<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
SCANSOFT, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
SCANSOFT, INC.
9 CENTENNIAL DRIVE
PEABODY, MA 01960
(978) 977-2000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of
SCANSOFT, INC.:
The Annual Meeting of Stockholders of ScanSoft, Inc. (the "Company") will
be held at the Company's headquarters, 9 Centennial Drive, Peabody,
Massachusetts, on May 4, 2000 at 10:00 a.m. for the purpose of considering and
acting upon the following proposals:
(1) To elect a Board of eight (8) directors to hold office until the next
annual meeting of stockholders or until their respective successors
have been elected and qualified;
(2) To approve the Company's Amended and Restated Certificate of
Incorporation;
(3) To approve the Company's 2000 Stock Option Plan;
(4) To ratify the appointment of PricewaterhouseCoopers LLP as the
independent public accountants for the period ending December 31, 2000;
and
(5) To transact such other business as may properly come before the meeting
or any postponement or adjournment thereof.
The Board of Directors has fixed the close of business on March 10, 2000 as
the record date for determination of stockholders entitled to notice of and to
vote at the Annual Meeting and at any postponements or adjournments thereof. A
list of stockholders entitled to vote will be available at 9 Centennial Drive,
Peabody, Massachusetts 01960 for ten days prior to the Annual Meeting.
The Company's Annual Report on Form 10-K for the year ended December 31,
1999 accompanies this Notice of Annual Meeting of Stockholders and Proxy
Statement.
By Order of the Board of Directors
Katharine A. Martin
Secretary
Peabody, Massachusetts
April 4, 2000
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN THE ACCOMPANYING PROXY
CARD IN THE ENCLOSED ENVELOPE.
<PAGE> 3
SCANSOFT, INC.
9 CENTENNIAL DRIVE
PEABODY, MA 01960
(978) 977-2000
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
MAY 4, 2000
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of ScanSoft, Inc. (the "Company") of proxies for use at
the Annual Meeting of Stockholders of the Company to be held on May 4, 2000 at
10:00 a.m. at 9 Centennial Drive, Peabody, Massachusetts. This proxy statement
and the accompanying form of proxy are being mailed to stockholders on or about
April 4, 2000.
VOTING RIGHTS
Each share of Common Stock entitles its holder to one vote on matters to be
acted upon at the meeting, including the election of directors. The Company's
Series B preferred stock is not entitled to a vote on matters to be acted upon
at the meeting. Votes cast in person or by proxy at the Annual Meeting will be
tabulated by U.S. Stock Transfer Corporation, the Inspector of Elections. Any
proxy that is returned using the form of proxy enclosed and which is not marked
as to a particular item will be voted FOR the election of the director nominees,
FOR approval of the Amended and Restated Certificate of Incorporation, FOR
approval of the Company's 2000 Stock Option Plan, FOR ratification of the
appointment of PricewaterhouseCoopers LLP as the designated independent public
accountants and, as the proxy holders deem advisable in their sole discretion,
on other matters that may come before the meeting. A stockholder may indicate on
the enclosed Proxy or its substitute that it is abstaining from voting on a
particular matter (an "abstention"). A broker may indicate on the enclosed Proxy
or its substitute that it does not have discretionary authority as to certain
shares to vote on a particular matter (a "broker non-vote"). Abstentions and
broker non-votes are each tabulated separately.
The Inspector of Elections will determine whether or not a quorum is
present at the Annual Meeting. In general, Delaware law provides that a majority
of the shares entitled to vote present in person or represented by proxy
constitutes a quorum. Abstentions and broker non-votes of shares that are
entitled to vote are treated as shares that are present in person or represented
by proxy for purposes of determining the presence of a quorum. Except for the
election of directors and the approval of the Amended and Restated Certificate
of Incorporation, the affirmative vote of the majority of shares entitled to
vote and present in person or represented by proxy at a duly held meeting at
which a quorum is present is required under Delaware law for approval of
proposals presented to stockholders. Directors are elected by a plurality of the
votes and the affirmative vote of the majority of the shares outstanding is
required to approve the Amended and Restated Certificate of Incorporation.
In determining whether a proposal has been approved, abstentions of shares
that are entitled to vote are treated as present in person or represented by
proxy, but not as voting for such proposal, and hence have the same effect as
votes against such proposal, while broker non-votes of shares that are entitled
to vote are not treated as present in person or represented by proxy, and hence
have no effect on the vote for such proposal.
RECORD DATE AND SHARE OWNERSHIP
Stockholders of record of the Company as of the close of business on March
10, 2000 have the right to receive notice of and to vote at the Annual Meeting.
On March 10, 2000, the Company had issued and outstanding 26,725,883 shares of
Common Stock.
1
<PAGE> 4
PROXIES
Proxies for use at the Annual Meeting are being solicited by the Board of
Directors of the Company from its stockholders.
Any person giving a proxy in the form accompanying this Proxy Statement has
the power to revoke it at any time before its exercise by (i) filing with the
Secretary of the Company a signed written statement revoking his or her proxy or
(ii) submitting an executed proxy bearing a date later than that of the proxy
being revoked. A proxy may also be revoked by attendance at the Annual Meeting
and the election to vote in person. Attendance at the Annual Meeting will not by
itself constitute the revocation of a proxy.
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
At the Annual Meeting, a Board of eight (8) directors will be elected.
Except as set forth below, unless otherwise instructed, the proxy holders will
vote the proxies received by them for Management's nominees named below. The
nominees are presently directors of the Company. Messrs. Frankenberg and Teresi
became directors of the Company effective at the close of the Company's recent
acquisition of Caere Corporation. Messrs. Harding and Marquardt each resigned
from the Board in August 1999 and October 1999, respectively. In the event that
any Management nominee shall become unavailable, the proxy holders will vote in
their discretion for a substitute nominee. The term of office of each person
elected as a director will continue until the next Annual Meeting of
Stockholders or until a successor has been elected and qualified.
THE NAME, AGE AND PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS OF THE
DIRECTORS NOMINATED BY MANAGEMENT ARE:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATIONS FOR PAST FIVE YEARS
- ---- --- -----------------------------------------
<S> <C> <C>
Michael K. Tivnan.............. 47 - Served as the President and Chief Executive Officer of the
Company since March 2, 1999.
- From February 1998 until March 2, 1999, Mr. Tivnan served
as the President of ScanSoft, Inc., which was then operating
as an indirect wholly owned subsidiary of Xerox.
- From November 1993 until February 1998, Mr. Tivnan served
as General Manager and Vice President of ScanSoft.
- From January 1991 until November 1993, Mr. Tivnan served
as Chief Financial Officer of ScanSoft.
Paul A. Ricci.................. 43 - Served as the Chairman of the Board of Directors of the
Company since March 2, 1999.
- Mr. Ricci joined Xerox in 1992 and is currently the Vice
President, Corporate Business Development, a position he has
held since January 1998.
- Prior to assuming his current position, Mr. Ricci has held
several positions within Xerox, including serving as
President, Software Solutions Division and as President of
the Desktop Document Systems Division.
- Mr. Ricci has served as Chairman of the Board of Directors
of ScanSoft from June 1997 until ScanSoft's acquisition by
the Company in March 1999.
J. Larry Smart................. 52 - Served as a director of the Company since February 1997.
- Mr. Smart is currently the President and Chief Executive
Officer of EchoBahn.com, a business-to-business Internet
marketing services company.
- From April 1997 until March 2, 1999, Mr. Smart served as
President and Chief Executive Officer of Visioneer, Inc. Mr.
Smart served as Chairman of the Board of Directors of
Visioneer, Inc. from February 1997 until April 1997.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATIONS FOR PAST FIVE YEARS
- ---- --- -----------------------------------------
<S> <C> <C>
- From July 1995 to March 1997, Mr. Smart was Chairman,
President and Chief Executive Officer of StreamLogic
Corporation/Micropolis Corporation, a data storage and
delivery 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 Visioneer, Inc. (Primax Company) a computer scanner
company and is a director of Savoir Technology Group,
Inc., a distributor of mid range computer systems.
Mark B. Myers.................. 60 - Served as a director of the Company since March 2, 1999.
- Since February 1992, Dr. Myers has served as Senior Vice
President, Xerox Research and Technology, responsible for
worldwide research and technology.
Katharine A. Martin............ 37 - Served as a director of the Company since December 17,
1999.
- Since March 2, 1999, Ms. Martin has served as the
Company's Corporate Secretary.
- Since September 1999, Ms. Martin has served as a Member of
Wilson Sonsini Goodrich & Rosati, a Professional
Corporation. Wilson Sunsini Goodrich & Rosati as the
primary outside corporate and securities counsel to the
Company.
- From January 1995 to September 1999, Ms. Martin served as
a Partner of Pillsbury Madison & Sutro LLP and from
September 1987 to December 1994 as an associate of
Pillsbury Madison & Sutro LLP.
Robert G. Teresi............... 58 - Served as a director of the Company since March 13, 2000.
- Mr. Teresi served as the Chairman of the Board, Chief
Executive Officer and President of Caere Corporation from
May 1985 until March 2000.
Robert J. Frankenberg.......... 52 - Served as a director of the Company since March 13, 2000.
- Since May 1997, Mr. Frankenberg has served as the
President and Chief Executive Officer of Encanto Networks,
Inc., a developer of hardware and software designed to
enable creation of businesses on the Internet.
- From April 1994 to August 1996, he was Chairman, President
and Chief Executive Officer of Novell, Inc., a producer of
network software.
- He is a director of Electroglas, Inc., National
Semiconductor, Daw Technologies, Inc. and Secure Computing
Corporation.
Anne M. Mulcahy................ 47 - Served as a director of the Company since March 13, 2000.
- Since 1999, she has served as President, General Market
Operations and since April 1998 a Senior Vice President of
Xerox Corporation and since 1976 she has served in other
vice president and senior management capacities for Xerox.
</TABLE>
REQUIRED VOTE
The eight (8) nominees receiving the highest number of affirmative votes of
the shares of the Company's Common Stock present at the Annual Meeting in person
or by proxy and entitled to vote shall be elected as directors. Unless marked to
the contrary, proxies received will be voted "FOR" management's nominees.
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<PAGE> 6
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" MANAGEMENT'S
NOMINEES.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board of Directors held a total of seven meetings during the fiscal
year ended December 31, 1999. Each director attended at least 75% of the
aggregate number of meetings of (i) the Board of Directors and (ii) the
committees of the Board of Directors on which he served. The Board of Directors
has an Audit Committee and a Compensation Committee. It does not have a
nominating committee or a committee performing the functions of a nominating
committee.
The Audit Committee of the Board of Directors, which currently consists of
directors Paul A. Ricci and J. Larry Smart , held four meetings during 1999. The
Audit Committee, which meets periodically with management and our independent
public accountants, recommends engagement of our independent public accountants
and is primarily responsible for approving the service performed by our
independent public accountants and reviewing and evaluating our accounting
principles and the adequacy of our internal auditing procedures and controls.
The Compensation Committee of the Board of Directors, which currently
consists of directors Paul A. Ricci and Katharine A. Martin, held one meeting
during 1999. The Compensation Committee, in conjunction with the Board of
Directors, establishes salaries, incentives and other forms of compensation for
directors, officers and other employees, administers the various incentive
compensation and benefit plans (including our stock purchase and stock option
plans) and recommends policies relating to such plans.
COMPENSATION OF DIRECTORS
Nonemployee directors of the Company are automatically granted options to
purchase shares of the Company's Common Stock pursuant to the terms of the
Company's 1995 Directors' Stock Option Plan (the "Directors' Option Plan").
Under the Directors' Option Plan, each nonemployee director will be granted an
option to purchase 20,000 shares of Common Stock on the date on which he or she
first becomes a nonemployee director (the "First Option"). Thereafter, on
January 1 of each year each nonemployee director shall be automatically granted
an additional option to purchase 5,000 shares of Common Stock (a "Subsequent
Option") if, on such date, he or she shall have served on the Company's Board of
Directors for at least six (6) months. The First Option shall become exercisable
in installments as to twenty-five percent (25%) of the total number of shares
subject to the First Option on each anniversary of the date of grant of the
First Option, and each Subsequent Option shall become exercisable in full on the
first anniversary of the date of grant of that Subsequent Option. Options
granted under the Directors' Option Plan have an exercise price equal to the
fair market value of the Company's Common Stock on the date of grant, and a term
of ten (10) years. Pursuant to the Directors' Option Plan, on January 1, 1999,
each nonemployee director was granted an option to purchase 5,000 shares of
Common Stock. The terms of such options, including vesting terms, are
substantially similar to the terms of the First Option.
CHANGE IN CONTROL AND EMPLOYMENT AGREEMENTS
In April 1999, ScanSoft's Board of Directors approved acceleration of
vesting of options for all officers and directors of the Company in the event of
a change in control. A change in control includes a merger or consolidation of
the Company not approved by the Board of Directors, certain changes in the Board
of Director composition, and certain changes in the ownership of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules of the Securities and Exchange Commission (the
"Commission") thereunder require the Company's executive officers, directors and
certain stockholders to file reports of ownership and changes in ownership of
the Common Stock with the Commission. Based upon a review of such reports, the
Company believes that all
4
<PAGE> 7
reports required by section 16(a) of the Exchange Act to be filed by its
executive officers and directors during the last fiscal year were filed on time.
RELATED PARTY TRANSACTIONS
We are a party to multiple non-exclusive agreements with Xerox Corporation
in which we agreed to license Xerox the royalty-bearing right to copy and
distribute certain versions of Pagis, TextBridge and Paper Port software
programs with Xerox's multi-function peripherals. In addition, we are a party to
a license agreement with Xerox that includes limited licenses and the assignment
of certain patents and trademarks. During 1999, Xerox paid us approximately $4.5
million under these agreements.
On September 13, 1999, we purchased 600,000 shares of Series A Preferred
Stock, par value $.10 per share, at a cost of $.25 per share for a total
investment of $150,000 in BookmarkCentral.com (which was recently renamed
EchoBahn.com, Inc.). J. Larry Smart, one of our directors, is a founder and the
current President and Chief Executive Officer of EchoBahn.
VOTING AGREEMENT
Xerox, Xerox Imaging Systems, Inc., the Company and several holders of the
Company Common Stock entered into a Voting Agreement effective at the close of
the merger with ScanSoft, pursuant to which they agreed to vote to elect certain
nominees to the Board of Directors, including up to two persons designated by
Xerox (the "Voting Agreement"). This Agreement was amended effective March 24,
2000 to remove the holders other than Xerox from the Agreement and to modify
certain other provisions. The following is a summary of the terms of the Voting
Agreement as amended.
At each annual meeting of stockholders during the term of the Voting
Agreement, or at any special meeting of stockholders at which board members are
to be elected, the parties to the Voting Agreement will vote their shares so as
to elect the following directors:
(i) so long as Xerox owns at least 20% of our outstanding voting stock:
two persons designated by Xerox, two individuals designated by the
four members of the Board of Directors who were not nominated by Xerox
and who are not our Chief Executive Officer or our then-current Chief
Executive Officer, and three independent members with relevant
industry experience who are to be designated by at least four out of
the five directors who are not considered to be independent directors;
or
(ii) so long as Xerox owns at least 10% of our outstanding voting stock:
one person designated by Xerox, two individuals designated by the five
members of the board who were not nominated by Xerox and who are not
our Chief Executive Officer or our then-current Chief Executive
Officer, and four independent members with relevant industry
experience who are designated by at least three out of the four
directors who are not considered to be independent directors.
The Voting Agreement will terminate upon the earliest to occur of: (1) the
sale of all or substantially all of our property or business or our merger into
or consolidation with any other corporation or if we effect any other
transaction(s) in which more than 50% of our voting power is disposed of; (2)
such time as Xerox owns less than 10% of our outstanding voting stock; or (3)
such time as the non-reporting person parties to the Voting Agreement own, in
the aggregate, less than 7% of our outstanding voting stock; provided, however,
that if such time occurs prior to March 2, 2001 and Xerox holds at such time
shares of our Series B Preferred Stock, the Voting Agreement will not terminate
until the earlier of (x) March 2, 2001 or (y) the date on which Xerox (together
with its affiliates) no longer holds any shares of our Preferred Stock.
5
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of March 1, 2000, as to (1) each
person (or group of affiliated persons) who is known by us to own beneficially
more than 5% of our common stock; (2) each of our directors; (3) each of our
executive officers; and (4) all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(2)
-----------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT
- --------------------------------------- ------------- ----------
<S> <C> <C>
Xerox Imaging Systems, Inc.(3).............................. 11,853,602 44.4%
800 Long Ridge Road
Stamford, CT 06904
Michael K. Tivnan(4)........................................ 221,423 *
Paul A. Ricci(5)............................................ 140,000 *
Wayne S. Crandall(6)........................................ 119,971 *
Steven C. Ricketts.......................................... 15,000 *
Stanley E. Swiniarski(7).................................... 102,187 *
Mark B. Myers(8)............................................ 5,000 *
J. Larry Smart(9)........................................... 36,263 *
John J. Rogers, Jr.......................................... -- --
Katharine A. Martin(10)..................................... 6,000 *
Robert G. Teresi(11)........................................ 1,000
Robert J. Frankenberg(12)................................... --
Anne M. Mulcahy............................................. --
All directors and executive officers as a group (9
persons)(13).............................................. 646,844 2.42%
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated, the address for the following stockholders is
c/o ScanSoft, Inc., 9 Centennial Drive, Peabody, Massachusetts 01960.
(2) Applicable percentage ownership is based on 26,725,883 shares of common
stock outstanding as of March 10, 2000. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission. In
computing the number of shares beneficially owned by a person and the
percentage of ownership of that person, shares of common stock subject to
options held by that person that are currently exercisable or exercisable
within 60 days of March 1, 2000 are deemed outstanding. Such shares,
however, are not deemed outstanding for the purpose of computing the
percentage of ownership of any other person. The persons named in the table
have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them, subject to the community
property laws where applicable and except as indicated in the other
footnotes to this table.
(3) Excludes a warrant to purchase up to 1,738,552 shares of common stock and
3,562,238 shares of nonvoting Series B Preferred Stock. As a result of the
acquisition of Caere Corporation, which closed on March 13, 2000, the
number of shares owned by Xerox Imaging Systems now represents
approximately 26% of the Company's outstanding voting securities.
(4) Includes 171,423 shares subject to options exercisable within 60 days of
March 1, 2000.
(5) Excludes 11,853,602 shares of common stock held by Xerox Imaging Systems,
Inc. Includes 5,000 shares subject to options exercisable within 60 days of
March 1, 2000.
(6) Includes 94,971 shares subject to options exercisable within 60 days of
March 1, 2000.
(7) Includes 102,187 shares subject to options exercisable within 60 days of
March 1, 2000.
(8) Includes 5,000 shares subject to options exercisable within 60 days of
March 1, 2000.
6
<PAGE> 9
(9) Includes 34,166 shares subject to options exercisable within 60 days of
March 1, 2000.
(10) Includes 5,000 shares subject to options exercisable within 60 days of
March 1, 2000.
(11) Excludes 172,186 shares and 889,586 shares subject to options exercisable
within 60 days of March 1, 2000 issued on March 13, 2000 in connection with
the acquisition of Caere Corporation.
(12) Excludes 141,708 shares subject to options exercisable within 60 days of
March 1, 2000 issued on March 13, 2000 in connection with the acquisition
of Caere Corporation.
(13) Includes 417,747 shares subject to options exercisable within 60 days of
March 1, 2000.
EXECUTIVE COMPENSATION
The following table provides certain summary information for the fiscal
years 1997, 1998 and 1999 concerning compensation paid to the Company's Chief
Executive Officer and to the Company's four other named executive officers whose
compensation exceeded $100,000 in 1999 (the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- ----------------------
OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS(#)
- --------------------------- ---- -------- -------- ------------ ----------------------
<S> <C> <C> <C> <C> <C>
J. Larry Smart(1).................. 1999 $165,846 $ 38,000 $122,750 120,000
President and Chief Executive
Officer 1998 314,357 114,500 -- 698,574
1997 190,050 98,429 21,500 815,000
Michael K. Tivnan(2)............... 1999 204,304 25,920 -- 801,936
President and Chief Executive
Officer
Stanley E. Swiniarski(2)........... 1999 131,606 17,089 -- 295,887
Vice President, Software
Development
Wayne Crandall(2).................. 1999 127,676 77,551 -- 369,782
Vice President, Sales and
Marketing
Steven C. Ricketts(3).............. 1999 114,679 0 -- 243,570
Senior Marketing Director
John J. Rogers, Jr.(4)............. 1999 99,397 17,150 -- 400,000
Vice President, Sales and
Marketing
</TABLE>
- ---------------
(1) Mr. Smart left this capacity on March 1, 1999.
(2) Messrs. Tivnan,Swiniarski and Crandall began operating on these capacities
on March 2, 1999.
(3) Mr. Ricketts left the Company in January 2000.
(4) Mr. Rogers joined the Company in May 1999.
7
<PAGE> 10
RECENT OPTION GRANTS
The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 1999 to the Named Executive
Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
PERCENT OF TOTAL AT ASSUMED ANNUAL
OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES IN EXERCISE OR TERM($)(2)
OPTIONS FISCAL BASE PRICE EXPIRATION --------------------------
NAME GRANTED(#) YEAR(%)(1) ($/SHARE) DATE 5% 10%
- ---- ---------- ---------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael K. Tivnan.... 260,000 8.23% $1.63 3/2/09 $266,526 $675,428
240,000 7.59 1.72 10/28/09 259,608 657,897
10,000 .32 1.72 10/28/09 10,817 27,412
John J. Rogers,
Jr. ............... 400,000 12.66 1.56 5/6/09 392,430 994,495
Wayne Crandall....... 142,588 4.51 1.63 3/2/09 146,167 370,415
75,000 2.37 2.19 9/30/09 103,296 261,772
Stanley Swiniarski... 175,938 5.57 1.63 3/2/09 180,354 457,052
Steven C. Ricketts... 142,000 4.49 1.63 3/2/09 145,564 368,888
</TABLE>
- ---------------
(1) Based on options to purchase an aggregate of 3,255,392 shares of common
stock granted during fiscal 1999.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of five percent (5%) and
ten percent (10%) compounded annually from the date the respective options
were granted to their expiration date and are not presented to forecast
possible future appreciation, if any, in the price of our common stock. The
gains shown are net of the option exercise price, but do not include
deductions for taxes or other expenses associated with the exercise of the
options or the sale of the underlying shares of common stock. The actual
gains, if any, on the stock option exercises will depend on the future
performance of our common stock, the optionee's continued employment through
applicable vesting periods and the date on which the options are exercised.
The following table shows the number of shares of common stock represented
by outstanding stock options held by each of the Named Executive Officers as of
December 31, 1999.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT FISCAL OPTIONS AT FISCAL YEAR-END
NAME YEAR-END EXERCISABLE/UNEXERCISABLE ($) EXERCISABLE/UNEXERCISABLE
- ---- ---------------------------------- ---------------------------------
<S> <C> <C>
Michael K. Tivnan.......... 106,423/665,513 $360,774/1,713,389
John J. Rogers, Jr. ....... 0/400,000 0/976,000
Wayne Crandall............. 59,324/295,458 201,108/737,662
Stanley Swiniarski......... 58,202/237,685 197,305/626,295
Steven C. Ricketts......... 32,158/196,412 109,016/520,996
</TABLE>
- ---------------
(1) Based on a per share price of $4.00, the closing price of our common stock
as reported by The Nasdaq National Market on December 31, 1999, the last
trading day of the fiscal year.
8
<PAGE> 11
COMPENSATION COMMITTEE REPORT ON COMPENSATION
The Company's compensation policies for its executive officers and Chief
Executive Officer are determined by the Compensation Committee of the Board of
Directors (the "Committee"). The Committee sets the base salary and bonus
programs for executive officers each fiscal year. In addition, the Committee
administers the Company's 1993 Incentive Stock Option Plan and 1997 Employee
Stock Option Plan under which option grants may be made to such officers and
other key employees as an inducement essential to such officers and employees
joining and/or remaining with the Company.
GENERAL COMPENSATION POLICY
The Company's executive compensation program consists of three main
components: (1) base salary which reflects individual performance and Company
performance and is designed generally to be competitive with salary levels in
the Company's industry and geographical area, (2) potential for a quarterly or
annual bonus payable in cash and based on individual performance and Company
performance, and (3) long-term stock option awards that provide executive
officers with the opportunity to build a meaningful stake in the Company, with
the objective of aligning executive officers' long-range interests with those of
the stockholders and encouraging the achievement of superior results over time.
FACTORS
Several of the more important factors which were considered in establishing
the components of each executive officer's compensation package for the 1999
fiscal year are summarized below. Additional factors were also taken into
account to a lesser degree. The Committee may at its discretion apply entirely
different factors, particularly different measures of financial performance,
insetting executive compensation for future fiscal years.
- Base Salary. The base salary for each executive officer is set on the
basis of personal performance, internal comparability standards, and the
salary levels in effect for comparable positions with companies in the
Company's industry and at high technology companies generally in Silicon
Valley and Boston that are of comparable size to the Company and with
which the Company competes for executive personnel. External salary data
is obtained by reviewing data from specific companies in Silicon Valley
and Boston in the Company's industry and a variety of compensation
surveys. The Committee believes that the Company's most direct
competitors for executive talent are not necessarily all of the companies
that the Company would use in a comparison for stockholder returns.
Therefore, the compensation comparison group is not the same as the
industry group index in the "Performance Graph" included below.
- Annual Incentive Compensation. Bonuses were paid to executive officers
for fiscal 1999. The Company had adopted a Management Incentive Program
in December 1995 pursuant to which bonuses were payable to eligible
employees for fiscal 1999 upon achievement of individual goals
established for each employee and Company performance goals. The
individual performance portion of the bonus varied, depending on the
individual, and the Company performance portion of the bonus was a
function of net profit before taxes. Individual goals and Company
performance goals were generally targeted at 40% and 60%, respectively,
of the total bonus amount to be paid to any particular executive officer.
Performance goals related to revenue, product delivery and cash flow
criteria. For 1999, the executive bonuses paid represented between 25-35%
of the total bonus opportunity.
- Long-term Incentive Compensation. The Committee periodically approves
grants of stock options to each of the Company's executive officers under
the Company's 1993 Incentive Stock Option Plan. The grants are designed
to give executive officers the opportunity to build a meaningful stake in
the Company, with the objective of aligning executive officers'
long-range interests with those of the stockholders and encouraging the
achievement of superior results over time. Each grant generally allows
the officer to acquire shares of the Company's Common Stock at a fixed
price per share (the fair market value on the grant date) over a
specified period of time (up to 10 years), thus providing a return to the
executive officer only if the market price of the shares appreciates over
the option term.
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<PAGE> 12
During the 1999 fiscal year, the Committee approved grants to officers
with vesting commencing on the date of grant, after taking into account
the option holdings and direct stock holdings of such individuals. The
size of such grants was set to achieve a potential percentage ownership
stake in the Company that the Committee deemed appropriate to create a
meaningful opportunity for stock ownership based upon such individuals'
current position with the Company, but also taking into account the
individual's potential for future responsibility and promotion over the
option term and the individual's personal performance in recent periods.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee meets without the Chief Executive Officer present to evaluate
his performance and reports on that evaluation to the independent members of the
Board of Directors. The compensation payable to Michael K. Tivnan in his
capacity as the Company's Chief Executive Officer for fiscal 1999 was based on a
number of factors, including comparative salaries of chief executive officers of
similar companies of comparable sales and capitalization in the Company's
industry and geographical area. The primary data source for chief executive
officer compensation was the 1999 Radford Executive Management Survey and the
1999 Price Waterhouse Coopers Software Industry Council. The data indicated that
Mr. Tivnan's base salary falls in the 50th percentile of the market as
determined by similar companies with revenue between $40 and $99 million. Mr.
Tivnan's bonus is based on the same performance criteria as the other executive
officers. He was paid a bonus of approximately $26,000, which represented
approximately 25% of this total target bonus.
COMPENSATION COMMITTEE
Paul A. Ricci
Katharine A. Martin
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<PAGE> 13
PERFORMANCE GRAPH
The following graph compares, for the period of time since the Company's
Common Stock was first registered under Section 12 of the Securities Exchange
Act of 1934 (December 11, 1995), the cumulative total stockholder return for the
Company with the cumulative total return of the Standard & Poor's 500 Stock
Index, and the Nasdaq Computer Manufacturers Index assuming $100 was invested on
December 11, 1995 in the Company's Common Stock and both of the indices. The
stock price performance on the following graph is not necessarily indicative of
future stock price performance.
COMPARISON OF 48 MONTH CUMULATIVE TOTAL RETURN*
AMONG SCANSOFT, INC., THE S & P 500 INDEX
AND THE NASDAQ COMPUTER MANUFACTURERS INDEX
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
NASDAQ COMPUTER
SCANSOFT, INC. S&P 500 MANUFACTURERS
-------------- ------- ---------------
<S> <C> <C> <C>
12/11/95 100.00 100.00 100.00
6/96 84.38 109.46 109.80
3/97 31.25 125.52 106.80
9/97 31.25 158.48 173.28
3/98 25.00 185.77 189.15
9/98 5.99 172.82 245.21
6/99 23.96 235.58 415.22
12/99 33.33 253.73 700.25
</TABLE>
11
<PAGE> 14
PROPOSAL NUMBER 2
APPROVAL OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors has approved an amendment to the Company's Restated
Certificate of Incorporation, subject to the approval of the Company's
stockholders. The amendment deletes paragraph (3) of ARTICLE IV in its entirety.
The purpose of the amendment is to delete certain supermajority vote provisions
that were added to the Company's Certificate of Incorporation at the time of the
merger with Xerox Corporation's subsidiary in March 1999. The effect of the
amendment will be to reduce the vote required to take the enumerated actions to
the minimum vote required by the Delaware General Corporation Law ("DGCL") and
in some instances eliminate the need for stockholder approval altogether. A copy
of the Company's Amended and Restated Certificate of Incorporation as proposed
to be amended as described herein is attached hereto as Annex A.
Paragraph (3) of ARTICLE IV of the Company's Restated Certificate of
Incorporation provides in its entirety that:
"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%) 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 his
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 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."
These provisions were added at the time of the merger with the Xerox
subsidiary because Xerox became the holder of approximately 45% of the Company's
outstanding voting shares following the merger. Generally, these provisions were
designed to protect the interests of all stockholders of the Company in view of
the concentrated vote in one single stockholder. However, as a result of the
Company's recent acquisition of Caere Corporation, in which approximately 19
million shares of Common Stock were issued to former stockholders of Caere
Corporation effective as of the closing of the merger on March 13, 2000, Xerox
now holds approximately 26% of the Company's outstanding voting securities.
Therefore, the Company's management no longer believes that the supermajority
voting provisions are necessary to protect the interests of all
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<PAGE> 15
stockholders and in fact believes that they may have the effect of preventing,
discouraging or delaying an acquisition of the Company and interfering with the
day-to-day operations of the Company.
Subparagraph (A) precludes the Company from being acquired or merged or
from selling all or susbtanitally all of its assets without a supermajority
vote. Under Delaware law, a merger, acquisition or sale of all or substantially
all of the assets of the corporation would require the affirmative vote of a
majority of the outstanding shares. The requirement to obtain a supermajority
vote on these transactions is likely to have the effect of preventing,
discouraging or delaying an acquisition, merger or takeover of the Company,
including a negotiated transaction that the Company's board of directors
believes is in the best interests of the Company's stockholders. In the case of
any unsolicited proposal that the Company may receive in the future, the Board
believes that without the supermajority vote it can adequately protect the
interests of the Company's stockholders with the Company's poison pill (i.e. the
Company's Rights Agreement with U.S. Stock Transfer Corporation N.A.), the use
of authorized but unissued shares of Preferred Stock and the protections
afforded by Section 203 of the DGCL. The Company's Board of Directors is not
aware of any present arrangement, agreement, understanding or plan regarding a
proposed acquisition or takeover of the Company or of a sale of all or
substantially all of the Company's assets.
Under the DGCL, an encumbrance of all or substantially all of the assets of
the Company does not require a stockholder vote. The current inability of the
Company to encumber all of its assets has the effect of interfering with the
Company's ability to enter into routine, ordinary course of business secured
credit facility transactions, which may be necessary or desirable from time to
time in order to maintain the Company's liquidity requirements. On March 14,
2000 the Company entered into a $10,000,000 secured credit facility with Fleet
National Bank. The credit facility is secured by the Company's accounts
receivable, patents and trademarks. If the Company's stockholders approve the
Amended and Restated Certificate of Incorporation, Fleet National Bank will
perfect a security interest in all of the Company's remaining assets.
Subparagraph (B) generally prohibits the Company's ability to issue its
authorized, but unissued preferred stock from time to time without a
supermajority vote of the stockholders. The Company believes that it is in the
best interests of the stockholders to have these shares available to issue from
time to time to meet the Company's future business needs as they arise. The
Company's Board of Directors has no present arrangements, agreements,
understandings or plans for the use of any such authorized, but unissued shares
of Preferred Stock. The Board believes that the availability of such shares will
provide the Company with the flexibility to issue Preferred Stock, when
appropriate or desirable, without further action by the Company's stockholders,
unless required by law, regulatory or stock exchange rule.
Subparagraphs (C) and (D) are generally applicable only to the sole holder
of the Series B Preferred Stock, a subsidiary of Xerox Corporation. Under the
DGCL, even in the absence of these provisions, Xerox, as the sole holder of
Series B Preferred Stock, would have to consent to any action that would alter
or change the rights, preferences or privileges of the shares of Series B
Preferred Stock so as to adversely affect it.
Subparagraph (E) generally prohibits the Company's reacquisition or
redemption of shares of Common or Preferred Stock without a supermajority vote
of the stockholders. Under the DGCL, this generally does not require stockholder
consent, but it is prohibited if any such acquisition or redemption would impair
the Company's capital. The Company's Board of Directors has no present
arrangements, agreements, understandings or plans to reacquire or redeem any
shares of Common or Preferred Stock, except in the ordinary course of business
the Company may from time to time reacquire unvested shares of Common Stock from
employees, officers, directors consultant or other persons pursuant to
agreements under which the Company has the option to repurchase such shares at
cost upon the occurrence of certain events, such as the termination of
employment.
Subparagraph (F) prohibits the Company from declaring or paying a dividend
on its Common or Preferred Stock without a supermajority vote of the
stockholders. Under the DGCL, this does not require stockholder approval, but it
is prohibited if any such dividend would impair the Company's capital. The
Company's Board of Directors has no present arrangements, agreements,
understandings or plans to declare or pay a dividend on any shares of Common or
Preferred Stock. In addition, pursuant to the terms of the Series B
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<PAGE> 16
Preferred Stock, the Company may not declare any dividend on the Common Stock
without first paying a dividend on the Series B Preferred Stock.
Subparagraph (G) precludes the Company from amending its Bylaws. In the
absence of a requirement in the certificate of incorporation, amendments to
Bylaws do not generally require stockholder approval.
REQUIRED APPROVAL
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock of the Company is required to approve the Amendment and
Restatement of the Certificate of Incorporation. Unless marked to the contrary,
proxies received will be voted "FOR" approval of the amendment and restatement
of the Certificate of Incorporation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF
THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
PROPOSAL NUMBER 3
APPROVAL OF THE COMPANY'S 2000 STOCK PLAN
The Company currently grants options to its employees under the 1993
Incentive Stock Option Plan (including executive officers) and the 1997 Employee
Stock Option Plan (including, in some instances, executive officers). As of
March 10, 2000, options to purchase a total of 1,928,901 were outstanding under
the 1993 Incentive Stock Option Plan and options to purchase 747,893 shares
remained available for grant thereunder (plus any canceled or expired options
that may be returned to 1993 Incentive Stock Option Plan). As of March 10, 2000,
options to purchase 1,393,366 shares were outstanding under the 1997 Employee
Stock Option Plan and options to purchase -0- shares remained available for
grant thereunder (plus any canceled or expired options that may be returned to
the 1997 Employee Stock Option Plan). To ensure the company can continue to
grant stock options to employees at levels determined appropriate by the Board
and the Compensation Committee of the Board, the shareholders are being asked to
approve the Company's 2000 Stock Plan (the "2000 Plan"). The Board believes the
2000 Plan is necessary in order to continue the Company's policy of equity
ownership by employees as an incentive for employees to exert maximum efforts.
The total number of shares authorized for issuance under the 2000 Plan is
2,500,000 shares.
DESCRIPTION OF THE SCANSOFT, INC. 2000 STOCK PLAN
General. The purpose of the Plan is to attract and retain the best
available personnel for positions of substantial responsibility with the
Company, to provide additional incentive to the employees and consultants of the
Company and its subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be either "incentive stock options"
or nonstatutory stock options. Stock purchase rights may also be granted under
the Plan.
Administration. The Plan may generally be administered by the Board or a
Committee appointed by the Board (as applicable, the "Administrator"). The
Administrator may make any determinations deemed necessary or advisable for the
Plan.
Eligibility. Nonstatutory stock options and stock purchase rights may be
granted under the Plan to employees, directors and consultants of the Company
and any parent or subsidiary of the Company. Incentive stock options may be
granted only to employees. The Administrator, in its discretion, selects the
employees, directors and consultants to whom options and stock purchase rights
may be granted, the time or times at which such options and stock purchase
rights shall be granted, and the exercise price and number of shares subject to
each such grant.
Limitations. Section 162(m) of the Code places limits on the deductibility
for federal income tax purposes of compensation paid to certain executive
officers of the Company. In order to preserve the Company's ability to deduct
the compensation income associated with options granted to such persons, the
Plan provides that no employee may be granted, in any fiscal year of the
Company, options or stock purchase
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<PAGE> 17
rights to purchase more than 750,000 shares of Common Stock. Notwithstanding
this limit, however, in connection with such individual's initial employment
with the Company, he or she may be granted options or stock purchase rights to
purchase up to an additional 750,000 shares of Common Stock.
Terms and Conditions of Options. Each option is evidenced by a stock
option agreement between the Company and the optionee, and is subject to the
following terms and conditions:
(a) Exercise Price. The Administrator determines the exercise price of
options at the time the options are granted. The exercise price of an incentive
stock option may not be less than 100% of the fair market value of the Common
Stock on the date such option is granted; provided, however, that the exercise
price of an incentive stock option granted to a 10% shareholder may not be less
than 110% of the fair market value on the date such option is granted. The fair
market value of the Common Stock is generally determined with reference to the
closing sale price for the Common Stock (or the closing bid if no sales were
reported) on the last market trading day prior to the date the option is
granted. As of March 10, 2000, the closing price of the Company Common Stock as
reported on the Nasdaq Stock Market was $5.19 per share.
(b) Exercise of Option; Form of Consideration. The Administrator
determines when options become exercisable, and may in its discretion,
accelerate the vesting of any outstanding option. The means of payment for
shares issued upon exercise of an option is specified in each option agreement.
The Plan permits payment to be made by cash, check, promissory note, other
shares of Common Stock of the Company (with some restrictions), cashless
exercises, any other form of consideration permitted by applicable law, or any
combination thereof.
(c) Term of Option. The term of an incentive stock option may be no more
than ten (10) years from the date of grant; provided, however, that in the case
of an incentive stock option granted to a 10% shareholder, the term of the
option may be no more than five (5) years from the date of grant. No option may
be exercised after the expiration of its term.
(d) Termination of Service. If an optionee's service relationship
terminates for any reason (excluding death or disability), then the optionee
generally may exercise the option within 30 days of such termination to the
extent that the option is vested on the date of termination, (but in no event
later than the expiration of the term of such option as set forth in the option
agreement). If an optionee's service relationship terminates due to the
optionee's disability, the optionee generally may exercise the option, to the
extent the option was vested on the date of termination, within 6 months from
the date of such termination. If an optionee's service relationship terminates
due to the optionee's death, the optionee's estate or the person who acquires
the right to exercise the option by bequest or inheritance generally may
exercise the option, as to all of the shares subject to the option (including
unvested shares), within 6 months from the date of such termination.
(e) Nontransferability of Options. Unless otherwise determined by the
Administrator, options granted under the Plan are not transferable other than by
will or the laws of descent and distribution, and may be exercised during the
optionee's lifetime only by the optionee.
(f) Other Provisions. The stock option agreement may contain other terms,
provisions and conditions not inconsistent with the Plan as may be determined by
the Administrator.
Stock Purchase Rights. In the case of stock purchase rights, unless the
Administrator determines otherwise, the restricted stock purchase agreement
shall grant the Company a repurchase option exercisable upon the voluntary or
involuntary termination of the purchaser's employment with the Company for any
reason (including death or disability). The purchase price for shares
repurchased pursuant to the restricted stock purchase agreement shall be the
original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company. The repurchase option shall lapse
at a rate determined by the Administrator.
Adjustments Upon Changes in Capitalization. In the event that the stock of
the Company changes by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other similar change in the capital
structure of the Company effected without the receipt of consideration,
appropriate adjustments shall be made in the number and class of shares of stock
subject to the Plan, the number and class
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<PAGE> 18
of shares of stock subject to any option or stock purchase right outstanding
under the Plan, and the exercise price of any such outstanding option or stock
purchase right.
In the event of a liquidation or dissolution, any unexercised options or
stock purchase rights will terminate. The Administrator may, in its sole
discretion, provide that each optionee shall have the right to exercise all or
any part of the option or stock purchase right, including shares as to which the
option or stock purchase right would not otherwise be exercisable.
In connection with any merger of the Company with or into another
corporation or the sale of all or substantially all of the assets of the
Company, each outstanding option and stock purchase right shall be assumed or an
equivalent option or right substituted by the successor corporation. If the
successor corporation refuses to assume the options or rights or to substitute
substantially equivalent options or rights, the optionee shall have the right to
exercise the option or stock purchase right as to all the optioned stock,
including shares not otherwise vested or exercisable. In such event, the
Administrator shall notify the optionee that the option or stock purchase right
is fully exercisable for fifteen (15) days from the date of such notice and that
the option terminates upon expiration of such period.
Amendment and Termination of the Plan. The Board may amend, alter, suspend
or terminate the Plan, or any part thereof, at any time and for any reason.
However, the Company shall obtain stockholder approval for any amendment to the
Plan to the extent necessary and desirable to comply with applicable law. No
such action by the Board or stockholders may alter or impair any option
previously granted under the Plan without the written consent of the optionee.
Unless terminated earlier, the Plan shall terminate ten years from the date the
Plan or any amendment to add shares to the Plan was last adopted by the Board.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. An optionee who is granted an incentive stock
option does not recognize taxable income at the time the option is granted or
upon its exercise, although the exercise is an adjustment item for alternative
minimum tax purposes and may subject the optionee to the alternative minimum
tax. Upon a disposition of the shares more than two years after grant of the
option and one year after exercise of the option, any gain or loss is treated as
long-term capital gain or loss. Net capital gains on shares held more than 12
months may be taxed at a maximum federal rate of 20%. Capital losses are allowed
in full against capital gains and up to $3,000 against other income. If these
holding periods are not satisfied, the optionee recognizes ordinary income at
the time of disposition equal to the difference between the exercise price and
the lower of (i) the fair market value of the shares at the date of the option
exercise or (ii) the sale price of the shares. Any gain or loss recognized on
such a premature disposition of the shares in excess of the amount treated as
ordinary income is treated as long-term or short-term capital gain or loss,
depending on the holding period. A different rule for measuring ordinary income
upon such a premature disposition may apply if the optionee is also an officer,
director, or 10% shareholder of the Company. Unless limited by Section 162(m) of
the Code, the Company is entitled to a deduction in the same amount as the
ordinary income recognized by the optionee.
Nonstatutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a nonstatutory stock option. Upon
exercise, the optionee recognizes taxable income generally measured by the
excess of the then fair market value of the shares over the exercise price. Any
taxable income recognized in connection with an option exercise by an employee
of the Company is subject to tax withholding by the Company. Unless limited by
Section 162(m) of the Code, the Company is entitled to a deduction in the same
amount as the ordinary income recognized by the optionee. Upon a disposition of
such shares by the optionee, any difference between the sale price and the
optionee's exercise price, to the extent not recognized as taxable income as
provided above, is treated as long-term or short-term capital gain or loss,
depending on the holding period. Net capital gains on shares held more than 12
months may be taxed at a maximum federal rate of 20%. Capital losses are allowed
in full against capital gains and up to $3,000 against other income.
Stock Purchase Rights. Stock purchase rights will generally be taxed in
the same manner as nonstatutory stock options. However, restricted stock is
subject to a "substantial risk of forfeiture" within the meaning of Section 83
of the Code, because the Company may repurchase the stock when the purchaser
ceases to provide services to the Company. As a result of this substantial risk
of forfeiture, the purchaser will
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not recognize ordinary income at the time of purchase. Instead, the purchaser
will recognize ordinary income on the dates when the stock is no longer subject
to a substantial risk of forfeiture (i.e., when the Company's right of
repurchase lapses). The purchaser's ordinary income is measured as the
difference between the purchase price and the fair market value of the stock on
the date the stock is no longer subject to right of repurchase.
The purchaser may accelerate to the date of purchase his or her recognition
of ordinary income, if any, and begin his or her capital gains holding period by
timely filing (i.e., within thirty days of purchase), an election pursuant to
Section 83(b) of the Code. In such event, the ordinary income recognized, if
any, is measured as the difference between the purchase price and the fair
market value of the stock on the date of purchase, and the capital gain holding
period commences on such date. The ordinary income recognized by a purchaser who
is an employee will be subject to tax withholding by the Company. Different
rules may apply if the purchaser is also an officer, director, or 10%
shareholder of the Company.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON OPTIONEES AND THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE OF OPTIONS
UNDER THE PLAN. IT DOES NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX
CONSEQUENCES OF THE EMPLOYEE'S OR CONSULTANT'S DEATH OR THE PROVISIONS OF THE
INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE
EMPLOYEE OR CONSULTANT MAY RESIDE.
REQUIRED APPROVAL
The affirmative vote of the holders of a majority of shares of capital
stock represented and voting at a duly held meeting at which a quorum is present
is required to approve the 2000 Stock Plan as it relates to the two million five
hundred thousand (2,500,000) new shares available for issuance under the 2000
Stock Plan. Unless marked to the contrary, proxies received will be voted "FOR"
approval of the amendment of the 1995 Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF
THE 2000 STOCK PLAN.
PROPOSAL NUMBER 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has approved the appointment of
PricewaterhouseCoopers LLP as independent accountants for the Company until
revoked by further action. PricewaterhouseCoopers LLP has been the Company's
independent accountants since inception (March 10, 1992).
The stockholders are asked to ratify the appointment of
PricewaterhouseCoopers LLP as independent accountants for the Company for the
fiscal year ending December 31, 2000. A representative of PricewaterhouseCoopers
LLP is expected to be present at the Annual Meeting to make a statement if he or
she desires to do so, and such representative is expected to be available to
respond to appropriate questions.
Should the stockholders fail to ratify the appointment of
PricewaterhouseCoopers LLP as independent accountants, appointment of the firm
for the fiscal year ending December 31, 2000 will be reconsidered by the Board
of Directors.
Unless marked to the contrary, proxies received will be voted "FOR"
ratification of the designation of PricewaterhouseCoopers LLP as independent
accountants for the Company's fiscal year ending December 31, 2000.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF
APPOINTMENT OF THE COMPANY'S INDEPENDENT ACCOUNTANTS.
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OTHER MATTERS
Proposals Intended to be Presented at Next Annual Meeting. Proposals of
security holders intended to be presented at the Company's 2001 Annual Meeting
of Stockholders must be received by the Company for inclusion in the Company's
proxy statement and form of proxy no later than December 5, 2000.
Other Matters. Management knows of no business that will be presented for
consideration at the Annual Meeting other than as stated in the Notice of
Meeting. If, however, other matters are properly brought before the meeting, it
is the intention of the persons named in the accompanying form of proxy to vote
the shares represented thereby on such matters in accordance with their best
judgment.
Proxy Solicitation. The expense of solicitation of proxies will be borne
by the Company. In addition to solicitation of proxies by mail, certain
officers, directors and Company employees who will receive no additional
compensation for their services may solicit proxies by telephone, telegraph or
personal interview. The Company is required to request brokers and nominees who
hold stock in their name to furnish this proxy material to beneficial owners of
the stock and will reimburse such brokers and nominees for their reasonable
out-of-pocket expenses in so doing.
Annual Report. The Company will provide a copy of its Annual Report on
Form 10-K for the year ended December 31, 1999, without charge, to any
stockholder who makes a written request to Katharine A. Martin, Secretary,
Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road,
Palo Alto, California 94304.
By Order of the Board of Directors,
Katharine A. Martin
Secretary
Peabody, Massachusetts
April 4, 2000
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ANNEX A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SCANSOFT, INC.
A DELAWARE CORPORATION
(PURSUANT TO SECTIONS 242 & 245 OF THE DELAWARE GENERAL CORPORATION LAW)
Michael K. Tivnan and Katharine A. Martin certify that:
1. They are the duly elected and acting President and the Secretary,
respectively, of Scansoft, Inc., a corporation organized under the laws of the
State of Delaware (the "corporation").
2. The name of the corporation is Scansoft, Inc. and that the corporation
was originally incorporated on September 21, 1995 under the name Visioneer
Communications, Inc. pursuant to the General Corporation Law.
3. The Amended and Restated Certificate of Incorporation of the
corporation shall be restated to read in full as follows:
ARTICLE I
The name of this corporation is ScanSoft, 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
(1) 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 One Hundred Eighty Million (180,000,000) shares. the
number of shares of Common Stock authorized to be issued is One Hundred Forty
Million (140,000,000), par value $.001 per share, and the number of shares of
Preferred Stock authorized to be issued is Forty Million (40,000,000), par value
$.001 per share.
(2) 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 A Participating Preferred Stock" and shall
consist of one hundred thousand (100,000) shares. The second 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 A Participating Preferred
Stock and Series B Preferred Stock are as set forth below in Article IV(2) (A)
and (B), respectively.
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
<PAGE> 22
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 the case the number of shares of any 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.
(A) SERIES A PARTICIPATING PREFERRED STOCK.
1. DIVIDENDS AND DISTRIBUTIONS.
(a) Subject to the prior and superior right of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Participating Preferred Stock with respect to dividends,
the holders of shares of Series A Participating Preferred Stock shall be
entitled to receive when, as and if declared by the Board of Directors out
of funds legally available for the purpose, quarterly dividends payable in
cash on the last Sunday of March, June, September and December in each year
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or fraction of a share of Series A Participating
Preferred Stock, in an amount per share (rounded to the nearest cent) equal
to, subject to the provision for adjustment hereinafter set forth, 1,000
times the aggregate per share amount of all cash dividends, and 1,000 times
the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock of the
corporation (the "Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share
of Series A Participating Preferred Stock. In the event the corporation
shall at any time after October 23, 1996 (the "Rights Declaration Date")
(i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount to which holders of shares of Series A Participating
Preferred Stock were entitled immediately prior to such event under the
preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately
prior to such event.
(b) The corporation shall declare a dividend or distribution on the
Series A Participating Preferred Stock as provided in paragraph (a) above
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock).
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of
Series A Participating Preferred Stock, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the
date of issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Participating Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall begin
to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Participating Preferred Stock in an amount less than the
total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record
date for the determination of holders of shares of Series A Participating
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 30 days prior to
the date fixed for the payment thereof.
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2. VOTING RIGHTS. The holders of shares of Series A Participating
Preferred Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Participating Preferred Stock shall entitle the
holder thereof to 1,000 votes on all matters submitted to a vote of the
stockholders of the corporation. In the event the corporation shall at any
time after the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a smaller
number of shares, then in each such case the number of votes per share to
which holders of shares of Series A Participating Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Except as otherwise provided herein or by law, the holders of
shares of Series A Participating Preferred Stock and the holders of shares
of Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the corporation.
(c) Except as required by law, holders of Series A Participating
Preferred Stock shall have no special voting rights and their consent shall
not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking any corporate
action.
3. CERTAIN RESTRICTIONS.
(a) The corporation shall not declare any dividend on, make any
distribution on, or redeem or purchase or otherwise acquire for
consideration any shares of Common Stock after the first issuance of a
share or fraction of a share of Series A Participating Preferred Stock
unless concurrently therewith it shall declare a dividend on the Series A
Participating Preferred Stock as required by Section (A)(1) hereof.
(b) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Participating Preferred Stock as provided in
Section (A)(1) are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Participating Preferred Stock outstanding shall have been paid in full, the
corporation shall not:
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any shares
of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred
Stock;
(ii) declare or pay dividends on, make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with Series A Participating
Preferred Stock, except dividends paid ratably on the Series A
Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Participating
Preferred Stock, provided that the corporation may at any time redeem,
purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding up)
to the Series A Participating Preferred Stock;
(iv) purchase or otherwise acquire for consideration any shares of
Series A Participating Preferred Stock, or any shares of stock ranking
on a parity with the Series A Participating Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares upon
such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and
preferences
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<PAGE> 24
of the respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
(c) The corporation shall not permit any subsidiary of the
corporation to purchase or otherwise acquire for consideration any
shares of stock of the corporation unless the corporation could, under
paragraph (a) of this Section (A)(3), purchase or otherwise acquire such
shares at such time and in such manner.
4. REACQUIRED SHARES. Any shares of Series A Participating Preferred
Stock purchased or otherwise acquired by the corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
5. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the corporation, no distribution shall be made to the holders
of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Participating
Preferred Stock unless, prior thereto, the holders of shares of Series A
Participating Preferred Stock shall have received an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment, plus an amount equal to the greater
of (1) $1,000 per share, provided that in the event the corporation does
not have sufficient assets, after payment of its liabilities and
distribution to holders of Preferred Stock ranking prior to the Series A
Participating Preferred Stock, available to permit payment in full of the
$1,000 per share amount, the amount required to be paid under this Section
(A)(5)(a)(1) shall, subject to Section (A)(5)(b) hereof, equal the value of
the amount of available assets divided by the number of outstanding shares
of Series A Participating Preferred Stock or (2) subject to the provisions
for adjustment hereinafter set forth, 1,000 times the aggregate per share
amount to be distributed to the holders of Common Stock (the greater of (1)
or (2), the "Series A Liquidation Preference"). In the event the
corporation shall at any time after the Rights Declaration Date (i) declare
any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the
amount to which holders of shares of Series A Participating Preferred Stock
were entitled immediately prior to such event under clause (2) of the
preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
that were outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(b) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference
and the liquidation preferences of all other series of Preferred Stock, if
any, which rank on a parity with the Series A Participating Preferred
Stock, then such remaining assets shall be distributed ratably to the
holders of such parity shares in proportion to their respective liquidation
preferences.
6. CONSOLIDATION, MERGER, ETC. In case the corporation shall enter into
any consolidation, merger, combination or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares of Series A
Participating Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the corporation shall at any time after the Rights Declaration Date
(i) declare any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding Common
Stock into a smaller number of shares, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or change of shares
of Series A Participating Preferred Stock shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding
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immediately after such event and the denominator of which is the number of
shares of common Stock that were outstanding immediately prior to such event.
7. NO REDEMPTION. The shares of Series A Participating Preferred Stock
shall not be redeemable.
8. RANKING. The Series A Participating Preferred Stock shall rank junior
to all other series of the corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
9. AMENDMENT. The Certificate of Incorporation of the corporation shall
not be further amended in any manner which would materially alter or change the
powers, preference or special rights of the Series A Participating Preferred
Stock so as to affect them adversely without the affirmative vote of the holders
of a majority or more of the outstanding shares of Series A Participating
Preferred Stock, voting separately as a class.
10. FRACTIONAL SHARES. Series A Participating Preferred Stock may be
issued in fractions of a share which shall entitle the holder, in proportion to
such holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Participating Preferred Stock."
(B) SERIES B PREFERRED STOCK.
1. DIVIDENDS 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 $0.05 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.
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<PAGE> 26
(b) After the distribution described in Section (B)(2) 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 (4)(c) below, each share of Series B
Preferred Stock shall be convertible, at the option of the holder thereof,
during the periods specified in Section (B)(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 March 2, 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 (B)(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 March 2, 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
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<PAGE> 27
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
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
(B)(4) or (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 (B)(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 (B)(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
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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 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
(B)(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 (B)(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
(B)(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:
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(i) cause such closing to be postponed until such time as the
requirements of this Section (B)(5) have been complied with, or
(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 (B)(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.
ARTICLE V
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 of
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.
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<PAGE> 30
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.
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.
4. Michael K. Tivnan and Katharine A. Martin further declare under penalty
of perjury that each has read the foregoing certificate and knows the contents
thereof and that the same is true and correct.
IN WITNESS WHEREOF, the undersigned have executed this certificate on
, 2000.
--------------------------------------
Michael K. Tivnan, President
--------------------------------------
Katharine A. Martin, Secretary
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SCANSOFT, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 4, 2000
The undersigned stockholder of ScanSoft, Inc., a Delaware corporation (the
"Company"), hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and accompanying Proxy Statement each dated April 4, 2000 and
hereby appoints Paul A. Ricci, Michael K. Tivnan, and John J. Rogers, Jr., or
any of them, proxies and attorneys-in-fact, each with full power of
substitution, to represent the undersigned at the Annual Meeting of Stockholders
of ScanSoft, Inc. to be held on May 4, 2000 at 10:00 a.m., local time at the
Company's headquarters at 9 Centennial Drive, Peabody, Massachusetts, and at any
adjournment thereof, and to vote all shares of Common Stock of the Company held
of record by the undersigned on March 10, 2000 as hereinafter specified upon the
proposals listed on the reverse side.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING OF STOCKHOLDERS,
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE.
PLEASE MARK VOTES AS IN THIS EXAMPLE. [X]
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE PROPOSALS BELOW
AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING OR MAY OTHERWISE BE ALLOWED TO BE CONSIDERED AT THE MEETING.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSALS BELOW.
THIS PROXY WILL BE VOTED "FOR" ALL OF THE NOMINEES UNLESS SUCH AUTHORITY IS
SPECIFICALLY WITHHELD AS TO ANY ONE NOMINEE OR NOMINEES.
1. To elect the following individuals as directors of the Company, to serve
until his or her successor shall be duly elected and qualified:
VOTE FOR [ ] WITHHOLD VOTE [ ]
Michael K. Tivnan Paul A. Ricci J. Larry Smart Mark B. Myers
Katharine A. Martin Robert G. Teresi Robert J. Frankenberg Anne M.
Mulcahy
Vote For, except vote withheld from the following
nominee(s) ______________________________
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
(REVERSE SIDE)
2. To approve the Company's Amended and Restated Certificate of Incorporation.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To approve the Company's 2000 Stock Option Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. To ratify the appointment of PricewaterhouseCoopers LLP as the independent
public accountants for the period ending December 31, 2000.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. To transact such other business as may properly come before the meeting or
any postponement or adjournment thereof.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
MARK HERE FOR ADDRESS CHANGE
AND NOTE AT LEFT [ ]
Please sign exactly as your
name appears hereon. When
shares are registered in the
names of two or more persons,
whether as joint tenants, as
community property or
otherwise, both or all of
such persons should sign.
When signing as attorney,
executor, administrator,
trustee, guardian or another
fiduciary capacity, please
give full title as such. If a
corporation, please sign in
full corporate name by
President or other authorized
person. If a partnership,
please sign in partnership
name by authorized person.
Signature __________________________________ Date: _____________ Signature:
__________________________________ Date: _____________