by either of them
to be not in proper form or to waive any immaterial irregularities in any Form
of Election or in the surrender of any stock certificate. Surrenders of stock
11
<PAGE> 12
certificates will not be deemed to have been made until all defects or
irregularities that have not been waived have been cured.
(4) Issuance of Payment Check(s) and New Certificate in Same Name. If the
certificate representing shares of Surviving Corporation Common Stock and/or the
Payment Check(s) are to be issued in the name of the registered holder(s) as
inscribed on the surrendered certificate(s), the surrendered certificate(s) need
not be endorsed and no guarantee of the signature on the Form of Election is
required. For corrections in name and change in name not involving changes in
ownership, see Instruction H(5)(c).
(5) Issuance of Payment Check(s) and New Certificate in Different Name. If
the certificate representing shares of Surviving Corporation Common Stock and/or
the Payment Check(s) are to be issued in the name of someone other than the
registered holder(s) of the surrendered certificate(s), you must follow the
guidelines below. Note that in each circumstance listed below, stockholder(s)
must have signature(s) guaranteed in Box C and complete Box F.
(a) Endorsement and Guarantee. The certificate(s) surrendered must be
properly endorsed (or accompanied by appropriate stock powers properly
executed) by the registered holder(s) of such certificate(s) to the person
who is to receive the Surviving Corporation Common Stock and/or the Payment
Check(s). The signature(s) of the registered holder(s) on the endorsement
or stock powers must correspond with the name(s) written upon the face of
the certificate(s) in every particular, with the signatures on the
Certificate(s) (or stock powers) guaranteed by an eligible institution. An
eligible institution is a bank, broker dealer, credit union, savings
association or other entity which is a member in good standing of the
Securities Transfer Agent's Medallion Program.
(b) Transferee's Signature. The Form of Election must be signed by the
transferee or assignee or his or her agent, and should not be signed by the
transferor or assignor. See Box B entitled "Sign Here." The signature of
such transferee or assignee must be guaranteed by an eligible institution
as provided in Instruction H(5)(a).
(c) Correction of or Change in Name. For a correction of name or for a
change in name which does not involve a change in ownership, proceed as
follows: For a change in name by marriage, etc., the Form of Election
should be signed, e.g., "Mary Doe, now by marriage Mary Jones." For a
correction in name, the Form of Election should be signed, e.g., "James E.
Brown, incorrectly inscribed as J.E. Brown." The signature in each case
should be guaranteed in the manner described in Instruction H(5)(a) above
and Box F should be completed.
You should consult your own tax advisor as to any possible tax consequences
resulting from the issuance of shares of Surviving Corporation common stock
certificate and/or Payment Check(s) in a name different from that of the
registered holder(s) of the surrendered certificate(s).
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(6) Supporting Evidence. In case any Form of Election, certificate
endorsement or stock power is executed by an agent, attorney, administrator,
executor, guardian, trustee or any person in any other fiduciary or
representative capacity, or by an officer of a corporation on behalf of the
corporation, there must be submitted (with the Form of Election, surrendered
certificate(s), and/or stock powers) documentary evidence of appointment and
authority to act in such capacity (including court orders and corporate
resolutions when necessary), as well as evidence of the authority of the person
making such execution to assign, sell or transfer the certificate(s). Such
documentary evidence of authority must be in form satisfactory to the Exchange
Agent.
(7) Special Instructions for Delivery by the Exchange Agent. The
certificate representing Surviving Corporation common stock and/or the Payment
Check(s) will be mailed to the address of the registered holder(s) as indicated
under Box A entitled "Certificate Information," unless instructions to the
contrary are given in Box G entitled "Special Mailing Instructions."
(8) Lost Certificates. If you are not able to locate your certificates
representing Visioneer Common Stock, you should contact U.S. Stock Transfer
Corporation, Visioneer's transfer agent, at: 1745 Gardena Avenue, Suite 200,
Glendale, California 91204, (818) 502-1404. In such event, U.S. Stock Transfer
will forward additional documentation which the shareholder must complete in
order to effectively surrender such lost or destroyed certificate(s). There may
be a fee to replace lost certificates.
(9) Federal Income Tax Withholding. Under Federal income tax law, the
Exchange Agent is required to file a report with the Internal Revenue Service
disclosing any payments of cash being made to each holder of certificates
formerly representing shares of Visioneer Common Stock pursuant to the Merger
Agreement. In order to avoid "backup withholding" of Federal income tax on any
cash received upon the surrender of certificate(s), a holder thereof must,
unless an exemption applies, provide the Exchange Agent with his or her correct
taxpayer identification number ("TIN") on Substitute Form W-9, which is part of
this Form of Election (Box D), and certify, under penalties of perjury, that
such number is correct and that such holder is not otherwise subject to backup
withholding. If the correct TIN and certifications are not provided, a $50
penalty may be imposed by the Internal Revenue Service and payments made for
surrender of certificate(s) may be subject to backup withholding of 31%. In
addition, if a holder makes a false statement that results in no imposition of
backup withholding, and there was no reasonable basis for making such a
statement, a $500 penalty may also be imposed by the Internal Revenue Service.
Backup withholding is not an additional Federal income tax. Rather, the
Federal income tax liability of a person subject to backup withholding will be
reduced by the amount of such tax withheld. If backup withholding results in an
overpayment of income taxes, a refund may be obtained from the Internal Revenue
Service.
The TIN that must be provided on the Substitute Form W-9 is that of the
registered holder(s) of the certificate(s) at the Effective Time. The TIN for an
individual is his or her social security number. The box in Part II of the
Substitute Form W-9 may be checked if the person surrendering the certificates
has not been issued a TIN and has applied for a TIN or intends to apply for a
TIN in the near future. If the box in Part II has been checked, the person
surrendering the certificate(s) must also complete the Certificate of Awaiting
Taxpayer Identification Number in order to avoid backup withholding.
Notwithstanding that the box in Part II is checked (and the Certificate of
Awaiting Taxpayer Identification Number is completed), the Exchange Agent will
withhold 31% on all cash payments with respect to surrendered certificate(s)
made prior to the time it is provided with a properly certified TIN.
Exempt persons (including, among others, corporations) are not subject to
backup withholding. A foreign individual may qualify as an exempt person by
submitting Form W-8 or a substitute Form W-8, signed under penalties of perjury,
certifying to such person's exempt status. A form of such statement can be
obtained from the Exchange Agent. A certificate holder should consult his or her
tax advisor as to such holder's qualification for an exemption from backup
withholding and the procedure for obtaining such exemption.
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The signature and date provided on the Substitute Form W-9 will serve to
certify that the TIN and withholding information provided in this Form of
Election are true, correct, and complete. Please consult your tax advisor for
further guidance in completing the Substitute Form W-9.
(10) Questions and Requests for Information or Assistance. If you have any
questions or need assistance to complete this Form of Election, or would like to
obtain additional copies of this Form of Election or the Proxy
Statement/Prospectus, please contact Visioneer, Inc., 34800 Campus Drive,
Fremont, California 94555, (510) 608-0300. All such documents are available
without charge upon written or oral request from Visioneer.
I. DELIVERY OF SHARE OF SURVIVING CORPORATION COMMON STOCK AND PAYMENT CHECKS
As soon as practicable after the Merger becomes effective, the Exchange
Agent will make the allocations of cash and Surviving Corporation common stock
to be received by holders of Visioneer Common Stock or their designees in
accordance with the Election and Allocation Procedures. The Exchange Agent will
thereafter issue and mail to you a check for any cash and/or any certificate or
certificates of Surviving Corporation common stock to which you are entitled
(and, if applicable, a check in lieu of a fractional share), provided you have
delivered the required certificates for your Visioneer Common Stock in
accordance with the terms and conditions hereof, including the documents
incorporated herein by reference.
If you do not submit an effective Form of Election, the Exchange Agent will
forward to you, as soon as practicable after the Merger becomes effective, a
Letter of Transmittal for you to use to send in your certificates for shares of
Visioneer Common Stock, containing appropriate instructions for surrendering
such certificates at that time. After the Exchange Agent receives your stock
certificates with a properly completed Letter of Transmittal, it will issue and
mail to you a check for any cash and/or any certificate or certificates for
shares of Surviving Corporation common stock to which you are entitled (and, if
applicable, a check in lieu of a fractional share), provided you have delivered
the required certificates for your Visioneer Common Stock in accordance with the
terms and conditions of the Letter of Transmittal, including the documents
incorporated therein by reference.
DO NOT ENCLOSE YOUR PROXY CARD RELATING TO THE SPECIAL MEETING WITH THIS
FORM OF ELECTION. YOUR PROXY CARD SHOULD BE RETURNED IN THE POSTAGE-PAID
ENVELOPE ENCLOSED WITH THE PROXY STATEMENT/PROSPECTUS FOR THAT PURPOSE.
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