<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SCANSOFT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3577 94-3156479
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
9 CENTENNIAL DRIVE
PEABODY, MASSACHUSETTS 01970
(978) 977-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL K. TIVNAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SCANSOFT, INC.
9 CENTENNIAL DRIVE
PEABODY, MASSACHUSETTS 01970
(978) 977-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
KATHARINE MARTIN LEE BENTON
WILSON SONSINI GOODRICH & ROSATI KEITH A. FLAUM
PROFESSIONAL CORPORATION COOLEY GODWARD LLP
650 PAGE MILL ROAD 3175 HANOVER STREET
PALO ALTO, CA 94304 PALO ALTO, CA 94306
(650) 493-9300 (650) 843-5000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effectiveness of this registration statement and the
satisfaction of the conditions set forth in the merger agreement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE(3)
- ------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value... 19,272,887 shares $3.7536 $72,344,608.36 $19,098.98
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the maximum number of shares of ScanSoft common stock issuable in
the merger, which includes preferred stock purchase rights that will not be
exercisable or be evidenced separately from shares of ScanSoft common stock
prior to the occurrence of certain events.
(2) Estimated solely for purposes of calculating the registration fee required
by Section 6(b) of the Securities Act of 1933, as amended. This fee has been
computed pursuant to Rules 457(f) and (c) thereof and is based on (i)
$9.5313, the average of the high and low sales price per share of the common
stock of Caere Corporation, $0.001 par value ("Caere common stock") on the
Nasdaq National Market on February 7, 2000, and (ii) the maximum number of
shares of Caere common stock to be acquired by ScanSoft pursuant to the
merger.
(3) Pursuant to Rule 457(b) under the Securities Act, the entire registration
fee is offset by the filing fee of $19,618.70 previously paid by ScanSoft in
connection with the filing of preliminary proxy materials on Schedule 14A on
January 21, 2000.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
[SCANSOFT LOGO]
9 CENTENNIAL DRIVE
PEABODY, MA 01960
------------------------
FEBRUARY 9, 2000
Dear Stockholders:
We will hold a special meeting of our stockholders at the offices of Wilson
Sonsini Goodrich & Rosati, legal counsel to ScanSoft, at 650 Page Mill Road,
Palo Alto, California 94304 on March 13, 2000 at 8 a.m., Pacific time.
At the meeting, you will be asked to consider and vote upon a proposal to
approve the issuance of ScanSoft common stock pursuant to a merger agreement
with Caere Corporation and a proposal to amend the ScanSoft certificate of
incorporation to increase the authorized number of shares of ScanSoft capital
stock. After the merger, Caere stockholders will own approximately 40% of the
outstanding ScanSoft common stock.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS UNANIMOUSLY APPROVED
THE PROPOSALS REFERRED TO ABOVE AND CONCLUDED THAT IT IS IN THE BEST INTERESTS
OF SCANSOFT AND ITS STOCKHOLDERS. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR THE PROPOSALS REFERRED TO ABOVE.
Enclosed is a notice of special meeting of stockholders and a
prospectus/proxy statement relating to the merger. This document describes the
merger in detail. We encourage you to read it carefully.
We cordially invite you to attend the meeting. However, whether or not you
plan to attend the meeting, please complete, sign and date the enclosed proxy
and return it to us in the enclosed envelope. If you attend the meeting, you may
vote in person if you wish, even though you have previously returned your proxy.
YOUR VOTE IS VERY IMPORTANT.
Sincerely,
/s/ MICHAEL K. TIVNAN
Michael K. Tivnan
President and Chief Executive Officer
This prospectus/proxy statement is dated February 9, 2000 and was first
mailed to stockholders on or about February 11, 2000.
<PAGE> 3
[SCANSOFT LOGO]
9 Centennial Drive
Peabody, MA 01960
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
------------------------
To our stockholders:
A special meeting of stockholders of ScanSoft, Inc. will be held at 8 a.m.,
Pacific time, on March 13, 2000, at the offices of Wilson Sonsini Goodrich &
Rosati, legal counsel to ScanSoft, located at 650 Page Mill Road, Palo Alto,
California 94304, to:
1. consider and vote on a proposal to approve the issuance of shares of
ScanSoft common stock pursuant to a merger agreement with Caere Corporation in
which Caere will merger with and into a wholly-owned subsidiary of ScanSoft;
2. consider and vote on a proposal to approve an amendment to the
certificate of incorporation of ScanSoft in connection with the merger; and
3. transact such other business as may properly come before the ScanSoft
special meeting or any adjournment or postponement thereof.
These proposals are more fully described in the prospectus/proxy statement
that accompanies this notice, which you should read carefully.
We have fixed the close of business on February 7, 2000 as the record date
for the determination of our stockholders entitled to vote at this meeting.
BY ORDER OF THE BOARD OF
DIRECTORS OF SCANSOFT, INC.
/s/ KATHARINE A. MARTIN
Katharine A. Martin
Secretary
Peabody, Massachusetts
February 9, 2000
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE POSTAGE-PAID
ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. YOU CAN REVOKE
YOUR PROXY AT ANY TIME BEFORE IT IS VOTED.
<PAGE> 4
LOGO
100 Cooper Court
Los Gatos, CA 95032
------------------------
February 9, 2000
To our stockholders:
We will hold a special meeting of our stockholders at the offices of Cooley
Godward LLP, located at Five Palo Alto Square, 3000 El Camino Real, Palo Alto,
California 94306, on Monday, March 13, 2000 at 8 a.m., Pacific time.
The matter expected to be acted upon at the meeting is a proposed merger
that will cause Caere Corporation to merge with and into a wholly owned
subsidiary of ScanSoft, Inc., as described in detail in the attached Notice of
Special Meeting of Stockholders and prospectus/proxy statement.
After careful consideration, your board of directors has approved the
merger and related transactions with ScanSoft and determined the merger to be
fair to and in the best interests of Caere and its stockholders.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a prospectus/proxy statement relating to the actions to
be taken by Caere stockholders at the Caere special meeting (as well as the
actions to be taken by the ScanSoft stockholders at their special meeting) and a
proxy. The prospectus/proxy statement more fully describes the proposed merger
and includes information about Caere and ScanSoft and about the additional
matters for consideration at the ScanSoft special meeting.
It is important that you use this opportunity to take part in the affairs
of Caere by voting on the business to come before this meeting. WHETHER OR NOT
YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND PROMPTLY
RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO THAT YOUR
SHARES MAY BE REPRESENTED AT THE MEETING. YOUR VOTE IS VERY IMPORTANT. Returning
the proxy does not deprive you of your right to attend the meeting and to vote
your shares in person.
Sincerely,
/s/ Robert G. Teresi
Robert G. Teresi
President and Chief Executive Officer
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SCANSOFT COMMON STOCK TO BE
ISSUED UNDER THIS PROSPECTUS/PROXY STATEMENT OR DETERMINED IF THIS
PROSPECTUS/PROXY STATEMENT IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
This prospectus/proxy statement is dated February 9, 2000 and was first mailed
to stockholders
on or about February 11, 2000.
<PAGE> 5
LOGO
------------------------
Notice of Special Meeting of Stockholders
------------------------
TO BE HELD MONDAY, MARCH 13, 2000 AT 8 A.M.
To Our Stockholders:
Notice is hereby given that a special meeting of stockholders of Caere
Corporation will be held at the offices of Cooley Godward LLP, located at Five
Palo Alto Square, 3000 El Camino Real, Palo Alto, California 94306, on Monday,
March 13, 2000 at 8 a.m., Pacific time, for the following purposes:
(1) To adopt the Agreement and Plan of Reorganization dated as of
January 15, 2000 among ScanSoft, Inc., Caere Corporation and Scorpion
Acquisitions Corporation and to approve the merger of Caere with and into
Scorpion Acquisitions Corporation, a wholly-owned subsidiary of ScanSoft,
Inc., as contemplated thereby; and
(2) To transact such other business as may properly come before the
Caere special meeting or any adjournment or postponement thereof.
The merger proposal is discussed in more detail in the attached
prospectus/proxy statement. You should read the prospectus/proxy statement
carefully.
Only stockholders of record at the close of business on February 7, 2000,
the record date, are entitled to notice of and to vote at the meeting or any
adjournment thereof. Holders of Caere common stock are entitled to appraisal
rights under the Delaware General Corporation Law under certain circumstances in
connection with the merger.
YOUR VOTE IS VERY IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING
IN PERSON, WE REQUEST THAT YOU COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING
PROXY IN THE ENCLOSED SELF-ADDRESSED STAMPED ENVELOPE AND THUS ENSURE THAT YOUR
SHARES WILL BE REPRESENTED AT THE SPECIAL MEETING IF YOU ARE UNABLE TO ATTEND.
IF YOU ATTEND THE SPECIAL MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW
YOUR PROXY AND VOTE IN PERSON.
By Order of the Board of Directors
of Caere Corporation
LOGO
Blanche M. Sutter
Secretary
Los Gatos, California
February 9, 2000
<PAGE> 6
PROSPECTUS/PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE SCANSOFT/CAERE MERGER....... 1
SUMMARY OF THE PROSPECTUS/PROXY STATEMENT................... 3
The Companies............................................. 3
Summary of the Transaction................................ 4
Selected Historical and Pro Forma Financial Data.......... 9
RISK FACTORS................................................ 13
Risks Relating to the Merger................................ 13
You will not know the number of shares of ScanSoft common
stock that you will receive until completion of the
merger................................................. 13
Although ScanSoft and Caere expect that the merger will
result in benefits, those benefits may not occur....... 13
Caere may not be able to obtain consents in connection
with the merger........................................ 14
The combined company will incur substantial expenses from
the merger............................................. 14
Caere officers and directors have conflicts of interest
that may influence them to support the merger.......... 14
The merger may fail to qualify as a "reorganization"
within the meaning of Section 368(a) of the Internal
Revenue Code........................................... 14
Risks Related to the Combined Company....................... 15
We depend on the continued development of the digital
imaging software market for our growth................. 15
Our revenue has been dependent on demand for a few
products............................................... 16
The timing of new product introductions is critical to our
success................................................ 16
We depend on continued demand for our products from
original equipment manufacturers....................... 16
The digital imaging software market is highly
competitive............................................ 17
We need to continue to maintain and build our
relationships with distributors and other resellers.... 17
Our traditional distributors are subject to economic and
competitive risk....................................... 18
We may not be able to compete effectively in international
markets................................................ 18
Conducting business outside of the United States will
expose us to additional risks.......................... 18
Product defects may harm our business..................... 19
We depend on third-party licenses for our products........ 19
The protection of our proprietary technology and
intellectual property is key to our success............ 19
We depend on key personnel and face risks associated with
hiring and retention of employees...................... 19
Our past experience of fluctuating revenue and operating
results may continue................................... 19
We may not be able to realize cost savings from the
merger................................................. 20
Xerox will continue to influence matters requiring
stockholder approval of the combined company........... 21
Our business and operations may still suffer from problems
related to the year 2000............................... 21
Our stock price may continue to be volatile............... 21
Our charter documents contain anti-takeover provisions.... 21
Risks Related to Caere...................................... 21
Caere's future growth rate may not reach the levels
reached in prior years................................. 21
Microsoft's agreement with ScanSoft may reduce demand for
Caere's products....................................... 21
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE SCANSOFT MEETING........................................ 22
THE CAERE MEETING........................................... 24
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS............. 26
Background of the Merger.................................. 26
Joint Reasons for the Merger.............................. 29
ScanSoft's Reasons for the Merger......................... 29
Recommendation of ScanSoft's Board of Directors........... 31
Caere's Reasons for the Merger............................ 31
Recommendation of Caere's Board of Directors.............. 33
Opinion of ScanSoft's Financial Advisor................... 33
Opinion of Caere's Financial Advisor...................... 38
Interests of Certain Persons in the Merger................ 43
Certain Federal Income Tax Considerations................. 46
Governmental and Regulatory Approvals..................... 49
Accounting Treatment...................................... 49
Appraisal Rights.......................................... 49
Resale of ScanSoft Common Stock........................... 50
THE MERGER AGREEMENT........................................ 51
The Merger................................................ 51
Representations and Warranties............................ 53
Conduct of Caere's Business Prior to the Merger........... 55
Conduct of ScanSoft's Business Prior to the Merger........ 57
No Solicitation........................................... 58
Agreement Regarding Regulatory Approval................... 59
Conditions to the Merger.................................. 60
Termination............................................... 60
Reimbursement of Expenses and Payment of Termination Fees
by Caere and ScanSoft.................................. 63
Extension, Waiver and Amendment of the Merger Agreement... 64
Indemnification of Caere Officers and Directors........... 64
ScanSoft Board of Directors............................... 64
The Company Voting/Affiliate Agreements................... 64
The Xerox Voting Agreement................................ 65
The Teresi Non-Competition and Consulting Agreement....... 65
COMPARATIVE PER SHARE MARKET PRICE DATA..................... 67
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION............................................... 70
COMPARISON OF RIGHTS OF HOLDERS OF CAERE COMMON STOCK AND
SCANSOFT COMMON STOCK..................................... 84
SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS, MANAGEMENT AND
DIRECTORS OF SCANSOFT..................................... 89
SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS, MANAGEMENT AND
DIRECTORS OF CAERE........................................ 90
LEGAL OPINION............................................... 90
EXPERTS..................................................... 91
STOCKHOLDER PROPOSALS....................................... 91
DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS/PROXY
STATEMENT................................................. 91
WHERE YOU CAN FIND MORE INFORMATION......................... 92
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION............ 94
</TABLE>
ii
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ANNEX A -- AGREEMENT AND PLAN OF REORGANIZATION............. A-1
ANNEX B -- COMPANY VOTING/AFFILIATE AGREEMENT............... B-1
ANNEX C -- PARENT VOTING AGREEMENT.......................... C-1
ANNEX D -- NONCOMPETITION AND CONSULTING AGREEMENT.......... D-1
ANNEX E -- OPINION OF BEAR, STEARNS & CO., INC.............. E-1
ANNEX F -- OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED..................................... F-1
ANNEX G -- DISSENTER'S RIGHTS............................... G-1
ANNEX H -- AMENDMENT TO SCANSOFT CERTIFICATE OF
INCORPORATION............................................. H-1
</TABLE>
iii
<PAGE> 9
QUESTIONS AND ANSWERS ABOUT THE SCANSOFT/CAERE MERGER
Q: WHY ARE THE COMPANIES PROPOSING TO MERGE? (SEE PAGE 29)
A: We believe that the proposed merger will create a company well positioned to
build upon Caere and ScanSoft's heritage of leadership in the digital
imaging software market. We believe the combined company will have an
effective cost structure, a strong development team and well-branded
products, which we believe can create value for stockholders.
Q: WHAT WILL CAERE STOCKHOLDERS RECEIVE IN THE MERGER? (SEE PAGE 51)
A: Caere stockholders will receive for each share of Caere common stock they
own $4.00 cash and a fraction of a share of ScanSoft common stock. The
fraction of a share of ScanSoft common stock that will be issued for each
share of Caere common stock will be equal to $7.75, divided by the average
closing sale price of a share of ScanSoft common stock for the ten trading
days ending on the day prior to the consummation of the merger. However, if
the average closing sale price is greater than $8.50, then it will be deemed
to be $8.50, and if the average closing sale price is less than $4.50, then
it will be deemed to be $4.50. In addition, for any fractional share of
ScanSoft common stock a Caere stockholder would otherwise be entitled to
receive in the merger (after aggregating all fractional shares that the
stockholder would otherwise be entitled to receive), each Caere stockholder
will receive cash based on the market price of ScanSoft common stock during
the 10 trading days mentioned above. ScanSoft stockholders will continue to
own their shares of ScanSoft common stock after the merger.
For example, assuming the merger had closed on January 15, 2000, if you had
owned 100 shares of Caere common stock, you would have received 153 shares
of ScanSoft common stock and $400 cash, and ScanSoft would have paid to you
in cash an amount equal to the value of the remaining 0.846 of a share of
ScanSoft common stock to which you would have otherwise been entitled to
receive.
Based on the capitalization of ScanSoft and Caere as of February 7, 2000,
and based on the average closing sale prices of ScanSoft common stock
assuming the merger had closed on February 7, 2000, the former stockholders
of Caere will receive in the merger a number of shares of ScanSoft common
stock representing approximately 40% of ScanSoft's outstanding common
stock.
Holders of options to purchase shares of Caere common stock will
automatically hold options to purchase shares of ScanSoft common stock
after completion of the merger.
Q: DO THE BOARDS OF DIRECTORS RECOMMEND VOTING IN FAVOR OF THE MERGER ? (SEE
PAGES 31 AND 33)
A: Yes. After careful consideration, Caere's board of directors recommends that
its stockholders vote in favor of the adoption of the merger agreement.
Likewise, after careful consideration, the ScanSoft board of directors
recommends that its stockholders vote in favor of the issuance of ScanSoft
common stock in the merger and the amendment of the ScanSoft certificate of
incorporation to increase the number of shares of common stock that ScanSoft
is authorized to issue.
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE
MERGER? (SEE PAGE 13)
A: Yes. For example, the market price of ScanSoft common stock will fluctuate
prior to the merger. WE URGE YOU TO OBTAIN CURRENT MARKET QUOTATIONS OF
SCANSOFT COMMON STOCK AND CAERE COMMON STOCK.
In addition, there are risks and uncertainties because ScanSoft and Caere
are in a
1
<PAGE> 10
highly competitive and rapidly evolving industry.
In evaluating the merger, you should carefully consider these and other
factors discussed in the section entitled "Risk Factors" on page of this
Prospectus/ Proxy Statement.
Q: WHAT DO I NEED TO DO NOW? (SEE PAGES 22 AND 24)
A: Read this prospectus/proxy statement carefully. Then mail your signed proxy
card in the enclosed return envelope as soon as possible so that your shares
may be represented at your meeting.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE? (SEE PAGES 22 AND 24)
A: If you want to change your vote, just send the Secretary of Caere or
ScanSoft, as appropriate, a later-dated, signed proxy card before your
meeting or attend your meeting and vote your shares in person. You may also
revoke your proxy by sending written notice to the Secretary of Caere or
ScanSoft, as appropriate, before your meeting.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME? (SEE PAGES 22 AND 24)
A: Your broker will vote your shares only if you provide instructions on how to
vote by following the information provided to you by your broker.
Q: SHOULD I SEND IN MY CAERE STOCK CERTIFICATES NOW? (SEE PAGE 52)
A: No. After the merger is completed, we will send you written instructions for
exchanging your Caere stock certificates for ScanSoft stock certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED? (SEE PAGE 51)
A: We are working toward completing the merger as quickly as possible. We hope
to complete the merger during the first quarter of 2000.
Q: WILL I RECOGNIZE A GAIN OR LOSS ON THE TRANSACTION? (SEE PAGE 46)
A: Caere stockholders will be subject to federal income tax on any cash
received for Caere shares, including fractional shares. No federal income
tax should be due on the exchange of Caere shares for ScanSoft shares.
Q: AM I ENTITLED TO APPRAISAL RIGHTS? (SEE PAGE 49)
A: If you are a Caere stockholder and do not vote for the adoption of the
merger agreement, you will have the right under Delaware law to dissent to
the merger and request an appraisal of the value of your Caere common stock
in connection with the merger. In order to preserve this right, you must
follow the procedures discussed in Annex G. If you are a ScanSoft
stockholder, you are not entitled to appraisal rights under Delaware law.
Q: WHOM SHOULD I CALL WITH QUESTIONS? (SEE PAGE 92)
A: Caere stockholders should call Caere Investor Relations at (408) 395-7000
with any questions about the merger. ScanSoft stockholders should call
ScanSoft Investor Relations at (978) 977-2477 with any questions about the
merger.
You may also obtain additional information about ScanSoft and Caere from
documents each of us files with the Securities and Exchange Commission by
following the instructions in the section entitled "Where You Can Find More
Information" on page 92 of this prospectus/proxy statement.
2
<PAGE> 11
SUMMARY OF THE PROSPECTUS/PROXY STATEMENT
This summary may not contain all of the information that is important to
you. You should read this entire document and the other documents we refer to
carefully for a more complete understanding of the merger. In particular, you
should read the documents attached to this prospectus/proxy statement, including
the merger agreement, which is attached as Annex A, the Company Voting/Affiliate
Agreement, which is attached as Annex B, the Parent Voting Agreement, which is
attached as Annex C, the Noncompetition and Consulting Agreement, which is
attached as Annex D, the opinion of Bear, Stearns & Co., Inc., which is attached
as Annex E, the opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated,
which is attached as Annex F, the statement on appraisal rights, which is
attached as Annex G, and the amendment to ScanSoft's certificate of
incorporation, which is attached as Annex H.
In addition, we incorporate important business and financial information
about ScanSoft and Caere into this prospectus/proxy statement by reference. See
"Documents Incorporated By Reference in this prospectus/proxy statement" on page
91 of this prospectus/proxy statement. You may obtain the information
incorporated into this prospectus/proxy statement by reference without charge by
following the instructions in the section entitled "Where You Can Find More
Information" on page 92 of this prospectus/proxy statement.
THE COMPANIES
SCANSOFT, INC.
9 Centennial Drive
Peabody, MA 01960
(978) 977-2000
www.scansoft.com
Headquartered in Peabody, Massachusetts, ScanSoft is a developer of digital
imaging software that enables users to leverage the power of their scanners,
digital cameras, and other electronic devices. ScanSoft's award-winning product
line -- Pagis Pro, TextBridge Pro, PaperPort Deluxe, PaperPort ScannerSuite,
ScanWorks, Kai's Photo Soap2, Kai's SuperGoo, Kai's PowerShow and
PhotoFactory -- enables users to capture, recognize, edit, manage and share
documents and photos electronically by taking advantage of ScanSoft's
cutting-edge technology.
ScanSoft software is sold and marketed worldwide through retail, dealer and
OEM channels as well as the Internet, to the consumer, small office/home office
(SOHO) and corporate markets. There are approximately 2.9 million registered
users of ScanSoft products.
CAERE CORPORATION
100 Cooper Court
Los Gatos, California 95032
(408) 395-7000
www.caere.com
Caere is a developer of software solutions for scanners and digital cameras
in the digital imaging market. Caere designs, develops, manufactures, and
markets a range of optical character recognition, electronic forms, document
management, digital imaging, developer kits and media asset management products
that provide personal computer users tools to manage, intelligently and
efficiently, the documents, images, forms, and faxes that cross their desktops.
Caere products bridge the gap between the paper and digital worlds by converting
static paper documents into dynamic electronic information.
In December 1999, Caere discontinued operations of its hardware business
and, as a result, ceased development and marketing of its Automated Data Entry
hardware products. The orderly shutdown of the hardware business unit enabled
Caere to focus exclusively on its software business, including its desktop
scanner and digital camera products, as well as its production optical character
recognition products and developers kits.
3
<PAGE> 12
SUMMARY OF THE TRANSACTION
STRUCTURE OF THE TRANSACTION (SEE PAGE 51)
In the merger, Caere and a wholly-owned subsidiary of ScanSoft will merge,
and as a result, the surviving corporation will be a wholly-owned subsidiary of
ScanSoft.
The merger agreement is attached to this prospectus/proxy statement as
Annex A. We encourage you to read the merger agreement carefully. The merger
agreement is more fully discussed on page 51 of this prospectus/proxy statement.
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE 60)
Our respective obligations to complete the merger are subject to the prior
satisfaction or waiver of certain conditions. If either ScanSoft or Caere waives
any conditions, we will each consider the facts and circumstances at that time
and make a determination as to whether a resolicitation of proxies from
stockholders is appropriate. The conditions that must be satisfied or waived
before the completion of the merger include the following, subject to exceptions
and qualifications:
- the merger agreement must be adopted by Caere stockholders
- the issuance of shares of ScanSoft common stock in the merger and an
amendment of ScanSoft's certificate of incorporation increasing the
authorized number of shares of ScanSoft common stock must be approved by
ScanSoft stockholders
- no injunction or order preventing the completion of the merger may be in
effect
- subject to specified exceptions, our respective representations and
warranties in the merger agreement must be true and correct
- no material adverse effect shall have occurred with respect to ScanSoft
or Caere
- we must have complied with our respective agreements in the merger
agreement
- we must each receive an opinion of tax counsel to the effect that the
merger should qualify as a tax-free reorganization
- the shares of ScanSoft common stock to be issued to Caere stockholders in
the merger must have been approved for listing on Nasdaq
- ScanSoft must have filed an amendment to its certificate of incorporation
to increase the authorized number of shares of ScanSoft common stock
- Caere must have cash or cash equivalents of at least $48 million
For a more complete description of the conditions to completion of the
merger, see the section entitled "Conditions to the Merger" on page of this
prospectus/proxy statement.
REQUIRED VOTES FOR APPROVAL (SEE PAGES 22 AND 24)
The holders of a majority of the outstanding shares of Caere common stock
must adopt the merger agreement. Caere stockholders are entitled to cast one
vote per share of Caere common stock owned as of February 7, 2000, the record
date.
Caere stockholders holding 2.1% of Caere common stock outstanding as of the
record date have agreed to vote in favor of the adoption of the merger
agreement. Directors and officers of Caere collectively beneficially owned
approximately 2.1% of the outstanding Caere common stock as of the record date.
The holders of a majority of the votes cast at the ScanSoft special meeting
must approve the issuance of ScanSoft common stock in the merger and the holders
of a majority of the outstanding voting power of ScanSoft common stock must
approve the amendment of ScanSoft's certificate of incorporation increasing the
number of authorized shares of ScanSoft common stock. ScanSoft stockholders are
4
<PAGE> 13
entitled to cast one vote per share of ScanSoft common stock owned as of
February 7, 2000, the record date.
ScanSoft stockholder, Xerox Imaging Systems, Inc., a wholly owned
subsidiary of Xerox Corporation, collectively known as "Xerox," has agreed to
vote in favor of the proposals to be voted upon at the ScanSoft special meeting.
Xerox beneficially owned approximately 44% of the outstanding ScanSoft common
stock as of the record date. Xerox also owned 100% of the ScanSoft Series B
Preferred Stock as of the record date. The Series B Preferred Stock is not
entitled to a vote on the matters to be voted upon at the ScanSoft special
meeting.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 62)
The merger agreement may be terminated under certain circumstances at any
time before the completion of the merger, as summarized below.
The merger agreement may be terminated by the mutual consent of our boards
of directors.
The merger agreement may also be terminated by either of us if, subject to
qualifications, the conditions to completion of the merger would not be
satisfied (1) because of a material breach of an agreement in the merger
agreement by the other or (2) because a representation or warranty of the other
party made in the merger agreement becomes untrue.
In addition, subject to qualifications, the merger agreement may be
terminated by either of us under any of the following circumstances:
- if the merger is not completed by June 30, 2000
- if a final court order prohibiting the merger is issued and is not
appealable
- if the Caere stockholders do not adopt the merger agreement at the Caere
special meeting
- if the ScanSoft stockholders do not approve the issuance of shares
pursuant to the merger and the amendment to the certificate of
incorporation at the ScanSoft special meeting
For a more complete description of the manner in which the merger agreement
may be terminated, see the section entitled "Termination" on page 62 of this
prospectus/proxy statement.
REIMBURSEMENT OF EXPENSES; TERMINATION FEES (SEE PAGE 63)
If the merger agreement is terminated because Caere's stockholders do not
adopt the merger agreement, then Caere will reimburse ScanSoft for its
out-of-pocket fees and expenses incurred in connection with the merger. If the
merger agreement is terminated because ScanSoft's stockholders do not approve
the issuance of ScanSoft common stock in the merger or the amendment of
ScanSoft's certificate of incorporation, then ScanSoft will reimburse Caere for
its out-of-pocket fees and expenses incurred in connection with the merger.
If the merger agreement is terminated under certain circumstances, the
merger agreement requires Caere to pay to ScanSoft a termination fee of $4.0
million.
In addition, ScanSoft will pay Caere a termination fee of $4.0 million in
the event the merger is not consummated because of any action taken by any
governmental entity under any antitrust laws or regulations.
For a more complete description of the payment of the termination fees, see
the section entitled "Reimbursement of Expenses and Payment of Termination Fees
by Caere and ScanSoft" on page 63 of this prospectus/proxy statement.
NO OTHER NEGOTIATIONS INVOLVING CAERE (SEE PAGE 58)
Until the merger is completed or the merger agreement is terminated, Caere
has agreed, with limited exceptions, not to directly or indirectly initiate or
engage in discussions with another party regarding a business combination with
such other party while the merger is pending.
5
<PAGE> 14
For a more complete description of these limitations on negotiations with
another party, see the sections entitled "Termination," "Reimbursement of
Expenses and Payment of Termination Fees by Caere and ScanSoft" and "No
Solicitation" on pages 62, 63 and 58 of this prospectus/proxy statement and the
corresponding sections of the merger agreement.
THE VOTING AGREEMENTS (SEE PAGES 64 AND 65)
Caere's directors and officers entered into agreements with ScanSoft that
require these Caere directors and officers to vote all shares of Caere common
stock beneficially owned by them in favor of the adoption of the merger
agreement. These Caere stockholders were not paid additional consideration in
connection with the voting agreements.
The Caere directors and officers who entered into the voting agreements
collectively held approximately 2.1% of the outstanding Caere common stock as of
the record date.
The form of voting agreement is attached to this prospectus/proxy statement
as Annex B, and you are urged to read it in its entirety.
ScanSoft stockholder Xerox entered into a voting agreement with Caere. The
voting agreement requires Xerox to vote all shares of ScanSoft capital stock
beneficially owned by it in favor of the approval of the issuance of shares of
ScanSoft common stock in the merger and the amendment of the ScanSoft
certificate of incorporation. Xerox was not paid additional consideration in
connection with the voting agreement.
Xerox held approximately 44% of the outstanding ScanSoft common stock, and
100% of the outstanding ScanSoft Series B Preferred Stock as of the record date.
The Xerox voting agreement is attached to this prospectus/proxy statement
as Annex C, and you are urged to read it in its entirety.
OPINIONS OF FINANCIAL ADVISORS (SEE PAGES 33 AND 38)
In deciding to approve the merger, the board of directors of each of Caere
and ScanSoft considered the opinion of the investment banking firm it retained.
Caere received an opinion from Bear, Stearns & Co., Inc., that the merger
consideration was fair, from a financial point of view, to the stockholders of
Caere as of the date of the opinion.
ScanSoft received an opinion from Merrill Lynch, Pierce, Fenner & Smith
Incorporated that the merger consideration for the merger was fair, from a
financial point of view, to ScanSoft as of the date of the opinion.
These opinions are attached as Annexes E and F to this prospectus/proxy
statement. We encourage you to read these opinions carefully and in their
entirety.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 46)
Caere stockholders will be subject to federal income tax on any cash
received for Caere shares, including fractional shares. No federal income tax
should be due on the exchange of Caere shares for ScanSoft shares.
ACCOUNTING TREATMENT OF THE MERGER (SEE PAGE 49)
We intend to account for the merger as a "purchase" for financial
accounting purposes, in accordance with generally accepted accounting
principles.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGE 43)
In considering the recommendations of the ScanSoft and Caere boards of
directors, you should be aware that certain ScanSoft and Caere officers and
directors have interests in the merger that are different from yours, including
that some Caere officers have severance arrangements and Caere officers and
directors have stock options that are subject to accelerated vesting in the
merger.
6
<PAGE> 15
In addition, Robert G. Teresi, President and Chief Executive Officer of
Caere, has entered into a consulting agreement with ScanSoft that will take
effect upon the closing of the merger.
NO ANTITRUST APPROVAL REQUIRED TO COMPLETE THE MERGER (SEE PAGE 49)
No filing is required for the merger under U.S. or foreign antitrust laws,
although the Department of Justice or the Federal Trade Commission, as well as a
foreign regulatory agency or government, state or private person, may challenge
the merger at any time before or after its completion.
ABILITY TO SELL SCANSOFT STOCK (SEE PAGE 50)
All shares of ScanSoft common stock received by Caere stockholders in
connection with the merger will be freely transferable unless the holder is
considered an "affiliate" of either of us under the Securities Act, in which
case certain restrictions on transferability will apply.
FORWARD LOOKING STATEMENTS IN THIS PROSPECTUS/PROXY STATEMENT (SEE PAGE 94)
This prospectus/proxy statement and the documents incorporated into this
Prospectus/ Proxy Statement by reference contain forward-looking statements
within the "safe harbor" provisions of the Private Securities Litigation Reform
Act. These statements include statements with respect to ScanSoft's and Caere's
financial condition, results of operations and business and the expected impact
of the merger on ScanSoft's financial performance. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions identify forward-looking statements.
These forward-looking statements are not guarantees of future performance
and are subject to certain risks and uncertainties that could cause actual
results to differ materially from the results contemplated by the forward-
looking statements. These risks and uncertainties include:
- the possibility that the merger will not be consummated
- fluctuations in the market price of ScanSoft common stock before and
after the merger
- the possibility that the anticipated benefits from the merger cannot be
fully realized
- the possibility that costs or difficulties related to the integration of
our businesses are greater than expected
- our dependence on the timely development, introduction and customer
acceptance of new products and Internet services
- the possible loss or curtailment of business with a significant customer
of either company or the combined company after the merger
- the impact of competition on revenue and margins
- rapidly changing technology and shifting demand requirements
- other risks and uncertainties, including the risks and uncertainties
involved in obtaining new customers and partners, the impact of
competitive services, products and prices, the unsettled conditions in
the high-technology industry and the ability to attract and retain key
personnel
- other risk factors as may be detailed from time to time in Caere's and
ScanSoft's public announcements and filings with the Securities and
Exchange Commission
In evaluating the merger, you should carefully consider the discussion of
these and other factors in the section entitled "Risk Factors" on page 13 of
this prospectus/proxy statement.
7
<PAGE> 16
COMPARATIVE MARKET PRICE INFORMATION (SEE PAGE 67)
Shares of both ScanSoft common stock and Caere common stock are listed on
Nasdaq. On January 14, 2000, the last full trading day prior to the public
announcement of the proposed merger, ScanSoft's common stock closed at $5.38 per
share, and Caere's common stock closed at $7.44 per share. On February 8, 2000,
ScanSoft's common stock closed at $5.38 per share, and Caere's common stock
closed at $9.50 per share. We urge you to obtain current market quotations.
8
<PAGE> 17
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables present (1) selected historical condensed financial
data of ScanSoft, (2) selected historical condensed consolidated financial data
of Caere and (3) selected unaudited pro forma condensed combined financial data
of ScanSoft (which reflects the completion of the proposed transaction and
assumes the purchase method of accounting).
SELECTED HISTORICAL CONDENSED FINANCIAL DATA
The following tables set forth selected historical condensed financial data
of ScanSoft for each of the years in the five-year period ended December 31,
1998 and for the nine-month periods ended September 30, 1998 and 1999. The
statement of operations data for each of the years in the three-year period
ended December 31, 1998 and the balance sheet data as of December 31, 1997 and
1998 are derived from the audited financial statements of ScanSoft incorporated
by reference herein. The statement of operations data for each of the years in
the two-year period ended December 31, 1995 and the balance sheet data as of
December 31, 1994, 1995 and 1996 are derived from the audited financial
statements of ScanSoft previously filed with the SEC. The statement of
operations data for the nine-month periods ended September 30, 1998 and 1999 and
the balance sheet data as of September 30, 1999, have been derived from the
unaudited financial statements of ScanSoft incorporated by reference herein and,
in the opinion of management, include all adjustments (consisting of normal
recurring adjustments) which are necessary to present fairly the results of
operations and financial position of ScanSoft for the periods and dates
indicated. The results of operations for the nine months ended September 30,
1999 are not necessarily indicative of the results to be expected for the full
year.
SCANSOFT, INC.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
---------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................ $ 3,903 $ 37,339 $ 56,081 $ 57,623 $ 79,070 $ 59,479 $ 22,986
Cost of revenue........................ 4,481 26,938 45,467 50,725 59,370 44,132 5,427
Research and development............... 4,532 8,975 10,938 8,115 4,408 3,486 5,140
Selling, general and administrative.... 6,482 11,805 26,342 22,428 19,150 14,209 10,288
Income (loss) from operations.......... (11,592) (11,979) (26,666) (24,320) (3,858) (2,348) (2,565)
Net income (loss)...................... (11,455) (11,553) (24,392) (23,380) (3,805) (2,111) (2,729)
Net income (loss) per share: basic and
diluted.............................. (6.76) (4.28) (1.34) (1.20) (0.19) (0.11) (0.11)
Weighted average common and common
equivalent shares: basic and
diluted.............................. 1,695 2,699 18,255 19,450 19,728 19,689 25,220
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
------ ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................. $3,376 $46,677 $28,807 $ 8,389 $ 6,569 $ 7,113
Total assets..................................... 7,378 65,793 51,785 33,550 28,445 30,343
Stockholders' equity............................. 4,053 49,860 33,193 10,930 7,582 21,839
</TABLE>
The above statement of operations data, excluding the nine months ended
September 30, 1999, include ScanSoft's hardware business (formerly Visioneer),
which was sold to Primax Electronics, Ltd. in January 1999. The nine months
ended September 30, 1999 include the results of ScanSoft since its merger with
Visioneer on March 2, 1999.
Loss from operations for the nine months ended September 30, 1999 includes
$5.2 million of charges relating to acquired in-process research and development
and amortization of intangibles.
9
<PAGE> 18
The following tables set forth selected historical condensed consolidated
financial data of Caere for each of the years in the five-year period ended
December 31, 1998 and for the nine-month periods ended September 30, 1998 and
1999. The statement of operations data for each of the years in the three-year
period ended December 31, 1998 and the balance sheet data as of December 31,
1997 and 1998 are derived from the audited financial statements of Caere
incorporated by reference herein. The statement of operations data for each of
the years in the two-year period ended December 31, 1995 and the balance sheet
data as of December 31, 1994, 1995 and 1996 are derived from the audited
financial statements of Caere previously filed with the SEC. The statement of
operations for the nine-month periods ended September 30, 1998 and 1999 and the
balance sheet data as of September 30, 1999, have been derived from the
unaudited consolidated financial statements of Caere incorporated by reference
herein and, in the opinion of management, include all adjustments (consisting of
normal recurring adjustments) which are necessary to present fairly the results
of operations and financial position of Caere for the periods and dates
indicated. The results of operations for the nine months ended September 30,
1999 are not necessarily indicative of the results to be expected for the full
year.
CAERE CORPORATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
----------------------------------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net revenues.......................... $59,130 $51,939 $54,528 $55,018 $65,802 $47,534 $47,022
Cost of revenues...................... 18,295 17,084 16,473 14,320 14,144 10,866 9,419
------- ------- ------- ------- ------- ------- -------
40,835 34,855 38,055 40,698 51,658 36,668 37,603
Operating expenses:
Research and development............ 9,072 7,915 7,069 9,370 12,442 8,992 9,931
Selling, general and
administrative.................... 25,897 24,892 26,103 26,878 28,136 20,730 21,472
Merger related costs................ 3,254 1,387 90
In-process research and
development....................... 4,373 2,935
------- ------- ------- ------- ------- ------- -------
Total costs and expenses.............. 38,223 34,194 37,635 39,183 40,578 29,722 31,403
Operating earnings................ 2,612 661 420 1,515 11,080 6,946 6,200
Interest income....................... 1,372 2,159 2,692 2,502 2,621 1,965 1,838
Write-down of investment in ZyLAB
International....................... (2,616)
------- ------- ------- ------- ------- ------- -------
Earnings before income taxes...... 3,984 2,820 496 4,017 13,701 8,911 8,038
Income tax expense.................... 1,600 423 100 877 3,425 2,094 2,411
Net earnings.......................... 2,384 2,397 396 3,140 10,276 6,817 5,627
Net income (loss) per share: basic.... 0.18 0.18 0.03 0.24 0.81 0.53 0.47
Net income (loss) per share:
diluted............................. 0.18 0.18 0.03 0.24 0.78 0.51 0.45
Weighted average common shares:
basic............................... 12,649 13,172 13,120 13,123 12,687 12,869 12,083
Weighted average common and common
equivalent shares: diluted.......... 13,136 13,538 13,319 13,265 13,246 13,482 12,442
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998 1999
------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................. $53,729 $52,650 $49,793 $54,893 $49,290 $53,974
Accounts receivable, net........................ 6,040 6,180 6,888 5,263 7,336 5,151
Total assets.................................... 67,902 69,298 63,154 67,300 63,884 67,118
Stockholders' equity............................ 57,753 62,028 55,748 61,209 56,173 60,642
</TABLE>
The above selected historical financial data include Caere's hardware
division, which was discontinued effective October 1999.
10
<PAGE> 19
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following selected unaudited pro forma combined condensed financial
data is derived from the unaudited pro forma combined condensed financial
statements appearing elsewhere in this prospectus/proxy statement, which give
effect to the merger using the purchase method of accounting, and should be read
in conjunction with such pro forma financial statements and notes thereto.
The unaudited pro forma combined condensed statements of operations give
effect to the merger as if it had occurred at the beginning of the periods
presented. The unaudited pro forma combined condensed statements of operations
also give effect to the sale of the hardware assets of Visioneer (which occurred
January 6, 1999), the merger of Visioneer and ScanSoft (which occurred March 2,
1999) and the discontinuance of Caere's hardware business (announced in October
1999) as if each of these transactions had occurred at the beginning of the
periods presented. The unaudited pro forma condensed combined balance sheet
gives effect to the merger as if it had occurred on September 30, 1999.
The unaudited pro forma combined condensed financial information is
presented for illustrative purposes only and does not purport to be indicative
of the operating results or financial position that would have actually occurred
if the merger had been in effect on the dates indicated, nor is it necessarily
indicative of future operating results or financial position of the merged
companies. The pro forma adjustments are based on the information and
assumptions available at the time of the filing.
SCANSOFT, INC. AND CAERE CORPORATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -----------------
<S> <C> <C>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
DATA:
Total net revenue....................................... $ 92,142 $68,053
Net loss................................................ (10,379) (8,800)
Net loss per share, basic and diluted................... (0.23) (0.19)
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA:
Working capital............................................. $ 3,866
Total assets................................................ 141,882
Stockholder's equity........................................ 117,739
</TABLE>
11
<PAGE> 20
COMPARATIVE PER SHARE DATA
The following tabulation reflects (a) the historical net income (loss) and
book value per share of ScanSoft and Caere, (b) the unaudited pro forma net loss
and book value per share of ScanSoft after giving effect to the proposed merger
on a purchase basis with Caere, and (c) pro forma equivalent net loss and book
value per share attributable to the shares of ScanSoft common stock which will
be received for each share of Caere. The information presented in this
tabulation should be read in conjunction with the unaudited pro forma combined
condensed financial statements and the notes thereto appearing elsewhere in this
prospectus/proxy statement, and the separate historical financial statements of
the respective companies incorporated into this prospectus/proxy statement by
reference.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Historical -- ScanSoft (acquiring)
Basic and diluted net loss per share...................... $(0.19) $(0.11)
Book value per share(1)................................... 0.38 0.73
Historical -- Caere (to be acquired)
Diluted net earnings per share............................ 0.78 0.45
Book value per share(1)................................... 4.65 5.02
Pro forma combined net loss per share
Pro forma combined net loss per ScanSoft share............ (0.23) (0.19)
Equivalent pro forma net loss per Caere share(3).......... (0.53) (0.45)
Pro forma combined book value per share
Pro forma book value per ScanSoft share(2)................ 2.42 2.44
Equivalent pro forma book value per Caere share(3)........ 5.65 5.68
</TABLE>
- -------------------------
(1) The historical book value per share is computed by dividing total
stockholders' equity by the number of shares of common and preferred stock
outstanding at the end of the period.
(2) The pro forma combined book value per ScanSoft share is computed by dividing
total pro forma stockholders' equity by the pro forma number of shares of
common and preferred stock outstanding at the end the period.
(3) Equivalent pro forma share amounts are calculated by multiplying the pro
forma combined net loss per share and the pro forma book value per share of
ScanSoft by the exchange ratio as of January 14, 2000 of 2.33.
12
<PAGE> 21
RISK FACTORS
The merger involves a high degree of risk. In addition, by voting in favor
of the merger, Caere stockholders will be choosing to invest in ScanSoft common
stock. An investment in ScanSoft common stock involves a high degree of risk. In
addition to the other information contained or incorporated by reference in this
prospectus/proxy statement, both ScanSoft and Caere stockholders should
carefully consider the following risk factors in deciding whether to vote for
the merger. The occurrence of any of the risks described below or incorporated
by reference herein could materially adversely affect the business, financial
condition and results of operation of ScanSoft and Caere, as applicable.
This prospectus/proxy statement contains and incorporates by reference
forward-looking statements within the "safe harbor" provisions of the Private
Securities Litigation Reform Act. Forward-looking statements are based on
current expectations that involve a number of uncertainties, including those set
forth in the risk factors below. Actual results could differ materially from
those projected in the forward-looking statements. References in this
prospectus/proxy statement to "we," "our," or "us" are meant to be references to
the combined company after the closing of the merger.
RISKS RELATING TO THE MERGER
YOU WILL NOT KNOW THE NUMBER OF SHARES OF SCANSOFT COMMON STOCK THAT YOU
WILL RECEIVE UNTIL COMPLETION OF THE MERGER. Upon completion of the merger, each
share of Caere common stock will be exchanged for $4.00 cash and a fraction of a
share of ScanSoft common stock. The fraction of a share of ScanSoft common stock
that will be issued for each share of Caere common stock will be equal to $7.75
divided by the average closing sale price of a share of ScanSoft common stock
for the ten trading days ending on the day preceding the consummation of the
merger. However, if the average closing sale price is greater than $8.50, then
it will be deemed to be $8.50, and if the average closing sale price is less
than $4.50, then it will be deemed to be $4.50. The formula to determine the
number of shares of ScanSoft common stock to be received in the merger is
described in more detail under the heading "Manner and Basis of Converting
Shares." Since prices fluctuate, you will not know the final exchange ratio
until after the market closes on the day before completion of the merger. The
price of ScanSoft common stock at the time of the merger or afterwards may be
lower than the price prior to the merger. Neither ScanSoft nor Caere is
permitted to terminate its obligations to effect the merger solely because of
changes in the price of ScanSoft common stock. Accordingly, the specific dollar
value of ScanSoft common stock to be received by you upon completion of the
merger will depend on the market value of ScanSoft common stock at the time of
completion of the merger.
ALTHOUGH SCANSOFT AND CAERE EXPECT THAT THE MERGER WILL RESULT IN BENEFITS,
THOSE BENEFITS MAY NOT OCCUR. The acquisition of Caere by ScanSoft involves
risks related to, among other things, the integration and management of acquired
technology, sales and marketing efforts, operations and personnel. The
integration of ScanSoft and Caere will be a complex, time consuming and
expensive process and may result in disruption of the business of the combined
company. Following the merger, the combined company must operate as a combined
organization utilizing common information and communication systems, operating
procedures, financial controls and human resources practices. There may be
substantial difficulties, costs and delays involved in integrating ScanSoft and
Caere, including:
- Potential incompatibility of business cultures;
- Product development delays caused by disruptions from the merger;
- Perceived adverse changes in business focus;
- Potential lapses in internal and financial controls;
13
<PAGE> 22
- The loss of key employees and diversion of the attention of management
from ongoing business concerns;
- Negative reaction from and/or deterioration of our relationships with our
OEM customers, distributors and resellers, or end-user customers; and
- Caere may not be successfully integrated, managed and operated by
ScanSoft.
CAERE MAY NOT BE ABLE TO OBTAIN CONSENTS IN CONNECTION WITH THE
MERGER. Caere has contracts with many of its suppliers, customers and other
business partners relating to, among other things, certain intellectual property
rights. Some of these contracts require Caere to obtain the consent, waiver or
approval of these other parties in connection with the merger. If consent,
waiver or approval cannot be obtained, Caere may lose the right to use
intellectual property that is necessary for its business. Caere has agreed to
use commercially reasonable efforts to secure the necessary consents, waivers
and approvals. However, Caere may not be able to obtain all of the necessary
consents, waivers and approvals.
THE COMBINED COMPANY WILL INCUR SUBSTANTIAL EXPENSES FROM THE MERGER. We
estimate that we will incur aggregate pre-tax costs of approximately $4 million
associated with the merger, as well as approximately $3 to 6 million in
restructuring costs, which includes costs relating to employee severance. In
addition, we expect to incur certain costs in connection with the integration of
the two companies. These integration-related costs cannot now be reasonably
estimated, because they depend on future decisions to be made by management of
the surviving corporation, but they could be material. These integration-related
costs could relate to the elimination of duplicate facilities and operations,
integration of internal and customer-related activities, and cancellation and/or
overlap of contractual obligations. These costs and expenses will affect results
of operations primarily in subsequent periods following the merger.
The merger will be accounted for as a purchase and, accordingly, the
acquired assets and liabilities of Caere will be recorded at estimated fair
values. Under the purchase method of accounting, intangibles in the amount of
approximately $92 million will be capitalized and special charges of
approximately $28 million relating to in-process research and development will
be recorded in the quarter the merger is consummated. These amounts are
estimates that reflect the most recently available information but will be
affected by the completion of a valuation study that is currently in progress.
The completion of the valuation study may result in significant differences from
the preliminary allocation. The amortization of other intangibles after the
merger will have an adverse effect on the results of operations of the surviving
corporation.
CAERE OFFICERS AND DIRECTORS HAVE CONFLICTS OF INTEREST THAT MAY INFLUENCE
THEM TO SUPPORT THE MERGER. The directors and officers of Caere have certain
interests in the merger and participate in certain arrangements that are
different from, or are in addition to those of Caere stockholders generally.
These interests and arrangements include:
- Caere officers are covered by a severance plan and agreements under which
they will receive certain benefits if they are terminated by Caere or
leave for good reason, within 36 months of the merger;
- Certain Caere officers and directors have stock options subject to
accelerated vesting; and
- Robert G. Teresi, President and Chief Executive Officer of Caere, is
party to a non-competition and consulting agreement with ScanSoft that
will be effective upon the merger and under which Mr. Teresi may receive
certain bonus payments depending on the market price of ScanSoft common
stock after the closing of the merger, among other things.
THE MERGER MAY FAIL TO QUALIFY AS A "REORGANIZATION" WITHIN THE MEANING OF
SECTION 368(a) OF THE INTERNAL REVENUE CODE. In order to qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, the merger must satisfy certain requirements,
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including the requirement that following the merger the surviving corporation
hold "substantially all" of the properties of Caere. For purposes of issuing
private letter rulings, the Internal Revenue Service has stated that 70% of the
fair market value of the gross assets and 90% of the fair market value of the
net assets of the target will be considered "substantially all" of the target's
properties. The merger is structured such that the cash portion of the
consideration to be received by Caere stockholders may be deemed to be paid by
Caere rather than ScanSoft. In that case, the portion of Caere's properties
represented by the cash would not be held by the surviving corporation following
the merger, and the merger likely would not satisfy the ruling guidelines of the
IRS. However, these ruling guidelines only represent the circumstances under
which the IRS will exercise its administrative discretion to issue private
letter rulings. Significantly lower thresholds than those articulated by the IRS
have been upheld by the courts, including in cases where the target corporation
did not transfer cash, accounts receivable and other financial assets to the
acquiror, provided that all of the target's operating assets and sufficient
working capital were transferred. If the merger fails to qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, each Caere stockholder would recognize capital gain or loss equal to the
difference between the stockholder's basis in the Caere stock and the fair
market value, as of the closing of the merger, of the ScanSoft common stock plus
the cash received in the exchange. Further, Caere would recognize corporate
level gain upon the deemed transfer of its assets to Scorpion Acquisitions
Corporation in a taxable transaction.
RISKS RELATED TO SCANSOFT AND THE COMBINED COMPANY
WE DEPEND ON THE CONTINUED DEVELOPMENT OF THE DIGITAL IMAGING SOFTWARE
MARKET FOR OUR GROWTH. The market for digital imaging software and, in
particular, for our products is:
- Constantly evolving and is subject to rapid technological changes;
- Dependent on the introduction, growth, adoption and pricing of digital
imaging devices such as scanners, multi-function peripherals and digital
cameras;
- Subject to the technical knowledge and ability of users to understand and
use such devices and software; and
- Characterized by transforming technology and frequent new product
introductions.
Developing new products and product enhancements is a complex and uncertain
process requiring high levels of innovation, as well as the accurate
anticipation of technological and market trends. Broad market acceptance of our
products and our future success will depend in part on the following:
- Our ability to educate users about the benefits of digital imaging
products generally and the specific benefits of our products;
- Our ability to adapt to emerging industry standards and respond to our
competitors' product announcements;
- Our ability to develop, introduce, upgrade and support competitive new
products and product enhancements that meet changing customer
requirements and emerging industry standards; and
- Our ability to increase brand-name recognition.
If we are not successful in meeting the goals listed above, we may not be
able to maintain or gain broad market acceptance for our products. Further, a
decline in demand for digital imaging products generally, or for ScanSoft's
PaperPort, Pagis or TextBridge products or Caere's OmniPage and OmniForm
products, in particular, could occur as a result of competitive technological
change or other factors.
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OUR REVENUE HAS BEEN DEPENDENT ON DEMAND FOR A FEW PRODUCTS. We have
historically had a substantial portion of our revenue generated from a few
products. ScanSoft's TextBridge product family represented approximately 42% of
revenue, Pagis represented approximately 21% of revenue and PaperPort
represented approximately 20% of revenue for the nine months ended September 30,
1999. Caere's OmniPage product family represented approximately 75% of its
revenue for the same time period. The likelihood that these products will
continue to contribute significant revenue to the combined company is subject to
certain risks, including:
- Our ability to develop and introduce competitive new product enhancements
that meet changing customer requirements; and
- Our ability to develop and introduce product enhancements that meet
emerging industry standards.
A reduction in revenue may make it more difficult for us to compete in the
digital imaging market.
THE TIMING OF NEW PRODUCT INTRODUCTIONS IS CRITICAL TO OUR SUCCESS. The
digital imaging software market is characterized by rapid technological change,
evolving customer needs, frequent new product introductions and evolving
industry standards. Our success depends on how well we are able to manage the
transition to new products and new versions of existing products. The life
cycles of our products are difficult to estimate. Further, it is not unusual in
personal computer software life cycles for the sales volume of new products and
new versions of existing products to increase in the first few months after
their introduction because of initial demand. As a product reaches the end of
its life cycle, however, demand for that product tends to fall in anticipation
of new replacement products. Consequently, announcements about new products at
the end of a product life cycle may cause our customers to defer purchasing
existing products, and we may be forced to lower the prices of older products in
anticipation of new releases. This may result in distributors claiming price
protection credits or returning older products to us, and as a result, our
revenues may decline. We cannot accurately predict the exact timing in which a
new product or version will be ready to ship. Moreover, in order to maintain
competitiveness, we must make substantial investments in product development and
testing. We cannot guarantee that we will have sufficient resources to make the
necessary investments or that we will be able to develop new products or new
product features quickly enough to meet market demand.
WE DEPEND ON CONTINUED DEMAND FOR OUR PRODUCTS FROM ORIGINAL EQUIPMENT
MANUFACTURERS. ScanSoft and Caere have OEM relationships with a number of
companies that provide digital imaging hardware. Agreements with our OEM
customers provide for our software products to be bundled with the OEMs'
hardware products when sold. The cost, if any, of integrating, including
providing the reproduction of our software, is assumed by the OEM. These
agreements also provide for a license fee to be paid to ScanSoft or Caere. The
license fee may be a royalty based upon unit sales, a flat fee or a fee for a
certain time period. We cannot assure you that OEM customers will accurately
report license fees or have the ability to pay them. Our agreements with OEMs do
not obligate them to bundle our software.
Other risks include whether the OEMs will:
- Give sufficient priority to marketing our products;
- Continue to offer our products at all; and
- Elect instead to bundle software products of our competitors.
OEM revenue has historically represented approximately 15 to 25% of our
revenue. In the past several years, we have seen a significant reduction in
revenue from certain OEM customers and may not be able to replace the revenue
generated from those relationships.
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THE DIGITAL IMAGING SOFTWARE MARKET IS HIGHLY COMPETITIVE. The digital
imaging market is highly competitive and subject to rapid change, with frequent
new product introductions and enhancements, and constant pressure to reduce
prices. We believe that the principal competitive factors in the digital imaging
software market include:
- Accuracy of scanned images;
- Ease of understanding and use;
- Product reliability;
- Product features and functions;
- Price/performance characteristics;
- Brand recognition; and
- Quality of product support.
Our current competitors include developers of digital imaging software,
document management software and scanning software suites and manufacturers of
scanners, multi-function peripheral devices and digital cameras. We experience
significant price competition and pressure in both the retail channel and the
OEM market and expect this to continue. In addition, our "bundled" products
themselves compete with our fully featured shrinkwrap products. Our current
competitors include Microsoft Corporation, Adobe Systems Incorporated, Corel
Corporation, ABBYY Software House, NewSoft America, Inc., I.R.I.S., JetForm
Corporation, MGI Software Corp. and many others.
Increased competition may force us to lower our prices, experience
decreased gross margins or lose market acceptance. We face the following
challenges from our competitors:
- Certain of our competitors offer products comparable to ours at retail
prices that are lower than ours;
- Many of our current and potential competitors have longer operating
histories and significantly greater financial, technical, support, sales,
marketing, recruiting and other resources;
- Certain of our competitors have greater name recognition and larger
customer bases than we do;
- Certain of our competitors may be better able to withstand significant
price decreases or devote greater resources to the development,
promotion, sale and support of their products than we can; and
- Certain of our competitors may be able to develop digital image
processing software with superior accuracy, ease of understanding and
use, product reliability, product features and functions and
price/performance characteristics than we develop.
We may not be able to compete successfully against current and future
competitors, especially those with greater financial, technical, support, sales,
marketing, recruiting and other resources. If we are not successful in meeting
the challenges listed above, we may not be able to maintain or gain broad market
acceptance for our products. Competitive pressures may materially affect our
business, operating results, and financial condition.
WE NEED TO CONTINUE TO MAINTAIN AND BUILD OUR RELATIONSHIPS WITH
DISTRIBUTORS AND OTHER RESELLERS. We expect to continue to receive a substantial
portion of our revenue from sales through our independent distributors and
resellers, but we anticipate that our dependence on any one distributor or
reseller will decrease in the future as we expand distribution channels. Our
agreements with distributors and resellers are not exclusive; many of our
distributors and resellers offer competitive products and are not required to
give our products priority. Each of our distributors and
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resellers can cease marketing our products with limited notice and with little
or no penalty. If we lose any one of our independent distributors or resellers,
we may not be able to recruit replacements. If our distributors or resellers
reduce or cease their marketing and sales efforts on our behalf, our business,
operating results and financial condition may suffer.
We may not be able to develop an effective method of distributing our
software products using newly emerging software distribution channels, such as
the Internet. Even if successful, the presence of new distribution channels
could adversely affect our existing distribution channels and the prices of our
products.
OUR TRADITIONAL DISTRIBUTORS ARE SUBJECT TO ECONOMIC AND COMPETITIVE
RISK. Our traditional distributors in the retail channel are experiencing
extreme competition both among themselves and from the shift to electronic
commerce. Some of these distributors are experiencing disappointing financial
results and in some cases have announced employee layoffs. A failure by any one
of our distributors could result in:
- Material bad debts;
- Loss of inventories and associated sales values;
- Disruption of revenue from the retail channel; and
- Significant costs incurred to reestablish product distribution.
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN INTERNATIONAL MARKETS. Upon
completion of the merger, international sales will represent more than 25% of
total sales, and more than 20% of our employees will be in foreign locations. We
plan to continue expansion of our international operations by establishing a
more extensive network of international distributors and resellers. We also
develop versions of our products suitable to the market requirements of
particular foreign countries, such as different languages. We have limited
resources to develop international versions of our products and to market,
distribute, service and support such products. We may not be able to develop new
or additional versions of our existing products or successfully market, sell,
deliver, service or support our products in international markets.
CONDUCTING BUSINESS OUTSIDE OF THE UNITED STATES WILL EXPOSE US TO
ADDITIONAL RISKS. In conducting business outside of the United States, we are
exposed to the following additional risks:
- Unexpected changes in regulatory requirements;
- Import and export duties and restrictions;
- Tariffs and other trade barriers;
- Difficulties in staffing and managing foreign operations;
- Longer payment cycles;
- Uncertainties in connection with collecting accounts receivable;
- Political instability;
- Fluctuations in currency exchange rates;
- Logistical difficulties in managing multinational operations;
- Seasonal reductions in business activity during summer months in Europe
and certain other parts of the world; and
- Potentially adverse tax consequences, including our inability to recover
withholding taxes.
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PRODUCT DEFECTS MAY HARM OUR BUSINESS. Our products are complex and may
contain certain software errors or failures which are detected only after we
begin to ship a product, especially when first introduced as new versions or
when enhancements are released. Although we conduct testing during product
development, we have at times been forced to delay commercial release of
software until problems were corrected and, in some cases, have provided
enhancements to correct errors in released software. Delay in commercial release
or correction of errors could lead to loss of revenue, credibility with
customers and market acceptance of our products. Despite our testing, and
testing by current and potential customers, errors may be found in software
after commencement of commercial shipments, resulting in loss or delay of
revenue or market acceptance, diversion of development resources, damage to our
reputation, or increased support costs.
WE DEPEND ON THIRD-PARTY LICENSES FOR OUR PRODUCTS. We rely on certain
software technology which we license from third parties and use in our products
to perform key functions and provide additional functionality. Because our
products incorporate software developed and maintained by third parties, we are,
to a certain extent, dependent upon such third parties' ability to maintain or
enhance their current products, to develop new products on a timely and
cost-effective basis, and to respond to emerging industry standards and other
technological changes. Further, these third-party technology licenses may not
always be available to us on commercially reasonable terms or at all.
If our agreements with third-party vendors are not renewed or the
third-party software fails to address the needs of our software products, we
would be required to find alternative software products or technologies of equal
performance or functionality. We cannot assure that we would be able to replace
the functionality provided by third-party software if we lose the license to
this software, it becomes obsolete or incompatible with future versions of our
products or is otherwise not adequately maintained or updated.
THE PROTECTION OF OUR PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY IS
KEY TO OUR SUCCESS. ScanSoft and Caere both rely heavily on their respective
proprietary software technology, trade secrets and other intellectual property.
We use a variety of methods to protect our respective intellectual property,
including patents, copyrights, trademarks and trade secrets. In addition, we
generally enter into confidentiality or license agreements with our employees,
consultants and vendors. We also generally control access to and distribution of
our software, documentation and other proprietary information. We primarily rely
on "shrink wrap" or "click wrap" licenses that are not signed by the customer
and, therefore, may not be enforceable under the laws of certain jurisdictions.
Unauthorized parties may attempt to copy aspects of our products or to obtain
and use information that we regard as proprietary. Policing unauthorized use of
our products is difficult and we may not be able to protect our technology from
unauthorized use. Additionally, our competitors may independently develop
technologies that are substantially the same or superior to ours. In addition,
the laws of some foreign countries do not protect our proprietary rights to the
same extent as the laws of the United States. Although the source code for our
proprietary software is protected both as a trade secret and as a copyrighted
work, litigation may be necessary to enforce our intellectual property rights,
to protect our trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity. Litigation, regardless of the outcome, can be very expensive and can
divert management efforts.
WE DEPEND ON KEY PERSONNEL AND FACE RISKS ASSOCIATED WITH HIRING AND
RETAINING EMPLOYEES. We rely to a significant extent upon our senior management
team and other key employees. Competition for such employees is intense. We
cannot guarantee that we will be able to retain our key employees following the
merger. From time to time, we will need to hire additional or replacement
employees. We may not be successful in hiring, integrating or retaining new
employees.
OUR PAST EXPERIENCE OF FLUCTUATING REVENUE AND OPERATING RESULTS MAY
CONTINUE AND THE COMBINED COMPANY MAY NEVER BECOME PROFITABLE. ScanSoft and
Caere's revenue and operating
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results have fluctuated in the past, and future revenue and operating results
are likely to do so in the future, particularly on a quarterly basis. Our
revenue frequently fluctuates from quarter to quarter due, to a large extent, to
the following:
- Volume, timing and filling of customer orders;
- Reduction in prices in response to competition or market conditions;
- Increased expenditures to pursue new product or market opportunities;
- Inability to adjust operating expenses to compensate for shortfalls in
revenue against forecast;
- Returns and allowance charges in excess of recorded amounts;
- Demand for products;
- Seasonality;
- General economic trends impacting retail sales;
- Customer deferrals in anticipation of new versions of products, including
new operating systems;
- Introduction of new products by us or our competitors;
- Timing of new product acquisitions; and
- Timing of significant marketing and sales promotions.
In addition, if we need to reduce our prices in response to pricing
pressure, we will be at a significant disadvantage with respect to those of our
competitors that have substantially greater resources. These competitors may
more readily withstand an extended period of downward pricing pressure. In that
event, we may be required to grant credits for price reductions to our
distributors and resellers.
Due to the foregoing factors, among others, our revenue and operating
results are difficult to forecast. We intend to base our expense levels in
significant part on our expectations of future revenue. Our failure to meet
revenue expectations would have a material adverse affect on our business,
operating results and financial condition. Further, an unanticipated decline in
revenue for a particular quarter may disproportionately affect our net income
because a relatively small amount of our expenses are intended to vary with our
revenue in the short term. As a result, we believe that period-to-period
comparisons of our results of operations are not and will not necessarily be
meaningful, and you should not rely upon them as an indication of future
performance.
ScanSoft had net losses for 1996, 1997 and 1998. The combined company may
never become profitable or sustain profitability.
WE MAY NOT BE ABLE TO REALIZE COST SAVINGS FROM THE MERGER. We expect to
reduce annual operating costs by approximately $10 million following
consummation of the merger. Our ability to realize these cost savings is subject
to risks, such as those described in "Risks Relating to the Merger" on page 12
of this prospectus/proxy statement. In addition, realization of the expected
cost savings may not occur when anticipated or may be less than expected due, in
part, to the following:
- Our ability to effectively manage diverse and geographically dispersed
operations;
- Difficulties with integrating product development plans, schedules and
resources;
- Difficulties in implementing the planned cost reductions;
- Potential that the information and estimates used to predict the cost
savings was not accurate; and
- Sales and marketing synergies may not be possible without negatively
impacting revenue.
If we are not successful in managing the risks listed above, our business,
operating results and financial condition may suffer.
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XEROX WILL CONTINUE TO INFLUENCE MATTERS REQUIRING STOCKHOLDER APPROVAL OF
THE COMBINED COMPANY. Xerox currently owns approximately 44% of ScanSoft's
outstanding Common Stock and all of ScanSoft's outstanding Series B Preferred
Stock. In addition, Xerox has the opportunity to acquire additional shares of
ScanSoft common stock pursuant to a warrant. Xerox is currently ScanSoft's
largest stockholder. Although Xerox does not control ScanSoft and is restricted
until March, 2001 from holding more than 50% of the voting power of ScanSoft's
capital stock, Xerox will have a strong influence over matters requiring
approval by ScanSoft's stockholders. In addition, Xerox has two designees on the
board of directors, including Paul A. Ricci, the Chairman of the Board.
Xerox has advised us that its current intent is to hold all of its shares
of ScanSoft common stock. However, there can be no assurance concerning the
periods of time during which Xerox will maintain its ownership of ScanSoft
common stock.
OUR BUSINESS AND OPERATIONS MAY STILL SUFFER FROM PROBLEMS RELATED TO THE
YEAR 2000. Neither ScanSoft nor Caere have experienced disruptions in our
business or operations as a result of the onset of the year 2000. However, there
may still be systems and software products yet to display any year 2000
problems.
OUR STOCK PRICE MAY CONTINUE TO BE VOLATILE. Our Common Stock prices have
fluctuated widely in the past. We believe that these fluctuations have been
caused by announcements of new products, quarterly fluctuations in the results
of operations, and other factors, including, but not limited to, changes in
conditions of the personal computer industry in general. Stock markets have
experienced extreme price volatility in recent years. This volatility has had a
substantial effect on the market price of our Common Stock and other high
technology companies, often for reasons unrelated to the operating performance
of the specific companies. We anticipate that prices for our Common Stock may
continue to be volatile. Future stock price volatility may provoke the
initiation of securities litigation, which would divert management resources.
OUR CHARTER DOCUMENTS AND RIGHTS AGREEMENTS CONTAIN ANTI-TAKEOVER
PROVISIONS. We are organized under Delaware law. Certain provisions of Delaware
law may have the effect of delaying, deferring or preventing changes in control
or our management, which could prevent an escalation of stock prices as a result
of takeover speculation.
ScanSoft has also adopted a Preferred Shares Rights Agreement which could
cause substantial dilution to an acquiring party that attempts to acquire
ScanSoft on terms not approved by ScanSoft's Board. The Preferred Shares Rights
Agreement could also have the effect of delaying, deferring or preventing
changes in control or our management and preventing an escalation in stock
prices as a result of takeover speculation.
RISKS RELATED TO CAERE
CAERE'S FUTURE GROWTH RATE MAY NOT REACH THE LEVELS REACHED IN PRIOR
YEARS. Caere's revenue growth rate in 2000 and future periods may not approach
the levels attained in prior years. Because of the fixed portion of some
expenses that may be incurred, coupled with the possibility of slower revenue
growth, operating margins may decrease in 2000 from those attained in 1999.
MICROSOFT'S AGREEMENT WITH SCANSOFT MAY REDUCE DEMAND FOR CAERE'S
PRODUCTS. ScanSoft recently entered into an agreement granting Microsoft
Corporation certain rights to include ScanSoft's OCR technology in certain
unspecified Microsoft product offerings in the future. Microsoft customers may
defer or forego the purchase of Caere's more fully featured versions of OmniPage
if they find the included OCR technology available from Microsoft satisfies
their OCR needs.
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THE SCANSOFT MEETING
DATE, TIME, PLACE AND PURPOSE OF SCANSOFT'S SPECIAL MEETING
The special meeting of stockholders of ScanSoft will be held at 8 a.m.,
Pacific time, on March 13, 2000 at the offices of Wilson Sonsini Goodrich &
Rosati, counsel to ScanSoft, located at 650 Page Mill Road, Palo Alto,
California 94304. At the meeting, stockholders at the close of business on
February 7, 2000 will be asked:
1. To approve the issuance of shares of ScanSoft common stock in the
merger.
2. To approve the amendment of ScanSoft's certificate of incorporation
to (1) increase the number of shares of ScanSoft capital stock authorized
for issuance thereunder by 90,000,000 shares to an aggregate of 180,000,000
shares, (2) increase the number of shares of ScanSoft common stock
authorized for issuance thereunder by 70,000,000 shares to an aggregate of
140,000,000 shares, and (3) increase the number of shares of ScanSoft
Preferred Stock authorized for issuance thereunder by 20,000,000 to an
aggregate of 40,000,000 shares for the merger.
3. To transact such other business as may properly come before the
ScanSoft special meeting or any adjournment or postponement thereof.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of ScanSoft common stock at the close of business on
the record date are entitled to notice of and to vote at the meeting. As of the
close of business on the record date, there were 26,695,511 shares of ScanSoft
common stock outstanding and entitled to vote, held of record by approximately
277 stockholders (although ScanSoft has been informed that there are
approximately 15,000 beneficial owners), and 3,562,238 shares of ScanSoft Series
B Preferred Stock outstanding.
VOTE REQUIRED
Holders of ScanSoft common stock are entitled to one (1) vote for each
share of common stock held as of the record date. Holders of ScanSoft Series B
Preferred Stock are not entitled to vote on the proposals to be voted upon at
the ScanSoft special meeting.
The proposals set forth in "Date, Time, Place and Purpose of ScanSoft's
Special Meeting" will require the affirmative vote of the ScanSoft stockholders
as follows:
- A majority of the votes cast at the ScanSoft special meeting and entitled
to vote on the proposal is required to approve the issuance of shares of
ScanSoft common stock in the merger.
- A majority of the total voting power of outstanding shares of ScanSoft
common stock is required to approve the amendment of ScanSoft's
certificate of incorporation described above.
Xerox has agreed to vote in favor of the proposals to be voted upon at the
ScanSoft special meeting. Xerox beneficially owned approximately 44% of the
outstanding ScanSoft common stock as of the record date. Xerox also owned 100%
of the ScanSoft Series B Preferred Stock as of the record date. The Series B
Preferred Stock is not entitled to vote on the matters to be voted upon at the
ScanSoft special meeting.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS
On the record date, directors, executive officers and affiliates of
ScanSoft as a group beneficially owned 12,480,280 shares of ScanSoft common
stock and 3,562,238 shares of Series B Preferred
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Stock. Such shares constituted approximately 47% of all of the outstanding
ScanSoft common stock and 100% of the ScanSoft Series B Preferred Stock as of
the record date.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
A majority of the shares of ScanSoft's issued and outstanding common stock
will constitute a quorum at the ScanSoft special meeting. Both abstentions and
broker non-votes will be counted as present for the purposes of determining the
presence of a quorum. Abstentions will be treated as votes cast against both
stockholder proposals. Broker non-votes will be treated as votes cast against
the proposal to amend ScanSoft's certificate of incorporation, but will not be
treated as present and entitled to vote at the meeting with respect to the
proposal to issue shares of ScanSoft common stock in the merger.
EXPENSES OF PROXY SOLICITATION
ScanSoft will pay the expenses of soliciting proxies to be voted at the
meeting. Following the original mailing of the proxies and other soliciting
materials, ScanSoft and its agents also may solicit proxies by mail, telephone,
telegraph or in person. Following the original mailing of the proxies and other
soliciting materials, ScanSoft will request brokers, custodians, nominees and
other record holders of Common Stock to forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of Common Stock and to
request authority for the exercise of proxies. In such cases, ScanSoft will
reimburse record holders for their reasonable expenses upon their request.
VOTING OF PROXIES
The proxy accompanying this prospectus/proxy statement is solicited on
behalf of the ScanSoft board of directors for use at the meeting. You are
requested to complete, date and sign the accompanying proxy and promptly return
it in the enclosed envelope or otherwise mail it to ScanSoft. All properly
executed proxies received by ScanSoft prior to the vote at the meeting that are
not revoked will be voted at the meeting in accordance with the instructions
indicated on the proxies or, if no instructions are indicated, to approve the
issuance of ScanSoft common stock in the merger and the amendment of ScanSoft's
certificate of incorporation. You may revoke your proxy at any time before it is
exercised at the meeting, by (1) delivering to the secretary of ScanSoft, by any
means, including facsimile, a written notice, bearing a date later than the date
of the proxy, stating that the proxy is revoked, (2) signing and delivering a
proxy relating to the same shares and bearing a later date prior to the vote at
the meeting, or (3) attending the meeting and voting in person, although
attendance at the meeting will not, by itself, revoke a proxy. Please note,
however, that if your shares are held of record by a broker, bank or other
nominee and that you wish to vote at the meeting, you must bring to the meeting
a letter from the broker, bank or other nominee confirming your beneficial
ownership of the shares.
ScanSoft's board of directors does not know of any matter that is not
referred to in this prospectus/proxy statement to be presented for action at the
meeting. If any other matters are properly brought before the meeting, the
persons named in the proxies will have discretion to vote on those matters in
accordance with their best judgment.
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THE CAERE MEETING
DATE, TIME, PLACE AND PURPOSE OF CAERE'S SPECIAL MEETING
The special meeting of stockholders of Caere will be held at 8 a.m.,
Pacific time, on March 13, 2000 at the offices of Cooley Godward LLP, located at
Five Palo Alto Square, 3000 El Camino Real, Palo Alto, California. At the
meeting, stockholders at the close of business on February 7, 2000 will be
asked:
1. to adopt the merger agreement; and
2. to transact such other business as may properly come before the Caere
meeting or any adjournment or postponement thereof.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Caere common stock at the close of business on
the record date are entitled to notice of and to vote at the meeting. As of the
close of business on the record date, there were 12,122,504 shares of Caere
common stock outstanding and entitled to vote, held of record by approximately
360 stockholders (although Caere has been informed that there are in excess of
7,000 beneficial owners). Each stockholder is entitled to one vote for each
share of Common Stock held as of the record date.
VOTE REQUIRED
The adoption of the merger agreement will require the affirmative vote of a
majority of the outstanding shares of Caere's Common Stock.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS
On the record date, directors, executive officers and affiliates of Caere
as a group owned 252,901 shares of Caere common stock, or approximately 2.1% of
the outstanding shares on such date. These directors, executive officers and
their affiliates have executed voting agreements with ScanSoft, pursuant to
which they have agreed to vote their respective shares of Caere common stock in
favor of the merger. See "The Merger -- Company Voting/Affiliate Agreements."
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the meeting is a
majority of the shares of Caere common stock outstanding on the record date.
Abstentions will be included in determining the number of shares present and
voting at the meeting and will have the same effect as votes against the
proposal. Broker non-votes will have the same effect as votes against the
merger.
EXPENSES OF PROXY SOLICITATION
Caere will pay the expenses of soliciting proxies to be voted at the
meeting. Following the original mailing of the proxies and other soliciting
materials, Caere and its agents also may solicit proxies by mail, telephone,
telegraph or in person. Caere has retained a proxy solicitation firm, D.F. King
& Co., Inc., to aid it in the solicitation process. Caere will pay that firm a
fee equal to $6,000, plus expenses. Following the original mailing of the
proxies and other soliciting materials, Caere will request brokers, custodians,
nominees and other record holders of Common Stock to forward copies of the proxy
and other soliciting materials to persons for whom they hold shares of Common
Stock and to request authority for the exercise of proxies. In those cases,
Caere will reimburse record holders for their reasonable expenses upon their
request.
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VOTING OF PROXIES
The proxy accompanying this prospectus/proxy statement is solicited on
behalf of the Caere board of directors for use at the meeting. You are requested
to complete, date and sign the accompanying proxy and promptly return it in the
enclosed envelope or otherwise mail it to Caere. All properly executed proxies
received by Caere prior to the vote at the meeting that are not revoked will be
voted at the meeting in accordance with the instructions indicated on the
proxies or, if no instructions are indicated, to adopt the merger agreement. You
may revoke your proxy any time before it is exercised at the meeting, by (1)
delivering to the secretary of Caere, by any means, including facsimile, a
written notice, bearing a date later than the date of the proxy, stating that
the proxy is revoked, (2) signing and delivering a proxy relating to the same
shares and bearing a later date prior to the vote at the meeting, or (3)
attending the meeting and voting in person, although attendance at the meeting
will not, by itself, revoke a proxy. Please note, however, that if your shares
are held of record by a broker, bank or other nominee and you wish to vote at
the meeting, you must bring to the meeting a letter from the broker, bank or
other nominee confirming your beneficial ownership of the shares.
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APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
The following discussion summarizes the proposed merger and related
transactions. The discussion is not, however, a complete statement of all
provisions of the merger agreement and related agreements. Detailed terms of and
conditions to the merger and certain related transactions are contained in the
merger agreement, a copy of which is attached to this prospectus/proxy statement
as Annex A. Statements made in this prospectus/proxy statement with respect to
the terms of the merger and such related transactions are qualified in their
respective entireties by reference to, and holders of Caere common stock and
ScanSoft common stock are urged to read the more detailed information set forth
in, the Merger Agreement and the other documents annexed in this
prospectus/proxy statement.
BACKGROUND OF THE MERGER
From time to time, Caere has explored the possibility of a business
combination with other software companies and scanner manufacturers to achieve
greater efficiencies and value for stockholders. At various times during 1997,
Caere had discussions with Xerox regarding the possible acquisition of Caere by
Xerox. These discussions did not result in a definitive agreement pertaining to
such a business combination. In the late summer and fall of 1998, Caere explored
the possibility of acquiring from Visioneer, Inc., the predecessor of ScanSoft,
the software business of Visioneer. These discussions did not result in a
definitive agreement. Throughout the remainder of 1998 and the first six months
of 1999, Caere continued to explore various strategic alternatives to the
structure of its then-existing business operations, including exploring the
possibility of business combinations with other companies.
On July 19, 1999, the Caere board of directors directed members of Caere
senior management to review various strategic alternatives that might be
available to Caere and authorized them to retain an investment bank to assist
with Caere's review of alternatives that would best serve the long-term
interests of Caere and its stockholders.
On September 9, 1999, Caere retained Bear Stearns & Co., Inc. to explore
potential business combination transactions that could complement Caere's
existing business and increase stockholder value. Over the course of the next
week, Caere and Bear Stearns made informal preliminary contacts with several
companies that they believed might be interested in a business combination with
Caere.
At a September 15, 1999 meeting of the board of directors of Caere, Bear
Stearns discussed with the board its preliminary assessment of opportunities for
possible business combinations with third parties. At this meeting, Bear Stearns
identified and reviewed a list of leading candidates that could be expected to
have an interest in a transaction with Caere. At that meeting, although no
determination to engage in any business combination transaction was made, the
Caere board of directors authorized Bear Stearns to contact, on a confidential
basis, what were considered the candidates most likely to have a high level of
interest in exploring some form of transaction with Caere to assess their
interest.
During the week of October 11, 1999, John Rogers, Chief Financial Officer
of ScanSoft, contacted Blanche Sutter, Executive Vice President and Chief
Financial Officer of Caere, and expressed an interest in a potential business
combination of the two companies.
Between October 28, 1999 and December 10, 1999, Bear Stearns, on behalf of
Caere, entered into numerous confidentiality agreements with third parties and
provided certain requested financial and operating information to these third
parties. In addition, representatives of Caere and Bear Stearns engaged in
various conversations with representatives of these third parties and their
respective financial advisors relating to a possible business combination
between Caere and these third parties.
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On November 15, 1999, Paul Ricci, the Chairman of the Board of ScanSoft,
contacted Robert Teresi, President and Chief Executive Officer of Caere, to
propose a meeting to discuss a potential business combination of ScanSoft and
Caere.
On November 22, 1999, the board of directors of ScanSoft met to discuss a
potential business combination transaction with Caere, and authorized Mr. Ricci
to engage in discussions with Mr. Teresi regarding a potential business
combination.
On November 23, 1999, ScanSoft delivered to Caere an initial proposal
regarding a potential business combination between Caere and ScanSoft.
On November 24, 1999, Mr. Ricci met with Mr. Teresi and discussed the
initial proposal for a potential business combination of the two companies
previously delivered to Caere by ScanSoft.
On December 6, 1999, ScanSoft retained Merrill Lynch, Pierce, Fenner &
Smith Incorporated as its financial advisor with respect to a possible business
combination with Caere.
Between December 6, 1999 and December 12, 1999, members of ScanSoft and
Caere management, and their respective legal and financial advisors had various
discussions regarding the terms of the proposed business combination and pursued
preliminary due diligence.
At a December 7, 1999 meeting of the board of directors of ScanSoft, the
board discussed the status of negotiations with Caere.
On December 12, 1999, Caere and ScanSoft entered into a mutual
nondisclosure agreement.
On December 13, 1999, Bear Stearns received a term sheet from Merrill Lynch
outlining the proposed terms on which ScanSoft would consider entering into a
business combination with Caere.
At a December 14, 1999 meeting of the board of directors of Caere, Bear
Stearns reviewed the terms of the ScanSoft proposal. Following lengthy
discussion by members of the board of directors and Cooley Godward LLP, Caere's
legal counsel, the board of directors instructed Bear Stearns and Cooley Godward
to seek certain revisions of the proposal with respect to, among other matters,
the aggregate value of the consideration offered by ScanSoft, the ability of the
Caere board of directors to consider alternative bids once a merger agreement
had been signed with ScanSoft and the obligations of Caere and ScanSoft to
resolve potential regulatory issues arising out of the merger. Representatives
of Bear Stearns communicated the Caere board of directors' proposals to
representatives of Merrill Lynch.
On December 15, 1999, Bear Stearns received a revised term sheet from
Merrill Lynch, which Bear Stearns then sent to Caere and its legal counsel.
On December 16, 1999, Bear Stearns advised Caere that it received a
preliminary proposal for an acquisition of Caere by a third party other than
ScanSoft. The preliminary proposal, which was subject to a number of conditions,
including the third party's due diligence investigation of Caere, contemplated a
possible cash purchase price of $130 million for Caere.
On December 16, 1999, members of ScanSoft and Caere management, their
respective legal advisors, and Merrill Lynch and Bear Stearns met to discuss the
terms of a proposed transaction. At that meeting, ScanSoft submitted a further
revised merger proposal.
At a December 19, 1999 meeting, Caere's board of directors, together with
its legal and financial advisors, discussed the ScanSoft proposal, the proposal
of the other third party and other strategic alternatives. After discussion, the
Caere board of directors determined to proceed with negotiations and due
diligence with ScanSoft. In response to a demand set forth in the ScanSoft
proposal, the Caere board of directors agreed to negotiate exclusively with
ScanSoft through January 11, 2000.
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During the period from December 21, 1999 through January 10, 2000, Caere,
through Bear Stearns, and ScanSoft, through Merrill Lynch, exchanged information
regarding the current and past financial performance and business of Caere and
ScanSoft.
On December 23, 1999, Caere and ScanSoft entered into an exclusivity and
standstill agreement.
On January 4, 2000, representatives of ScanSoft and Merrill Lynch met with
representatives of Caere and Bear Stearns to exchange management presentations
and to conduct business due diligence. At that meeting, the parties discussed
the due diligence process and the timing of the transaction.
On January 5, 2000, the respective managements of ScanSoft and Caere, their
legal advisors, and Merrill Lynch and Bear Stearns met to discuss possible terms
of a merger. The Caere board of directors held a meeting to discuss the status
of the proposed business combination with ScanSoft.
From January 6, 2000 to January 14, 2000, the legal advisors to ScanSoft
and Caere conducted legal due diligence, and the managements of ScanSoft and
Caere together with the financial advisors of ScanSoft and Caere conducted
business due diligence, on Caere and ScanSoft, respectively.
On January 10, 2000, members of Caere and ScanSoft management and their
respective legal advisors met to discuss the terms of the proposed merger
agreement.
On January 12, 2000, Caere's board of directors held a meeting at which
Caere's attorneys reviewed the terms of the proposed merger agreement and
related agreements with the board in detail, and Bear Stearns orally presented
its financial analysis of the material terms of the proposed transaction.
Representatives of Caere also discussed with the board the results of their due
diligence investigation of ScanSoft.
On January 12, 2000, the board of directors of ScanSoft held a special
meeting to discuss the status of negotiations with Caere. ScanSoft's legal
advisors reviewed the principal terms of the merger agreement and related
agreements. Merrill Lynch then reviewed for the board the material financial
analyses that it performed related to the proposed transaction. Merrill Lynch
delivered its oral opinion to the board of directors of ScanSoft, subsequently
confirmed in writing as of January 15, 2000, to the effect that, as of January
15, 2000 and based upon the assumptions made, matters considered and limits of
review, as set forth in its opinion, the consideration to be paid in the merger
was fair from a financial point of view to ScanSoft. ScanSoft's management,
legal advisors and financial advisor then reported on the results of their due
diligence investigations of Caere. Following discussion and consideration of the
factors described in "ScanSoft's Reasons for the Merger," the ScanSoft board of
directors approved the merger agreement and related agreements, the issuance of
ScanSoft common stock in the merger and the related amendment of ScanSoft's
certificate of incorporation to authorize additional shares of Common Stock. The
ScanSoft board determined to recommend to the ScanSoft stockholders its approval
of the issuance of shares of ScanSoft common stock in the merger and the related
amendment of its certificate of incorporation to authorize additional shares of
common stock.
On January 14, 2000, Caere's board of directors held a telephonic board
meeting. Caere's attorneys updated the board on the terms of the final merger
agreement and related agreements. Bear Stearns then reviewed for the board the
material financial analyses that it performed related to the proposed
transaction. Bear Stearns then rendered its oral opinion to the Caere board of
directors, subsequently confirmed in writing as of January 15, 2000, to the
effect that, as of January 14, 2000 and based upon the assumptions made, matters
considered and limits of the review, as set forth in its opinion, the per share
merger consideration was fair, from a financial point of view, to Caere's
stockholders. After considering Bear Stearn's presentation and the factors
described in "Caere's Reasons for the Merger," Caere's board unanimously
approved the merger and merger agreement and
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authorized the executive officers of Caere to negotiate any final changes
necessary to the merger agreement and to execute the merger agreement and
related ancillary documents on behalf of Caere and determined to recommend to
the Caere stockholders that they approve the adoption of the merger agreement.
On January 15, 2000, after a final review of the documents related to the
merger by the management of both Caere and ScanSoft and their respective
advisors, Caere and ScanSoft executed the definitive merger agreement and
related agreements.
The parties issued a joint press release announcing the signing of the
definitive merger agreement on Monday, January 17, 2000.
JOINT REASONS FOR THE MERGER
We believe that the proposed merger will create a company well positioned
to build upon Caere and ScanSoft's heritage of leadership in the digital imaging
software market. We believe the combined company will have an effective cost
structure, a strong development team and well-branded products, which we believe
can create value for stockholders.
Further, the boards of directors of ScanSoft and Caere have determined that
the merger may provide the combined company with the following benefits:
- given the complementary nature of the product lines of ScanSoft and
Caere, the merger will enhance the opportunity for the potential
realization of the strategic objectives of both companies;
- the creation of a larger customer base, a higher market profile and
greater financial strength may present greater opportunities for
marketing the products of the combined company; and
- combined technological resources may allow the combined company to
develop new products and greater functionality for existing products.
SCANSOFT'S REASONS FOR THE MERGER
ScanSoft's board of directors determined that the merger agreement and the
merger are fair to and in the best interests of ScanSoft and its stockholders,
and determined to recommend that the stockholders approve the stockholder
proposals relating to the merger. In reaching its determination, ScanSoft's
board of directors considered, among other things, several potential benefits of
the merger, including the following:
- the merger will provide an opportunity for expanded distribution of
Caere's products to current customers of ScanSoft;
- ScanSoft's stockholders would have the opportunity to participate in the
potential for growth of the combined company after the merger;
- the combined experience, financial resources, size and breadth of product
offerings of the combined company will allow the combined company to
respond more quickly and effectively to technological change, increased
competition and market demands in an industry experiencing rapid
innovation and change;
- the combination of Caere's products with ScanSoft's products will allow
the combined company to offer a more comprehensive set of software
products to its customers; and
- the creation of a combined customer service and technical support system
may permit the combined company to provide more efficient support
coverage to its customers.
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In its evaluation of the merger, the ScanSoft board of directors reviewed
several factors, including, but not limited to, the following:
- historical information concerning ScanSoft's and Caere's respective
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position, including public reports
concerning results of operations during the most recent fiscal year and
fiscal quarter for each company filed with the SEC;
- ScanSoft management's view of the financial condition, results of
operations and businesses of ScanSoft and Caere before and after giving
effect to the merger;
- current financial market conditions and historical market prices,
volatility and trading information with respect to the Common Stock of
ScanSoft and the Common Stock of Caere;
- the consideration to be received by Caere stockholders in the merger and
the relationship between the consideration and consideration paid in
comparable merger transactions;
- the belief that the terms of the merger agreement, including the parties'
representations, warranties and covenants, and the conditions to their
respective obligations, are reasonable;
- the potential for other third parties to enter into strategic
relationships with or to acquire ScanSoft or Caere;
- detailed financial analysis and other information with respect to the
companies presented by Merrill Lynch;
- the impact of the merger on ScanSoft's customers and employees;
- reports from management, legal and financial advisors as to the results
of the due diligence investigation of Caere;
- the terms of the proposed merger agreement regarding ScanSoft's and
Caere's respective rights to consider and negotiate other acquisition
proposals in certain circumstances, as well as the possible effects of
the provisions regarding the termination fees; and
- the expectation that the merger is expected to be accounted for as a
purchase.
The ScanSoft board of directors also identified and considered a number of
potentially negative factors in its deliberations concerning the merger
including the following:
- the risk that the potential benefits sought in the merger might not be
fully realized;
- the possibility that the merger might not be consummated and the effect
of public announcement of the merger on (a) ScanSoft's sales and
operating results, (b) ScanSoft's ability to attract and retain key
management, marketing and technical personnel and (c) progress of certain
development projects;
- the potential dilutive effect of the issuance of the Common Stock of
ScanSoft in the merger;
- the substantial charges to be incurred, primarily in the quarter ending
March 31, 2000, in connection with the merger, including costs of
integrating the businesses and transaction expenses arising from the
merger;
- the risk that despite the efforts of the combined company, key technical
and management personnel might not remain employed by the combined
company; and
- other applicable risks described in this prospectus/proxy statement.
The board concluded, however, that, on balance, the potential benefits to
ScanSoft and its stockholders of the merger outweighed the risks associated with
the merger.
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The discussion of the information and factors considered by the ScanSoft
board of directors is not intended to be exhaustive. In view of the variety of
factors considered in connection with its evaluation of the merger, the ScanSoft
board did not find it practicable to, and did not, quantify or otherwise assign
relative weight to, the specific factors considered in reaching its
determination.
RECOMMENDATION OF SCANSOFT'S BOARD OF DIRECTORS
After considering the foregoing factors, ScanSoft's board of directors
unanimously approved the merger agreement and the merger, and recommends that
the stockholders of ScanSoft approve the issuance of shares of ScanSoft common
stock in the merger and the amendment of ScanSoft's certificate of incorporation
as described in this prospectus/proxy statement.
CAERE'S REASONS FOR THE MERGER
Caere's board of directors determined that the merger agreement and the
merger are fair to and in the best interests of Caere and its stockholders.
Accordingly, Caere's board of directors unanimously recommends that its
stockholders adopt the merger agreement. In reaching its determination, Caere's
board of directors considered, among other things, several potential benefits of
the merger, including the following:
- the premium over the current market price of Caere common stock to be
paid by ScanSoft to the Caere stockholders;
- the merger will provide an opportunity for expanded distribution of
Caere's products;
- Caere's stockholders would have the opportunity to participate in the
potential for growth of the combined company after the merger;
- the possibility that the merger will result in cost savings for the
combined company through the elimination of redundant functions of Caere
and ScanSoft and the use of economies of scale in connection with the
distribution of the products of the combined company;
- the combined experience, financial resources, size and breadth of product
offerings of the combined company will allow the combined company to
respond more quickly and effectively to technological change, increased
competition and market demands in an industry experiencing rapid
innovation and change;
- the combination of Caere's products with ScanSoft's products will allow
the combined company to offer a more comprehensive set of software
products to its customers, particularly in the areas of document
management and image editing;
- the creation of a combined customer service and technical support system
may permit the combined company to provide more efficient support
coverage to its customers.
In its evaluation of the merger, the Caere board of directors reviewed
several factors, including, but not limited to, the following:
- historical information concerning ScanSoft's and Caere's respective
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position, including public reports
concerning results of operations during the most recent fiscal year and
fiscal quarter for each company filed with the SEC;
- Caere management's view of the financial condition, results of operations
and businesses of ScanSoft and Caere before and after giving effect to
the merger;
- current financial market conditions and historical market prices,
volatility and trading information with respect to the Common Stock of
ScanSoft and the Common Stock of Caere;
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- the consideration to be received by Caere stockholders in the merger and
the relationship between the consideration and consideration paid in
comparable merger transactions;
- the belief that the terms of the merger agreement, including the parties'
representations, warranties and covenants, and the conditions to their
respective obligations, are reasonable;
- the potential for other third parties to enter into strategic
relationships with, or to acquire, ScanSoft or Caere;
- financial analysis and pro forma and other information with respect to
the companies presented by Bear Stearns, financial advisor to Caere, in
board presentations;
- the impact of the Merger on Caere's customers and employees;
- reports from management, legal and financial advisors as to the results
of the due diligence investigation of ScanSoft; and
- the expectation that the merger is expected to be accounted for as a
purchase.
The Caere board of directors also identified and considered a number of
potentially negative factors in its deliberations concerning the merger
including the following:
- the risk that the potential benefits sought in the merger might not be
fully realized;
- the possibility that the merger might not be consummated and the effect
of public announcement of the merger on (a) Caere's sales and operating
results, (b) Caere's ability to attract and retain key management,
marketing and technical personnel and (c) progress of certain development
projects;
- the loss of control over future operations of Caere following the merger;
- the substantial charges to be incurred, primarily in the quarter ending
March 31, 2000, in connection with the merger, including costs of
integrating the businesses and transaction expenses arising from the
merger;
- the risk that despite the efforts of the combined company, key technical
and management personnel might not remain employed by the combined
company;
- certain terms of the merger agreement and related agreements that
prohibit Caere and its representatives from soliciting third-party bids
and from accepting, approving or recommending unsolicited third-party
bids except in very limited circumstances, which terms would reduce the
likelihood that a third party would make a bid for Caere;
- The risks related to ScanSoft's business and how they would affect the
operations of the combined company; and
- other applicable risks described in this prospectus/proxy statement.
The board concluded, however, that, on balance, the potential benefits of
the merger to Caere and its stockholders outweighed the risks associated with
the merger.
The discussion of the information and factors considered by the Caere board
of directors is not intended to be exhaustive, but is believed to include all of
the material factors considered by the Caere board of directors. In view of the
variety of factors considered in connection with its evaluation of the merger,
the Caere board of directors did not find it practicable to, and did not,
quantify or otherwise assign relative weight to, the specific factors considered
in reaching its determination. In addition, the Caere board of directors did not
reach any specific conclusion on each factor considered, or any aspect of any
particular factor, but conducted an overall analysis of these factors.
Individual members of the Caere board of directors may have given different
weight to different factors.
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RECOMMENDATION OF CAERE'S BOARD OF DIRECTORS
After considering all of the foregoing factors, Caere's board of directors
determined that the merger is in the best interests of Caere and its
stockholders and unanimously approved the Merger Agreement and the merger.
Accordingly, Caere's board of directors unanimously recommends that the
stockholders of Caere vote "FOR" the adoption of the merger agreement.
OPINION OF SCANSOFT'S FINANCIAL ADVISOR
On January 12, 2000, Merrill Lynch, Pierce, Fenner & Smith Incorporated
delivered its oral opinion, which opinion was subsequently confirmed in a
written opinion dated January 15, 2000, to the ScanSoft board of directors to
the effect that, as of such dates, and based upon the assumptions made, matters
considered and limits of review set forth in its written opinion, the
consideration to be paid by ScanSoft in the merger was fair from a financial
point of view to ScanSoft. References herein to the "Merrill Lynch opinion"
refer to the written opinion of Merrill Lynch dated as of January 15, 2000 which
is attached as Annex F.
THE MERRILL LYNCH OPINION SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY MERRILL
LYNCH. EACH HOLDER OF SCANSOFT COMMON STOCK IS URGED TO READ IN ITS ENTIRETY THE
MERRILL LYNCH OPINION ATTACHED AS ANNEX F. THE MERRILL LYNCH OPINION WAS
INTENDED FOR THE USE AND BENEFIT OF THE SCANSOFT BOARD OF DIRECTORS, WAS
DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE PAID BY SCANSOFT IN THE
MERGER FROM A FINANCIAL POINT OF VIEW, DID NOT ADDRESS THE MERITS OF THE
UNDERLYING DECISION BY SCANSOFT TO ENGAGE IN THE MERGER AND DOES NOT CONSTITUTE
A RECOMMENDATION TO ANY SCANSOFT STOCKHOLDER AS TO HOW THAT STOCKHOLDER SHOULD
VOTE ON THE PROPOSED ISSUANCE OF SCANSOFT COMMON STOCK OR ANY RELATED MATTER.
THE MERGER CONSIDERATION WAS DETERMINED ON THE BASIS OF NEGOTIATIONS BETWEEN
SCANSOFT AND CAERE AND WAS APPROVED BY THE SCANSOFT BOARD OF DIRECTORS. THIS
SUMMARY OF THE MERRILL LYNCH OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF THE MERRILL LYNCH OPINION ATTACHED AS ANNEX F.
In arriving at its opinion, Merrill Lynch, among other things:
- Reviewed certain publicly available business and financial information
relating to Caere and ScanSoft that Merrill Lynch deemed to be relevant;
- Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets, liabilities and prospects of
Caere and ScanSoft, as well as the amount and timing of the cost savings
and related expenses and synergies expected to result from the merger,
which are referred to as the "Expected Synergies," furnished to Merrill
Lynch by ScanSoft;
- Conducted discussions with members of senior management and
representatives of Caere and ScanSoft concerning the matters described in
the previous two bullet points, as well as their respective businesses
and prospects before and after giving effect to the merger and the
Expected Synergies;
- Compared the proposed financial terms of the merger with the financial
terms of certain other transactions that Merrill Lynch deemed to be
relevant;
- Participated in certain discussions and negotiations among
representatives of Caere and ScanSoft and their financial and legal
advisors;
- Reviewed the potential pro forma impact of the merger;
- Reviewed a draft dated January 14, 2000 of the merger agreement; and
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- Reviewed such other financial studies and analyses and took into account
such other matters as Merrill Lynch deemed necessary, including Merrill
Lynch's assessment of general economic, market and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available. Merrill Lynch did not assume any responsibility for independently
verifying that information or for undertaking an independent evaluation or
appraisal of any of the assets or liabilities of Caere or ScanSoft and was not
furnished with any such evaluation or appraisal. In addition, Merrill Lynch did
not assume any obligation to conduct any physical inspection of the properties
or facilities of Caere or ScanSoft. With respect to the financial forecast
information and the Expected Synergies furnished to or discussed with Merrill
Lynch by Caere or ScanSoft, Merrill Lynch assumed that they were reasonably
prepared and reflected the best currently available estimates and judgment of
Caere's or ScanSoft's management as to the expected future financial performance
of Caere or ScanSoft, as the case may be, and the Expected Synergies. Merrill
Lynch further assumed that the merger would qualify as a tax-free reorganization
for U.S. federal income tax purposes, and that the final form of the merger
agreement would be substantially similar to the last draft reviewed by Merrill
Lynch.
The Merrill Lynch opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated on, and on the
information made available to Merrill Lynch as of, the date of the Merrill Lynch
opinion. Merrill Lynch assumed that in the course of obtaining the necessary
regulatory or other consents or approvals, contractual or otherwise, for the
merger, no restrictions, including any divestiture requirements or amendments or
modifications, would be imposed that would have a material adverse effect on the
contemplated benefits of the merger.
In connection with the preparation of its opinion, Merrill Lynch was not
authorized by ScanSoft or ScanSoft's board of directors to solicit, nor did
Merrill Lynch solicit, third party indications of interest for the acquisition
of all or any part of ScanSoft. In addition, Merrill Lynch did not express any
opinion as to the prices at which the ScanSoft shares will trade following the
announcement or consummation of the merger.
The following is a summary of certain financial and comparative analyses
performed by Merrill Lynch that were presented to the ScanSoft board of
directors in connection with the delivery of the Merrill Lynch opinion.
Stock Trading Analysis. Merrill Lynch reviewed the per share daily closing
market prices of Caere common stock and ScanSoft common stock during the
twelve-month period ending January 11, 2000. During this period, the price per
share of Caere common stock ranged from a low of $5.38 on October 29, 1999 to a
high of $17.25 on January 27, 1999, and the price per share of ScanSoft common
stock ranged from a low of $1.19 on January 12, 1999 to a high of $9.94 on
November 15, 1999. In addition, during the one-month period ending January 11,
2000, the price per share of Caere common stock ranged from a low of $6.44 on
December 15, 1999 to a high of $7.56 on January 3, 2000, and the price per share
of ScanSoft common stock ranged from a low of $3.84 on December 30, 1999 to a
high of $6.38 on December 8, 1999.
Historical Implied Exchange Ratio Analysis. Using the per share daily
closing market prices of Caere common stock and ScanSoft common stock for the
twelve-month period ending January 11, 2000, Merrill Lynch calculated the
historical implied exchange ratios, net of $4.00 in cash to be paid in the
merger per share of Caere common stock, during this period by dividing the
closing prices per share of Caere common stock by those of ScanSoft common stock
and the average of those historical
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<PAGE> 43
trading ratios for the one-month, three-month, six-month and twelve-month
periods ended January 1, 2000. This analysis resulted in the following average
implied trading ratios for the periods indicated:
AVERAGE HISTORICAL IMPLIED EXCHANGE RATIO
<TABLE>
<CAPTION>
PERIOD ENDING JANUARY 11, 2000 AVERAGE
------------------------------ -------
<S> <C>
1 month..................................................... 0.650
3 months.................................................... 0.801
6 months.................................................... 1.308
12 months................................................... 3.139
</TABLE>
These historical implied exchange ratios compared to an exchange ratio of
1.722 that would be implied in the merger if the average closing sale price of a
share of ScanSoft common stock for the ten trading days preceding consummation
of the merger were $4.50, which is the low end of the "collar" mechanism, and an
exchange ratio of 1.512 that would be implied in the merger if the average
closing sale price of a share of ScanSoft common stock for this period were
$5.13, which was the closing price per share of ScanSoft common stock on January
11, 2000.
Merrill Lynch also calculated the historical implied exchange ratio on
January 11, 2000 and the high and low historical implied exchange ratios for the
twelve-month and one-month periods ending January 11, 2000, in each case net of
$4.00 in cash to be paid in the merger per share of Caere common stock, by
dividing the highest closing price per share of Caere common stock by the lowest
closing price per share of ScanSoft common stock and the lowest closing price
per share of Caere common stock by the highest closing price per share of
ScanSoft common stock. This analysis resulted in the following implied trading
ratios:
HISTORICAL IMPLIED EXCHANGE RATIOS ON JANUARY 11, 2000
AND FOR THE TWELVE-MONTH AND ONE-MONTH PERIODS
ENDING JANUARY 11, 2000
<TABLE>
<S> <C>
January 11, 2000........................................ 0.671
12 months............................................... 0.139 to 11.134
1 month................................................. 0.383 to 0.926
</TABLE>
Discounted Cash Flow Analysis. Merrill Lynch performed discounted cash
flow, or "DCF," analyses for Caere and ScanSoft using projections provided by
ScanSoft management.
The DCF for Caere was calculated assuming discount rates ranging from 14%
to 16% and was comprised of the sum of the present values of:
(1) The projected cash flows for the years 2000 through 2004; and
(2) The 2004 terminal value based upon a range of free cash-flow
growth rates from 2004 to perpetuity of 3% to 6%.
This analysis resulted in a range of implied equity values per share of
Caere common stock from $10.68 to $14.01, as compared to the offer price of
$11.75 per share and the closing price per share of Caere common stock on
January 11, 2000 of $7.44. Merrill Lynch also performed a DCF analysis for Caere
taking into account the present value of Caere's net operating loss
carryforwards. This analysis resulted in a range of implied equity values per
share of Caere common stock from $10.68 to $14.22.
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<PAGE> 44
The DCF for ScanSoft was calculated assuming discount rates ranging from
14% to 16% and was comprised of the sum of the present values of:
(1) The projected cash flows for the years 2000 through 2004; and
(2) The 2004 terminal value based upon a range of free cash flow
growth rates from 2004 to perpetuity of 3% to 6%.
This analysis resulted in a range of implied equity values per share of
ScanSoft common stock from $3.37 to $5.24, as compared to the closing price per
share of ScanSoft common stock on January 11, 2000 of $5.13. Merrill Lynch also
performed a DCF analysis for ScanSoft taking into account the present value of
ScanSoft's net operating loss carryforwards. This analysis resulted in a range
of implied equity values per share of ScanSoft common stock from $3.37 to $5.56.
Based upon the estimated valuation ranges of Caere and ScanSoft set forth
above, Merrill Lynch calculated a range of implied exchange ratios, in each case
net of $4.00 in cash to be paid in the merger per share of Caere common stock,
by dividing the highest estimated value per share of Caere common stock by the
lowest estimated value per share of ScanSoft common stock and the lowest
estimated value per share of Caere common stock by the highest estimated value
per share of Caere common stock, both excluding and including the Expected
Synergies and the present value of the net operating loss carryforwards. This
analysis resulted in implied exchange ratios ranging from 1.275 to 2.970,
excluding the Expected Synergies and the present value of the net operating loss
carryforwards, and from 1.275 to 4.282, including the Expected Synergies and the
present value of the net operating loss carryforwards.
Comparable Acquisitions Analysis. Merrill Lynch reviewed certain publicly
available information regarding three business combinations in the digital
imaging software industry that Merrill Lynch deemed to be reasonably similar to
the merger. The transactions and the dates these combinations were announced are
as follows:
- Microsoft Corporation's acquisition of Visio Corporation (September
1999);
- Avid Technology, Inc.'s acquisition of SoftImage Co. (June 1998); and
- Visioneer, Inc.'s acquisition of ScanSoft, Inc., a subsidiary of Xerox
Corporation (December 1998).
For each of these transactions, Merrill Lynch compared the "transaction
value" as a multiple of the latest twelve months' revenue of the target company,
where "transaction value" is generally defined as the sum of the per share offer
price for the target company multiplied by the number of company shares
outstanding and the number of target company options outstanding, net of option
proceeds, plus the preferred equity at liquidation, if any, the short-term debt,
the long-term debt and any minority interests, less cash, marketable securities
and exercisable option proceeds.
This analysis showed that the multiple of transaction value to latest
twelve months' revenue ranged from 1.1x to 6.5x. This analysis resulted in a
range of implied equity values per share of Caere common stock from $8.96 to
$18.67, as compared to the offer price of $11.75 per share and the closing price
per share of Caere common stock on January 11, 2000 of $7.44.
Based upon the estimated valuation ranges of Caere set forth above and of
ScanSoft set forth in the DCF analysis, Merrill Lynch calculated a range of
implied exchange ratios, in each case net of $4.00 in cash to be paid in the
merger per share of Caere common stock, by dividing the highest estimated value
per share of Caere common stock by the lowest estimated value per share of
ScanSoft common stock and the lowest estimated value per share of Caere common
stock by the highest estimated value per share of Caere common stock. This
analysis resulted in implied exchange ratios ranging from 1.090 to 4.732.
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<PAGE> 45
Contribution Analysis. Using projections provided by ScanSoft, Merrill
Lynch reviewed Caere's and ScanSoft's relative contribution to the pro forma
revenues, earnings before interest, taxes, depreciation and amortization, and
earnings before interest and taxes, of the combined company during the calendar
years 2000 through 2004. This analysis resulted in implied exchange ratios
ranging from 2.100 to 4.900.
The summary of analyses performed by Merrill Lynch set forth above does not
purport to be a complete description of the analyses performed by Merrill Lynch
in arriving at its opinions. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial or summary description.
Accordingly, Merrill Lynch believes that its analyses must be considered as a
whole and that selecting portions of its analyses and the factors considered by
Merrill Lynch, without considering all analyses and factors, could create an
incomplete view of the processes underlying the Merrill Lynch opinion. Merrill
Lynch did not assign relative weights to any of its analyses in preparing its
opinion. The matters considered by Merrill Lynch in its analyses were based on
numerous macroeconomic, operating and financial assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond ScanSoft's and Merrill Lynch's control and
involve the application of complex methodologies and educated judgment. Any
estimates contained in the Merrill Lynch analyses are not necessarily indicative
of actual past or future results or values, which may be significantly more or
less favorable than the estimates. Estimated values do not purport to be
appraisals and do not necessarily reflect the prices at which businesses or
companies may be sold in the future. The estimates are inherently subject to
uncertainty.
No transaction utilized as a comparison in the analysis described above is
identical to the proposed merger. An analysis of comparable business
combinations is not mathematical; rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies involved and other factors that could affect the public trading
value of the companies to which they are being compared.
The ScanSoft board selected Merrill Lynch to act as its financial advisor
because of Merrill Lynch's reputation as an internationally recognized
investment banking firm with substantial experience in transactions similar to
the merger and because Merrill Lynch is familiar with ScanSoft and its business.
As part of Merrill Lynch's investment banking businesses, Merrill Lynch is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, secondary distributions of listed and unlisted securities and
private placements.
Pursuant to the terms of a letter agreement between ScanSoft and Merrill
Lynch dated December 13, 1999, ScanSoft agreed to pay Merrill Lynch a fee in the
amount of $975,000. This fee is payable in cash upon the completion of the
merger.
ScanSoft has agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses incurred in connection with its engagement, including the
reasonable fees and disbursements of legal counsel, and to indemnify Merrill
Lynch and related parties from and against specified liabilities, including
liabilities under the federal securities laws, arising out of its engagement.
Merrill Lynch has, in the past, provided financial advisory services to
ScanSoft and certain of its affiliates and may continue to do so and has
received, and may receive, fees for the rendering of those services. In
addition, in the ordinary course of Merrill Lynch's business, Merrill Lynch and
its affiliates may actively trade Caere common stock, as well as ScanSoft common
stock, for their own accounts and for the accounts of their customers.
Accordingly, Merrill Lynch and its affiliates may at any time hold a long or
short position in these securities.
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<PAGE> 46
OPINION OF CAERE'S FINANCIAL ADVISOR
Caere retained Bear Stearns to act as its financial advisor in connection
with the merger. On January 14, 2000, Bear Stearns delivered to the board of
directors of Caere, its oral opinion, which was subsequently confirmed in
writing on January 15, 2000, that, as of the date thereof, and subject to the
assumptions and qualifications set forth therein, the per share merger
consideration, as defined in the fairness opinion, was fair, from a financial
point of view, to shareholders of Caere.
THE FULL TEXT OF THE BEAR STEARNS FAIRNESS OPINION, WHICH SETS FORTH THE
PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS ANNEX E TO THIS
PROSPECTUS/PROXY STATEMENT. STOCKHOLDERS ARE URGED TO READ THE BEAR STEARNS
OPINION IN ITS ENTIRETY. THE DESCRIPTION OF THE BEAR STEARNS OPINION SET FORTH
IN THIS PROSPECTUS/PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THAT OPINION.
THE BEAR STEARNS OPINION ADDRESSES ONLY THE PER SHARE MERGER CONSIDERATION
UNDER THE MERGER AGREEMENT AND IS INTENDED FOR THE BENEFIT AND USE OF THE CAERE
BOARD OF DIRECTORS. THE BEAR STEARNS OPINION DID NOT CONSTITUTE A RECOMMENDATION
TO THE CAERE BOARD OF DIRECTORS, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
CAERE STOCKHOLDER AS TO HOW THE STOCKHOLDER SHOULD VOTE AT THE CAERE SPECIAL
MEETING. BEAR STEARNS DID NOT EXPRESS ANY OPINION AS TO THE PRICE OR RANGE OF
PRICES AT WHICH SHARES OF COMMON STOCK OF SCANSOFT MAY TRADE PRIOR TO OR
SUBSEQUENT TO THE CONSUMMATION OF THE MERGER. THE BEAR STEARNS OPINION WAS
NECESSARILY BASED ON ECONOMIC, MARKET AND OTHER CONDITIONS, AND THE INFORMATION
MADE AVAILABLE TO BEAR STEARNS, AS OF THE DATE OF THE BEAR STEARNS OPINION.
In arriving at its opinion, Bear Stearns, among other things:
- reviewed the merger agreement;
- reviewed Caere's Annual Reports to Stockholders and Annual Reports on
Form 10-K for the fiscal year ended December 31, 1998, ScanSoft's Annual
Reports to Stockholders and Annual Reports on Form 10-K for the fiscal
year ended January 3, 1999, and Caere's and ScanSoft's Quarterly Reports
on Form 10-Q for the period ended September 30, 1999;
- reviewed certain operating and financial information, including
projections related to Caere's and ScanSoft's business and prospects
provided by their respective senior managements and cost savings and
other potential synergies which could be achieved upon the completion of
the merger provided by the management of ScanSoft;
- met with certain members of Caere's and ScanSoft's senior management to
discuss each company's business, operations, historical financial
statements and future prospects;
- reviewed the historical market prices, valuation parameters and trading
volumes of the common shares of Caere and ScanSoft;
- reviewed publicly available financial data, stock market performance data
and valuation parameters of companies which Bear Stearns deemed generally
comparable to Caere and ScanSoft;
- reviewed the terms of recent mergers and acquisitions of companies which
Bear Stearns deemed generally comparable to the merger;
- performed discounted cash flow analyses based on the projections for
Caere and ScanSoft furnished to Bear Stearns;
- reviewed the pro forma financial results, financial condition and
capitalization of ScanSoft giving effect to the merger; and
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<PAGE> 47
- conducted such other studies, analyses, inquiries and investigations as
Bear Stearns deemed appropriate.
In conducting its analysis, Bear Stearns did not assume any responsibility
for the independent verification of any of the information reviewed by or
provided to it. In addition Bear Stearns did not perform or obtain any
independent appraisal of the assets or liabilities of Caere, nor was Bear
Stearns furnished with any appraisals. Furthermore, Bear Stearns assumed,
without independent verification, the following:
- the accuracy and completeness of the financial and other information,
including, without limitation, the projections and cost savings and other
potential synergies provided by Caere's and ScanSoft's senior
managements;
- the projected financial results and cost savings and other potential
synergies which could be achieved upon completion of the merger were
reasonably prepared and represented the best currently available
estimates and judgments of the senior managements of Caere and ScanSoft;
- the assurances of the senior managements of Caere and ScanSoft that they
were unaware of any facts that would make the information, including the
projections, provided to Bear Stearns incomplete or misleading;
- the merger will qualify as a tax-free "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code; and
- the merger will be consummated without any regulatory limitations,
restrictions, conditions, amendments or modifications that, collectively,
would have a material adverse effect on Caere or ScanSoft.
Bear Stearns did not express any opinion as to what the value of the
ScanSoft common stock actually will be when issued pursuant to the merger.
During the course of its engagement, Bear Stearns was asked by the board of
directors of Caere to solicit indications of interest from various third parties
regarding a transaction with Caere, and Bear Stearns considered the results of
that solicitation in rendering its opinion. Bear Stearns was not asked to
consider, and Bear Stearns' opinion does not address, the relative merits of the
merger as compared to any alternative business strategies that might exist for
Caere or the effect of any other transaction in which Caere might engage.
Although Bear Stearns evaluated the per share merger consideration from a
financial point of view, Bear Stearns was not asked to and did not recommend the
specific consideration payable in the merger, which was determined through
arm's-length negotiations between Caere and ScanSoft, although Bear Stearns
provided advice to Caere and the Caere board of directors from time to time with
respect thereto. Other than described herein, Caere did not impose any other
limitations on Bear Stearns with respect to the investigations made or
procedures followed by Bear Stearns in rendering its opinion.
In connection with preparing and rendering its opinion, Bear Stearns
performed a variety of valuation, financial and comparative analyses. The
summary of these analyses, as set forth below, does not purport to be a complete
description of the analyses underlying the Bear Stearns opinion. The preparation
of a fairness opinion is a complex analytic process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, the opinion is not necessarily susceptible to summary
description. Accordingly, Bear Stearns believes that its analyses must be
considered as a whole, and that selecting portions of its analyses and the
factors considered by it, without considering all the factors and analyses,
could create a misleading or incomplete view of the processes underlying the
analysis and the Bear Stearns opinion. Moreover, the estimates contained in the
analyses are not
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<PAGE> 48
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by the analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or necessarily reflect the prices at
which businesses or securities may actually be sold. Accordingly, such estimates
are inherently subject to substantial uncertainty. The Bear Stearns opinion and
financial analyses were only one of many factors considered by the Caere board
of directors in its evaluation of the merger and should not be viewed as
determinative of the views of the Caere board of directors or management with
respect to the per share merger consideration or the proposed merger.
The following is a summary of the material valuation, financial and
comparative analyses presented orally by Bear Stearns to the Caere board of
directors on January 14, 2000 and confirmed in a written opinion provided to
Caere as of January 15, 2000.
Premiums Paid Analysis. Bear Stearns compared the price premium implied by
the per share merger consideration of $11.75 as of January 12, 2000, based on
the closing price of ScanSoft of $5.28 per share on that date, to twenty-two
recent transactions involving public software companies. Bear Stearns compared
the averages of premiums paid to the closing stock price one day and four weeks
prior to announcement of the proposed acquisition, the premiums paid to the
equity value one day and four weeks prior to the announcement of the proposed
acquisition and the premiums paid to the enterprise value one day and four weeks
prior to the announcement of the proposed acquisition relative to the merger
which were as follows:
<TABLE>
<CAPTION>
EQUITY VALUE ENTERPRISE VALUE
PRICE PREMIUM PREMIUM PREMIUM
---------------- ---------------- ----------------
1 DAY 4 WEEKS 1 DAY 4 WEEKS 1 DAY 4 WEEKS
PRIOR PRIOR PRIOR PRIOR PRIOR PRIOR
----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Merger............................ 58.0% 70.9% 63.2% 76.8% 140.0% 189.3%
Selected Software Company
Transaction Mean................ 16.9% 30.6% 44.1% 61.0% 57.4% 80.0%
</TABLE>
Discounted Cash Flow Analysis. Bear Stearns performed a DCF analysis of
Caere on a standalone basis for fiscal years 2000 through 2004. Bear Stearns
used discount rates of 16% to 19%, based on several assumptions regarding
factors such as interest rates, market risk premiums and the weighted average
cost of capital for Caere. In performing its analysis for Caere on a stand-alone
basis, Bear Stearns used terminal value revenue multiples ranging from 0.5x to
1.0x and terminal value EBIT multiples ranging from 4.0x to 6.0x. Additionally,
Bear Stearns computed a terminal value for Caere based on the perpetual growth
method using growth rates ranging from 4% to 6%. Bear Stearns then added the
present values of the discounted free cash flows for the period from 2000 to
2004 to the present values of the terminal values based on Caere's projected
results for 2004 to arrive at a range of enterprise values for Caere, and then
deducted long-term debt and added cash to the enterprise values for Caere to
arrive at a range of equity values for Caere. Bear Stearns then divided the
equity values by the relevant number of outstanding shares, adjusted to account
for outstanding options, to calculate a range of equity values per share for
Caere. The DCF analysis of Caere generated a per share equity value range of
$8.67 to $12.06, as compared with the per share merger consideration of $11.75,
based on the closing price of ScanSoft common stock on January 12, 2000.
Precedent Transaction Analysis. Using publicly available information, Bear
Stearns reviewed and analyzed the terms and financial characteristics of twelve
merger and acquisition transactions, which
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<PAGE> 49
Bear Stearns deemed to be generally comparable for the purposes of this
analysis. The transactions considered by Bear Stearns in its analysis consisted
of the following:
- NetManage Inc.'s acquisition of WallData
- Investor group's acquisition of Kofax Image Products, Inc.
- Sterling Software, Inc.'s acquisition of Information Advantage Software,
Inc.
- Compuware's acquisition of Viasoft
- Hummingbird Corp.'s acquisition of PC DOCS
- Concentrix, Inc.'s acquisition of Ultradata
- Anshutz Digital Media, Inc.'s acquisition of Precision Systems, Inc.
- SunGard Data Systems, Inc.'s acquisition of FDP Corp.
- Affiliated Computer Services' acquisition of BRC Holdings, Inc.
- Platinum Software Corp's acquisition of Dataworks Corp.
- Information Advantage Software's acquisition of IQ Software, Inc.
- NetManage Inc.'s acquisition of FTP Software
The range of multiples of enterprise value to revenue for the last twelve
months and EBIT for the last twelve months relative to the merger were as
follows:
<TABLE>
<CAPTION>
HARMONIC
MERGER LOW HIGH MEAN
------ ---- ----- --------
<S> <C> <C> <C> <C>
Last Twelve Months Revenue.......................... 1.7x 0.4x 2.8x 0.9x
Last Twelve Months EBIT............................. 10.2x 4.6x 18.9x 9.6x
</TABLE>
Each of the transaction multiples for the merger set forth above is at an
implied acquisition price of $11.75 per share based on the closing price of
ScanSoft common stock of $5.28 as of January 12, 2000. The ratios for these
selected transactions are based on public financial statements, closing stock
prices and public equity research reports available to Bear Stearns at the time
of the respective transactions.
Comparable Company Analysis. Bear Stearns compared certain operating,
financial, trading and valuation information for Caere and ScanSoft to certain
publicly available operating, financial, trading and valuation information of
six selected small capitalization software companies, which, in Bear Stearns'
judgment, were the most similar to Caere and ScanSoft based on their growth and
profitability for purposes of this analysis. These companies consisted of:
- Docucorp International, Inc.
- Engineering Animation, Inc.
- Indus International, Inc.
- Mapics, Inc.
- SPSS, Inc.
- Symix Systems, Inc.
The range of multiples for these comparable companies of enterprise value,
defined as the market value of equity plus the market value of debt, net of
cash, estimated revenue for calendar
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<PAGE> 50
years 1999 and 2000, and estimated EBIT, defined as earnings before interest and
taxes, for the calendar years 1999 and 2000 relative to the merger were as
follows:
<TABLE>
<CAPTION>
HARMONIC
MERGER LOW HIGH MEAN
------ ----- ------ --------
<S> <C> <C> <C> <C>
Calendar Year 1999 Est. Revenue.................... 1.67x 1.15x 2.05x 1.61x
Calendar Year 2000 Est. Revenue.................... 1.53x 0.93x 1.80x 1.25x
Calendar Year 1999 Est. EBIT....................... 11.7 x 8.4 x 19.1 x 13.0 x
Calendar Year 2000 Est. EBIT....................... 9.7 x 6.7 x 20.0 x 10.1 x
</TABLE>
Each of the transaction multiples for the merger set forth above is based
on an implied acquisition price of $11.75 per share based on the closing price
of ScanSoft common stock of $5.28 as of January 12, 2000.
No company, transaction or business used in the "Comparable Company
Analysis" or the "Precedent Transaction Analysis" as a comparison is identical
to Caere, ScanSoft or the merger. Accordingly, an analysis of the results of the
foregoing is not entirely mathematical; rather, it involves complex
considerations and judgments concerning the differences in financial and
operating characteristics and other factors that could affect the acquisition,
public trading or other values of the comparable companies or the business
segment, company or transaction to which they are being compared.
Pro Forma Discounted Cash Flow Analysis. Bear Stearns performed a pro forma
DCF analysis of the combined company for fiscal years 2000 through 2004. Bear
Stearns used discount rates of 16% to 19%, based on several assumptions
regarding factors such as interest rates, market risk premiums and the assumed
weighted average cost of capital for both Caere and ScanSoft. In performing its
analysis for the combined company, Bear Stearns used terminal value revenue
multiples ranging from 1.5x to 2.5x and EBIT multiples ranging from 9.0x to
11.0x. Additionally, Bear Stearns computed a terminal value for the combined
company based on the perpetual growth method using growth rates ranging from 5%
to 7%. Bear Stearns added the present values of the discounted free cash flows
for the period from 2000 to 2004 to the present values of the terminal values
based on the combined company's results for 2004 to arrive at a range of
enterprise values for the combined company, and then deducted long-term debt and
added cash to the enterprise values for the combined company to arrive at a
range of equity values for the combined company, and then divided such equity
values by the relevant number of outstanding shares, which were calculated by
accounting for Caere and ScanSoft options based on the per share consideration
at the various per share values, to calculate a range of equity values per share
for the combined company. After giving effect to cost savings and other
potential synergies anticipated by the management of ScanSoft to result from the
merger, the pro forma DCF analysis of the combined company generated a per share
equity value range of $4.31 to $9.64, as compared with the closing price of
ScanSoft common stock on January 12, 2000 of $5.28.
Pro Forma Merger Analysis. Bear Stearns also prepared pro forma analyses of
the financial impact of the merger on ScanSoft. Using projected financial
results provided by the respective managements of Caere and ScanSoft for the
fiscal quarters ended September 30, 2000 and December 31, 2000, and the fiscal
year ended December 31, 2001, Bear Stearns compared the earnings per share of
ScanSoft on a stand-alone basis with the earnings per share of the companies
combined on a pro forma basis to give effect to the merger. These comparisons
assumed that the merger consideration was equal to $11.75 per share. Taking into
consideration the amortization over a five year period of goodwill resulting
from the merger, and disregarding any cost savings and other potential
synergies, the analysis indicated that the merger would be dilutive to
ScanSoft's stand-alone earnings per share for calendar year 2001; however, if
the amortization of goodwill is omitted from the analysis, the merger would be
accretive to ScanSoft's stand-alone earnings for calendar year 2001.
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<PAGE> 51
After giving effect to cost savings and other potential synergies anticipated by
the management of ScanSoft to result from the merger and the amortization of
goodwill, the analysis indicated that the merger would be dilutive to ScanSoft's
stand-alone earnings for fiscal year 2001; however, if the amortization of
goodwill is omitted, the analysis indicated that the merger would be accretive
to ScanSoft's stand-alone earnings for fiscal year 2001.
Pursuant to the engagement letter dated September 9, 1999, Caere is
obligated to pay Bear Stearns a $50,000 retainer fee, an opinion fee of $200,000
and an advisory fee of 1.25% of the aggregate consideration received in the
merger. The retainer fee and opinion fee are to be credited against the advisory
fee. Caere has also agreed to reimburse Bear Stearns for its reasonable out-of-
pocket expenses, including fees and expenses of legal counsel, and to indemnify
Bear Stearns and certain related persons against certain liabilities.
Bear Stearns is an internationally recognized investment banking firm and
was selected as financial advisor to Caere in connection with the merger and
asked to render its opinion in connection with the merger based on Bear Stearns'
qualifications, expertise and reputation in providing advice to companies in the
software industry, as well as its familiarity with Caere and ScanSoft. As part
of its investment banking business, Bear Stearns is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bidding, secondary
distribution of listed and unlisted securities, private placements and valuation
for estate, corporate and other purposes. In the ordinary course of business,
Bear Stearns may actively trade the equity securities of Caere and ScanSoft for
its own account and for the account of its customers and, accordingly, may at
any time hold a long or short position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In connection with the recommendation of Caere's board of directors,
Caere's stockholders should be aware that certain executive officers and
directors of Caere have certain interests in the merger that are in addition to
the interests of the stockholders of Caere generally.
Executive Officers' Change-of-Control Severance Plan. Caere
established its Executive Officers' Change-of-Control Severance Plan in
February 1991 and amended and restated it on March 31, 1998. This plan
covers the following executive officers: Robert Teresi, Blanche Sutter,
Duke Borozan, Valorie Cook-Carpenter, Wayne Rosing and Robert Cortale.
Under this plan, each of the above-named executive officers will be
eligible to receive severance payments of up to two (2) times annual
compensation, health insurance continuation for up to eighteen months, and
acceleration of vesting on unvested stock options based years of service
with Caere (25% for one year of service, 50% for two years of service, 75%
for three years of service, 100% for four years of service) if, within
thirty-six months following a change of control of Caere, which includes
the merger, the executive officer's employment is involuntarily terminated
by Caere, unless the employment is terminated by reason of death,
disability or for cause (as defined below), or the employment is
voluntarily terminated by the executive officer for good reason (as defined
below). Payments under this plan are reduced by any severance payments made
under an individual agreement between Caere and the executive, including
the Executive Compensation and Benefits Continuation Agreement for Robert
Teresi discussed below, and are offset by any payments under the Severance
Policy for executive Officers In The Case of Involuntary Termination
described below.
For purposes of this plan and the severance policy described below,
"cause" means: (a) gross or habitual failure to perform assigned duties of
the executive's job, that is, a performance failure that is not corrected
within thirty days after written notice to the executive or (b) misconduct,
including but not limited to: (i) conviction of a crime, or entry of a plea
of
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nolo contendere with regard to a crime, involving moral turpitude or
dishonesty, (ii) illegal drug use or alcohol abuse on Caere premises or at
a Caere sponsored event, (iii) conduct by the executive which in the good
faith and reasonable determination of the Caere board of directors
demonstrates gross unfitness to serve, (iv) intentional, material violation
by the executive of any contract between the executive and Caere or any
statutory duty of the executive to Caere.
For purposes of this plan, "good reason" means: (i) a reduction of the
executive's rate of compensation as in effect immediately prior to change
of control of Caere, (ii) a failure to provide a package of welfare benefit
plans which taken as a whole, provide substantially similar benefits to
those in which the executive is entitled to participate immediately prior
to the change of control (except that employee contributions may be raised
to the extent of any cost increases imposed by third parties) or any action
by Caere which would adversely affect the executive's participation or
reduce the executive's benefits under any of such plans, (iii) a change in
the executive's responsibilities, authority, titles or offices resulting in
diminution of position, excluding for this purpose an isolated
insubstantial and inadvertent action not taken in bad faith which is
remedied by Caere after notice thereof is given by the executive, (iv) a
request that the executive relocate to a worksite that is more than 35
miles from his prior worksite, unless the executive accepts such relocation
opportunity, (v) a material reduction in duties, (vi) a failure or refusal
of the successor company to assume Caere's obligations under plan or the
severance policy, or (vii) material breach by Caere or any successor
company of any of the material provisions of the plan.
Severance Policy for Executive Officers In The Case of Involuntary
Termination. In February 1991, Caere adopted its Severance Policy for
Executive Officers In The Case of Involuntary Termination and amended and
restated it on March 31, 1998. This policy covers the following executive
officers: Robert Teresi, Blanche Sutter, Duke Borozan, Valorie Cook-
Carpenter, Wayne Rosing and Robert Cortale.
Under this policy, each of the above-named executive officers will be
eligible to receive severance payments equal to six months of their
respective base salaries plus health insurance continuation for up to six
months upon the executive officer's involuntary termination, unless the
employment is terminated by reason of death, disability or for cause (as
defined above). Payments under this policy are reduced by any severance
payments under the Executive Officers' Change-of-Control Severance Plan or
any individual severance agreements, between Caere and the executive, such
as the Executive Compensation and Benefits Continuation Agreement for
Robert Teresi.
1992 Non-Employee Directors' Stock Option Plan. Under the terms of
Caere's 1992 Non-Employee Directors' Stock Option Plan, the vesting of
unvested options granted under this plan to non-employee directors of Caere
will accelerate immediately as a result of the merger. The following
non-employee directors of Caere have the unvested stock options set forth
following their names:
<TABLE>
<CAPTION>
UNVESTED STOCK OPTIONS
AS OF FEBRUARY 7, 2000
NON-EMPLOYEE DIRECTOR NAME (NUMBER OF SHARES)
-------------------------- ----------------------
<S> <C>
James K. Dutton..................................... 10,000
Robert J. Frankenberg............................... 30,000
Joseph J. Francesconi............................... 20,000
</TABLE>
Executive Compensation and Benefits Agreement for Robert Teresi. Caere
and Robert Teresi entered into an Executive Compensation and Benefits
Continuation Agreement dated December 28, 1994. The Executive Benefits
Agreement provides for severance payments equal to
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<PAGE> 53
three times Mr. Teresi's annual salary at the time of the termination of
his employment, which payments are payable over five years, the
continuation of his and his family's health insurance coverages at Caere's
expense for a period of up to five years, and the immediate acceleration of
vesting of the unvested stock options held by Mr. Teresi in the event of an
involuntary termination of Mr. Teresi's employment without cause or a
voluntary termination of his employment for good reason.
For purposes of Mr. Teresi's agreement, the term "cause" means: (a)
gross or habitual failure to perform the assigned duties of Mr. Teresi's
job, that is, performance failure not corrected within thirty days after
written notice to him of the failure or (b) misconduct, including but not
limited to: (i) conviction of a crime, or entry of a plea of nolo
contendere with regard to a crime, involving moral turpitude or dishonest,
(ii) illegal drug use or alcohol abuse on Caere premises or at Caere
sponsored event, (iii) conduct by Mr. Teresi which based upon a good faith
and reasonable factual investigation and determination by the board of
directors of Caere demonstrates gross unfitness to serve, or (iv)
intentional, material violation by Mr. Teresi of any contract between him
and Caere or any statutory duty of Mr. Teresi to Caere.
Also for purposes of Mr. Teresi's agreement, the term "good reason"
means: (i) a reduction of his rate of compensation as in effect immediately
prior to the effective date of his Agreement, (ii) a failure to provide a
package of welfare benefit plans which, taken as a whole, provide
substantially similar benefits to those in which he is entitled to
participate immediately prior to the occurrence of the voluntary
termination (except that employee contributions may be raised to the extent
of any cost increases imposed by third parties) or any action by the
Company which would adversely affect his participation or reduce his
benefits under any of such plans, (iii) a change in his responsibilities,
authority, title or office resulting in diminution of position, excluding
for this purpose an isolated insubstantial and inadvertent action not taken
in bad faith which is remedied by Caere promptly after notice thereof is
given by him, (iv) a request that he relocate to a worksite that is more
than 35 miles from his prior worksite, unless he accepts such relocation
opportunity, (v) a material reduction in his duties, (vi) a failure or
refusal of a successor to Caere to assume its obligations under the
Agreement, or (vii) a material breach by Caere or any successor to Caere of
any of the material provisions of the agreement.
Non-Competition and Consulting Agreement for Robert Teresi. On January
15, 2000, ScanSoft and Robert Teresi entered into a non-competition and
consulting agreement to take effect on the closing of the merger. Under the
agreement, Mr. Teresi will provide consulting services to ScanSoft for a
period of up to six months and will agree to keep confidential the
proprietary information of Caere and not compete with the businesses of
Caere following the merger for a period of two years from the date of the
closing of the merger.
In consideration for Mr. Teresi's consulting services, his agreement
to keep confidential the proprietary information of Caere and not compete
with the businesses of Caere under this agreement and his Executive
Benefits Agreement with Caere discussed above, ScanSoft would pay Mr.
Teresi a consulting fee equal to $156 for each hour of consulting performed
by Mr. Teresi (up to a maximum of 35 hours each month for up to six months
following the closing of the merger). In addition, within five business
days following the second anniversary of the closing of the merger,
ScanSoft will pay a cash bonus to Mr. Teresi equal in amount to the product
of (1) the difference between $13.50 and the average of the closing prices
for ScanSoft common stock on the Nasdaq Stock Market as reported in the
Wall Street Journal during the five business day period ending on the
second anniversary of the closing of the merger and (2) 486,548. However,
if during the two-year period ending on the second anniversary of the
closing of the merger the closing prices for ScanSoft common stock for
three consecutive trading days during any permitted window, as defined
below, exceeds $13.50, then ScanSoft will not be
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<PAGE> 54
obligated to pay the cash bonus with respect to the number of shares that
Mr. Teresi owns and sells or could have sold under federal securities laws
and ScanSoft's federal securities law compliance program within the
permitted window (i.e., the 486,548 figure above will be reduced by the
number of shares that Mr. Teresi owns and sells or could have sold during
the permitted window). "Permitted window" means any trading day during
which Mr. Teresi is not precluded from engaging in transactions in
ScanSoft's securities by ScanSoft's federal securities law compliance
program and federal securities laws. In addition, the exercise period for
all stock options that Mr. Teresi holds at the time of the effective date
of the merger will be extended to the second anniversary of the closing of
the merger, provided that any incentive stock options that are not
exercised within three months of the termination of Mr. Teresi's employment
with Caere will be converted into nonstatutory stock options that may be
exercised up to the second anniversary of the closing of the merger.
Appointment of ScanSoft Board Members. The merger agreement also provides
that ScanSoft will cause Robert Teresi and Robert Frankenberg, both of whom are
current members of the Caere board of directors, to be elected to the ScanSoft
board of directors immediately following the closing of the merger.
Indemnification of Directors and Officers of Caere. The merger agreement
provides that from and after the closing of the merger (1) the surviving
corporation will fulfill the obligations of Caere pursuant to the
indemnification agreements between Caere and its directors and officers in
effect prior to the closing of the merger and any indemnification obligations of
Caere pursuant to Caere's certificate of incorporation and bylaws as in effect
on the date of the merger agreement, and (2) ScanSoft will indemnify and hold
harmless each of Caere's officers and directors against and from any costs,
expenses (including reasonable attorneys' fees), settlement payments, judgments
and other losses, damages and liabilities incurred in connection with any claim,
suit, action or proceeding that arises from or relates to the merger or any of
the transactions contemplates by the merger agreement. Furthermore, for a period
of six years after the closing of the merger, the surviving corporation will
maintain directors and officers liability insurance in accordance with the terms
of the merger agreement.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
consequences of the exchange of shares of Caere stock for ScanSoft common stock
and cash pursuant to the merger. This discussion is based on currently existing
provisions of the Internal Revenue Code, existing treasury regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change. Any such change, which may or may not be retroactive,
could alter the tax consequences to ScanSoft, Caere or the Caere stockholders
that are described in this discussion.
Caere stockholders should be aware that this discussion does not address
all federal income tax considerations that may be relevant to particular
stockholders of Caere in light of their particular circumstances, such as
stockholders who are banks, insurance companies, tax-exempt organizations,
dealers in securities, or foreign persons, stockholders who acquired their
shares in connection with stock option or stock purchase plans or in other
compensatory transactions, or who hold Caere capital stock as part of an
integrated investment (including a "straddle") comprised of shares of Caere
capital stock and one or more other positions. In addition, the following
discussion does not address the tax consequences of the merger under foreign,
state or local tax laws or the tax consequences of transactions effectuated
prior or subsequent to or concurrently with the merger, whether or not such
transactions are in connection with the merger, including, without limitation,
transactions in which Caere stock is acquired or ScanSoft common stock is
disposed of.
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ACCORDINGLY, CAERE STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER IN
THEIR PARTICULAR CIRCUMSTANCES.
Consummation of the merger is conditioned upon the receipt by ScanSoft and
Caere of opinions from their respective counsel that the merger should be
treated as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code. The tax opinions will be subject to certain assumptions,
limitations and qualifications, and are based upon the truth and accuracy of
certain factual representations of ScanSoft, Scorpion Acquisitions Corporation
and Caere.
Assuming that the merger qualifies as a reorganization and that the shares
of Caere stock surrendered in the merger were held as capital assets, then,
subject to the assumptions, limitations and qualifications referred to herein
and in the tax opinions, the merger should result in the following federal
income tax consequences:
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO CAERE STOCKHOLDERS
(a) Holders of Caere stock receiving both ScanSoft common stock and
cash in exchange for Caere stock will recognize gain, if any, only to the
extent of the amount of cash received. Any such gain will be measured by
the sum of the fair market value of the Scan Soft Common Stock received
plus the amount of cash received, minus the tax basis of the Caere stock
exchanged for the ScanSoft common stock and cash. The gain should generally
be capital gain, and should generally be long-term capital gain if the
Caere stock exchanged in the merger has been held for more than one year.
Caere stockholders will not recognize any loss upon the receipt of ScanSoft
common stock and cash.
(b) Cash payments received by holders of Caere stock in lieu of
fractional shares of ScanSoft common stock will be treated as if fractional
shares had been issued in the merger and then redeemed by ScanSoft. A
stockholder of Caere receiving cash in lieu of fractional shares will
generally recognize capital gain or loss upon the payment, equal to the
difference, if any, between the stockholder's tax basis in the fractional
share and the amount of cash received.
(c) The aggregate tax basis of the ScanSoft common stock received by
Caere stockholders in the merger, including any fractional share of
ScanSoft common stock not actually received, will be the same as the
aggregate tax basis of the Caere stock surrendered in exchange therefor,
decreased by the tax basis allocated to fractional share interests for
which cash is received in the merger and by the amount of cash
consideration received in the merger, other than cash received for
fractional share interests, and increased by the amount of gain, or
dividend income, recognized on the exchange.
(d) The holding period of the ScanSoft common stock received in the
merger will include the period for which the Caere stock surrendered in
exchange for the ScanSoft common stock was held.
(e) A stockholder who exercises appraisal rights with respect to Caere
stock and receives payment for such stock in cash will generally recognize
capital gain or loss measured by the difference between the stockholder's
tax basis in such stock and the amount of cash received.
(f) A recipient of shares of ScanSoft common stock could be required
to recognize gain to the extent that such shares were considered to be
received in exchange for services or property other than solely Caere
stock. All or a portion of such gain may be taxable as ordinary income. In
addition to the discussion in paragraph (a) above, gain could also be
required to be
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<PAGE> 56
recognized to the extent that a Caere stockholder was treated as receiving,
directly or indirectly, consideration other than that described above in
exchange for the stockholder's Caere stock.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO SCANSOFT, SCORPION
ACQUISITIONS
CORPORATION AND CAERE
Neither ScanSoft, Scorpion Acquisitions Corporation nor Caere will
recognize a material amount of gain solely as a result of the merger.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO SCANSOFT STOCKHOLDERS
ScanSoft's stockholders will not recognize any gain or loss for U.S.
federal income tax purposes solely as a result of the merger.
Although consummation of the merger is conditioned on receipt of the tax
opinions, it is possible that the merger may fail to qualify as a
reorganization. In order to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, the merger must satisfy certain
requirements, including the requirement that following the merger the surviving
corporation hold "substantially all" of the properties of Caere. For purposes of
issuing private letter rulings, the IRS has stated that 70% of the fair market
value of the gross assets and 90% of the fair market value of the net assets of
the target will be considered "substantially all" of the target's properties.
The merger is structured so that the cash portion of the consideration to be
received by Caere stockholders may be deemed to be paid by Caere rather than
ScanSoft. In that case, the portion of Caere's properties represented by the
cash would not be held by the surviving corporation following the merger, and
the merger likely would not satisfy the ruling guidelines of the IRS. However,
these ruling guidelines only represent the circumstances under which the IRS
will exercise its administrative discretion to issue private letter rulings.
Significantly lower thresholds than those articulated by the IRS have been
upheld by the courts, including in cases where the target corporation did not
transfer cash, accounts receivable and other financial assets to the acquiror,
provided that all of the target's operating assets and sufficient working
capital were transferred.
No ruling has been or will be obtained from the IRS in connection with the
merger, and as discussed above, it is possible that the IRS would decline to
issue a ruling if one were requested. Caere stockholders should be aware that
the tax opinions do not bind the IRS and that the IRS is therefore not precluded
from successfully asserting a contrary opinion. The tax opinions are also
subject to certain assumptions and qualifications and will be based on the truth
and accuracy of certain representations made by ScanSoft, Scorpion Acquisitions
Corporation and Caere, including, without limitation, representations in
certificates to be delivered to counsel by the respective managements of
ScanSoft, Scorpion Acquisitions Corporation and Caere.
A successful IRS challenge to the reorganization status of the merger would
result in Caere stockholders recognizing taxable capital gain or loss with
respect to each share of Caere stock surrendered equal to the difference between
the stockholder's tax basis in a share and the fair market value, as of the
closing of the merger, of the ScanSoft common stock plus the cash received in
exchange for each such share of Caere stock. In that event, a stockholder's
aggregate basis in the ScanSoft common stock so received would equal its fair
market value as of the closing of the merger and the holding period for the
stock would begin the day after the closing of the merger. In addition, Caere
would recognize corporate level gain upon the deemed transfer of its assets to
Scorpion Acquisitions Corporation in a taxable transaction.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN UNITED
STATES INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO THE
MERGER. THUS, CAERE STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN
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REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FOREIGN, FEDERAL, STATE,
LOCAL, AND OTHER APPLICABLE TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN
THE TAX LAWS.
GOVERNMENTAL AND REGULATORY APPROVALS
No notifications are required to be filed under the Hart-Scott-Rodino
Antitrust Improvements Act, or the rules promulgated thereunder by the Federal
Trade Commission or under foreign antitrust laws, prior to the completion of the
merger. Nevertheless, at any time before or after completion of the merger the
Antitrust Division of the Department of Justice, the Federal Trade Commission or
any state or foreign governmental authority, could take such action under the
antitrust laws as it deems necessary or desirable in the public interest. Such
action could include seeking to enjoin the completion of the merger or seeking
divestiture of businesses of ScanSoft or Caere by ScanSoft. Private parties may
also seek to take legal action under the antitrust laws under certain
circumstances.
Based on information available to them, ScanSoft and Caere believe that the
merger will be effected in compliance with federal, state and foreign antitrust
laws. However, there can be no assurance that a challenge to the completion of
the merger on antitrust grounds will not be made or that, if such a challenge
were made, ScanSoft and Caere would prevail.
ACCOUNTING TREATMENT
The merger will be accounted for as a purchase, and accordingly, the
acquired assets and liabilities of Caere will be recorded at estimated fair
values. Under the purchase method of accounting, identifiable intangibles and
goodwill in the amount of approximately $92 million will be capitalized and
charges of approximately $28 million relating to in-process research and
development are expected to be recorded in the quarter the merger is
consummated. These amounts are estimates that reflect the most recently
available information but will be affected by completion of the purchase
accounting and the completion of a valuation study that is currently in process.
The completion of the valuation study may result in significant differences from
the preliminary allocation. The amortization of goodwill and other identifiable
intangibles after the merger will have an adverse effect on the results of
operations of ScanSoft.
APPRAISAL RIGHTS
Any Caere stockholder who does not wish to accept the consideration
provided for in the merger agreement has the right to demand the appraisal of,
and to be paid the fair market value for, the stockholder's shares of Caere
common stock. The value of the Caere common stock for this purpose will exclude
any element of value arising from the completion or expectation of the merger.
In order for a Caere stockholder to exercise his right to an appraisal, the
stockholder must deliver to Caere a written demand for appraisal of the
stockholder's shares of Caere common stock as provided by Delaware law prior to
the date of the Caere special meeting.
Simply voting against the adoption of the merger agreement will not be
considered a demand for appraisal rights. Any Caere stockholder who fails to
send a written demand to the corporate secretary of Caere at 100 Cooper Court,
Los Gatos, California 95032, will lose the right to an appraisal. In addition,
any stockholder who votes for the adoption of the merger agreement will lose the
right to an appraisal.
The preceding discussion is not a complete statement of the law pertaining
to appraisal rights under the Delaware General Corporation Law and is qualified
in its entirety by the full text of Section 262 of the Delaware General
Corporation Law, which is attached as Annex G to this prospectus/proxy
statement.
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Holders of ScanSoft common stock are not entitled to appraisal rights with
respect to the merger or the proposals to be considered at the ScanSoft special
meeting.
RESALE OF SCANSOFT COMMON STOCK
The ScanSoft common stock issued pursuant to the merger will be freely
transferable under the Securities Act except for shares issued to any Caere
stockholder who may be deemed to be an affiliate of Caere or ScanSoft for
purposes of Rule 145 under the Securities Act. An affiliate is defined generally
as including, without limitation, directors, certain executive officers and
beneficial owners of 10% or more of a class of common stock of a company.
Certain affiliates of Caere have executed affiliate agreements providing, among
other things, that these affiliates will not transfer any ScanSoft common stock
received in the merger except in compliance with the Securities Act and that the
resale of such shares of ScanSoft common stock are subject to certain
restrictions.
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the merger
agreement, which is attached as Annex A to this prospectus/proxy statement and
is incorporated herein by reference. This summary is qualified in its entirety
by reference to the merger agreement.
THE MERGER
The Merger. The merger agreement provides that, following the adoption of
the merger agreement by the stockholders of Caere and the approval of the
issuance of shares of ScanSoft common stock in the merger by the ScanSoft
stockholders, together with the satisfaction or waiver of the other conditions
to the merger, Caere will be merged with and into Scorpion Acquisitions
Corporation (with Scorpion Acquisitions Corporation being the surviving
corporation). The closing of the merger will become effective upon the
effectiveness of the filing with the Secretary of State of the State of Delaware
of a duly executed certificate of merger or at such later time as is specified
in the certificate of merger. It is currently anticipated that if all conditions
to the merger have been satisfied or waived, the merger will become effective on
or about March 13, 2000.
Manner and Basis of Converting Shares. Subject to the terms and conditions
of the merger agreement, as of the effective time of the merger, by virtue of
the merger and without any action on the part of ScanSoft, Caere or the holder
of any shares of Caere stock, each share of Caere common stock issued and
outstanding immediately prior to the effective time of the merger, other than
any dissenting shares, will be canceled and extinguished and be converted
automatically into:
- a number of shares of ScanSoft common stock equal to $7.75 divided by the
Average Trading Price. As used herein, Average Trading Price means the
average closing sale price of one share of ScanSoft common stock as
reported on the Nasdaq National Market for the ten consecutive trading
days ending on the trading day immediately preceding the closing date of
the merger; provided, that if the Average Trading Price would be greater
than $8.50, then the Average Trading Price will be deemed to be $8.50;
provided, further, that if the Average Trading Price would be less than
$4.50, then the Average Trading Price will be deemed to be $4.50; plus
- $4.00 in cash.
No fraction of a share of ScanSoft common stock will be issued. Instead,
each holder of shares of Caere common stock who would otherwise be entitled to a
fraction of a share of ScanSoft common stock (after aggregating all fractional
shares of ScanSoft common stock to be received by the holder) will be entitled
to receive from ScanSoft an amount of cash (rounded to the nearest whole cent)
equal to the product of (i) the fraction and (ii) the average closing sale price
of one share of ScanSoft common stock as reported on the Nasdaq National Market
for the ten consecutive trading days ending on the trading day immediately
preceding the closing date of the merger.
Stock Ownership Following the Merger. Based on the closing sale prices of
ScanSoft common stock for the ten trading days prior to February 7, 2000, if the
merger had closed on February 7, 2000, after giving effect to the issuance of
ScanSoft common stock in connection with the merger (based upon the foregoing
assumptions and also assuming no exercise of appraisal rights), the former
holders of Caere stock would hold approximately 40% of ScanSoft's total issued
and outstanding shares of capital stock after the merger. The foregoing numbers
of shares and percentages are subject to change, as they will depend on the
capitalization of ScanSoft and Caere at the closing of the merger.
Effect on Caere Stock Options. The merger agreement provides that at the
closing of the merger each issued and outstanding option or right to purchase
Caere common stock, whether or not
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exercisable, will be assumed by ScanSoft. Each option will continue to have the
same terms and conditions as it had immediately prior to the closing of the
merger, including vesting schedule and repurchase rights, except that (A) each
option will be exercisable, or will become exercisable in accordance with its
terms, for that number of whole shares of ScanSoft common stock equal to the
product of the number of shares issuable upon exercise of that option multiplied
by an exchange ratio determinable in accordance with the merger agreement and
(B) the per share exercise price for that option will be adjusted in accordance
with the merger agreement. After the closing of the merger, ScanSoft will issue
to each holder of an outstanding Caere option a notice describing the terms
related to the assumption by ScanSoft of each option held by that holder.
Also, prior to the completion of the merger, outstanding purchase rights
under Caere's employee stock purchase plan will be exercised, and each share of
Caere common stock purchased under that plan will be converted into the merger
consideration to be issued in exchange for each share of Caere common stock in
the merger.
Exchange Agent. The merger agreement requires ScanSoft to deliver to an
exchange agent, for the benefit of the holders of shares of Caere common stock,
certificates representing the shares of ScanSoft common stock together with the
cash consideration issuable in exchange therefor.
Exchange Procedures. Promptly after the closing of the merger, ScanSoft
will cause the exchange agent to mail to each holder of record of a certificate
or certificates, which immediately prior to the closing of the merger
represented outstanding shares of Caere common stock whose shares were converted
into shares of ScanSoft common stock pursuant to the merger agreement, (1) a
letter of transmittal and (2) instructions for use in surrendering the
certificates in exchange for certificates representing shares of ScanSoft common
stock and cash. Upon surrender of a certificate for cancellation to the exchange
agent, together with the letter of transmittal, duly executed, and other
documents as may reasonably be required by the exchange agent, each holder of a
certificate will be entitled to receive in exchange therefor a certificate
representing that number of whole shares of ScanSoft common stock which the
holder has the right to receive after taking into account all the shares of
Caere stock then held by the holder under all certificates surrendered by that
holder, cash consideration to which the holder is entitled, cash in lieu of
fractional shares of ScanSoft common stock to which the holder is entitled and
any dividends or other distributions to which the holder is entitled, and the
certificate so surrendered will be canceled. If certificates for shares of
ScanSoft common stock are to be issued in a name other than that in which the
certificates surrendered in exchange therefor are registered, such certificates
must be properly endorsed and otherwise in proper form for transfer, and the
persons requesting such exchange must have paid to ScanSoft or its agent any
transfer or other taxes required by reason of the issuance of certificates for
shares of ScanSoft common stock in any name other than that of the registered
holder of the certificates surrendered, or established to the satisfaction of
ScanSoft or its agent that such tax has been paid or is not payable. Until
surrendered, each certificate will be deemed at any time after the closing of
the merger to represent only the right to receive upon its surrender the
certificate representing shares of ScanSoft common stock, the cash consideration
to which the holder of the certificate is entitled, cash in lieu of any
fractional shares of ScanSoft common stock and any dividends or other
distributions to which such holder is entitled. No interest will be paid or will
accrue on any cash payable pursuant to the exchange provisions of the merger
agreement.
Caere stockholders should not forward Caere stock certificates to the exchange
agent until they have received transmittal forms. Caere stockholders should not
return Caere stock certificates with the enclosed proxy.
No Further Ownership Rights in Caere Stock. All shares of ScanSoft common
stock issued upon the surrender for exchange of shares of Caere common stock in
accordance with the terms of the
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merger agreement (including any cash paid) will be deemed to have been issued
(and paid) in full satisfaction of all rights pertaining to such shares of Caere
common stock, subject, however, to the surviving corporation's obligation to pay
any dividends or make any other distributions with a record date prior to the
closing of the merger which may have been declared or made by Caere on such
shares of Caere stock in accordance with the terms of the merger agreement or
prior to the date of the merger agreement and which remain unpaid at the closing
of the merger. There will be no further registration of transfers on the stock
transfer books of the surviving corporation of the shares of Caere stock which
were outstanding immediately prior to the closing of the merger. If, after the
closing of the merger, Caere stock certificates are presented to the surviving
corporation or the exchange agent for any reason, they will be canceled and
exchanged as described herein.
REPRESENTATIONS AND WARRANTIES
The merger agreement includes various customary representations and
warranties of the parties, which will expire at the effective time of the
merger. The merger agreement includes representations and warranties by Caere as
to, among other things:
- organization and qualification; subsidiaries;
- certificate of incorporation and bylaws;
- capitalization;
- authority relative to the merger agreement;
- no conflict; required filings and consents;
- compliance; permits;
- SEC filings; financial statements of Caere;
- no undisclosed liabilities;
- the absence of certain changes or events from September 30, 1999 to the
date of the merger agreement, including material changes in accounting
methods, asset revaluation, declaration, payment or setting aside of a
dividend, any split or reclassification of capital stock, salary increase
or bonus payment outside the ordinary course of business, agreements, any
purchase, redemption or other acquisition of capital stock or warrants,
options or rights to purchase capital stock other than to employees and
consultants in the ordinary course of business, sale, purchase or license
of intellectual property, or event or condition that would have a
material adverse effect on Caere;
- absence of litigation;
- employee benefit plans;
- registration statement; proxy statement;
- restrictions on business activities;
- title to property;
- taxes, tax returns and audits;
- environmental matters;
- brokers' and finders' fees;
- intellectual property;
- year 2000 compliance;
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- agreements, contracts and commitments;
- Caere's rights agreement;
- insurance;
- opinion of financial advisor;
- board approval; and
- state takeover statutes.
The merger agreement also includes representations and warranties by
ScanSoft and Scorpion Acquisitions Corporation as to, among other things:
- organization and qualification; subsidiaries;
- certificate of incorporation and bylaws;
- capitalization;
- authority relative to the merger agreement;
- no conflict; required filings and consents;
- compliance; permits;
- SEC filings;
- no undisclosed liabilities;
- employee benefit plans;
- registration statement; proxy statement;
- absence of certain changes or events from September 30, 1999 to the date
of the merger agreement, including declaration, payment or setting aside
of a dividend, any split or reclassification of common stock, material
changes in accounting methods, asset revaluation, or event or condition
that would have a material adverse effect on ScanSoft;
- restrictions on business activities;
- taxes, tax returns and audits;
- environmental matters;
- title to property;
- intellectual property;
- absence of litigation;
- brokers' and finders' fees;
- year 2000 compliance;
- agreements, contracts and commitments;
- insurance;
- opinion of financial advisors; and
- board approval.
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CONDUCT OF CAERE'S BUSINESS PRIOR TO THE MERGER
Under the merger agreement, Caere has agreed, during the period from the
date of the Merger Agreement and continuing until the earlier of the termination
of the merger agreement or the closing of the merger, except as contemplated by
the merger agreement, in connection with the discontinuation and/or sale of
Caere's hardware division or to the extent that ScanSoft otherwise consents in
writing, which consent will not be unreasonably withheld or delayed, that Caere
will carry on its business in the usual, regular and ordinary course in
substantially the same manner as conducted prior to the signing of the merger
agreement and in compliance with all applicable laws and regulations, to pay its
debts and taxes when due subject to good faith disputes over those debts or
taxes, to pay or perform other material obligations when due subject to good
faith disputes over these obligations, and to use commercially reasonable
efforts consistent with past practice and policies to preserve intact its
present business organization, keep available the services of its present
officers and key employees and preserve its relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with Caere, all with the goal of preserving unimpaired Caere's goodwill
and ongoing business at the closing of the merger.
Except as contemplated by the merger agreement or except in connection with
the discontinuation and/or sale of Caere's hardware division, Caere has agreed
not to do any of the following without the prior written consent of ScanSoft,
which consent will not be unreasonably withheld or delayed:
- waive any stock repurchase rights, accelerate, amend or change the period
of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any
such plans;
- grant any severance or termination pay to any officer or employee except
pursuant to written agreements outstanding, or policies existing, on the
date of the merger agreement and as previously disclosed in writing or
made available to ScanSoft, or adopt any new severance plan;
- transfer or license to any person or entity or otherwise extend, amend or
modify any rights to Caere's intellectual property other than in the
ordinary course of business consistent with past practice, or enter into
grants to transfer or license to any person future patent rights other
than in the ordinary course of business consistent with past practices,
provided that in no event will Caere license on an exclusive basis or
sell any material intellectual property of Caere;
- declare, set aside or pay any dividends on or make any other
distributions, whether in cash, stock, equity securities or property, in
respect of any capital stock, other than distributions from a subsidiary
of Caere to Caere, or split, combine or reclassify any capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for any capital stock;
- purchase, redeem or otherwise acquire, directly or indirectly, any shares
of capital stock of Caere or its subsidiaries, except repurchases of
unvested shares at cost in connection with the termination of the
employment relationship with any employee pursuant to stock option or
purchase agreements in effect on the date of the merger agreement;
- issue, deliver, sell, authorize, pledge or otherwise encumber any shares
of capital stock or any securities convertible into shares of capital
stock, or subscriptions, rights, warrants or options to acquire any
shares of capital stock or any securities convertible into shares of
capital stock, or
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enter into other agreements or commitments of any character obligating
Caere to issue any shares or convertible securities, other than:
(1) the issuance, delivery and/or sale of shares of Caere common
stock pursuant to the exercise of stock options outstanding as of the
date of the merger agreement and/or shares of Caere common stock
issuable to participants in the employee stock purchase plan consistent
with the terms of the employee stock purchase plan;
(2) the granting of stock options and the issuance of common stock
upon exercise of those options, in the ordinary course of business and
consistent with past practices, in an amount not to exceed options to
purchase, and the issuance of common stock upon exercise of those
options, 125,000 shares in any three-month period; and
(3) rights pursuant to Caere's rights plan.
- cause, permit or propose any amendments to Caere's charter documents, or
similar governing instruments of any of its subsidiaries;
- acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a portion of the assets of, or by
any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or enter
into any joint ventures, strategic partnerships or alliances, except that
Caere and its subsidiaries may enter into OEM and joint marketing
agreements in the ordinary course of business consistent with past
practices;
- sell, lease, license, encumber or otherwise dispose of any properties or
assets except in the ordinary course of business consistent with past
practice and, except for the sale, lease or disposition of property or
assets which are not material, individually or in the aggregate, to the
business of Caere and its subsidiaries;
- incur any indebtedness for borrowed money or guarantee any indebtedness
of another person, issue or sell any debt securities or options,
warrants, calls or other rights to acquire any debt securities of Caere,
enter into any "keep well" or other agreement to maintain any financial
statement condition or enter into any arrangement having the economic
effect of any of the foregoing;
- adopt or amend any employee benefit plan or employee stock purchase or
employee stock option plan; or enter into any employment contract or
collective bargaining agreement, other than offer letters and letter
agreements entered into in the ordinary course of business consistent
with past practice with employees who are terminable "at will"; or pay
any special bonus or special remuneration to any director or employee,
increase the salaries or wage rates or fringe benefits, including rights
to severance or indemnification, of its directors, officers, employees or
consultants, except with respect to employees who are not officers of
Caere, and consistent with past practices;
- modify or agree to modify the terms of vesting of any outstanding Caere
options or restricted capital stock;
- make any individual or series of related payments outside of the ordinary
course of business in excess of $100,000;
- except in the ordinary course of business consistent with past practice,
modify, amend or terminate any material contract or material agreement to
which Caere or any subsidiary of Caere is a party or waive, delay the
exercise of, release or assign any material rights or claims thereunder;
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- except in the ordinary course of business consistent with past practices,
enter into or materially modify any contracts, agreements, or obligations
relating to the distribution, sale, license or marketing by third parties
of Caere's products or products licensed by Caere;
- except as required by GAAP, revalue any of Caere's assets or make any
material change in accounting methods, principles or practices;
- incur or enter into any agreement or commitment requiring expenditures by
Caere in excess of $250,000 individually or $1,500,000 in the aggregate;
- make any tax election that, individually or in the aggregate, is
reasonably likely to adversely affect in any material respect the tax
liability or tax attributes of Caere or any of its subsidiaries, or
settle or compromise any material income tax liability;
- engage in any action that could reasonably be expected to cause the
merger to fail to qualify as a "reorganization" under Section 368(a) of
the Internal Revenue Code;
- hire any employee with an annual compensation level in excess of $150,000
during the period between January 15, 2000 and April 15, 2000, or
$250,000 after April 15, 2000;
- engage in any action or enter into any transaction or permit any action
to be taken or transaction to be entered into that could reasonably be
expected to:
(1) subject to certain actions required by the fiduciary duties of
the Caere board of directors, delay the consummation of any of the
transactions contemplated by the merger agreement, or
(2) increase the possibility that a governmental entity will seek
to object to or challenge or take any action to interfere in any respect
with or delay the consummation of any of the transactions contemplated
by the merger agreement; or
- agree in writing or otherwise to take any of the actions described above.
CONDUCT OF SCANSOFT BUSINESS PRIOR TO THE MERGER
Under the merger agreement, ScanSoft has agreed that, during the period
from the date of the merger agreement and continuing until the earlier of the
termination of the merger agreement pursuant to its terms or the closing of the
merger, except to the extent that Caere otherwise consents in writing, which
consent will not be unreasonably withheld or delayed, ScanSoft will carry on its
business, in the usual, regular and ordinary course, in substantially the same
manner as previously conducted prior to the signing of the merger agreement and
in compliance with all applicable laws and regulations, pay its debts and taxes
when due subject to good faith disputes over those debts or taxes, pay or
perform other material obligations when due subject to good faith disputes over
such obligations, and use its commercially reasonable efforts consistent with
past practices and policies to preserve intact ScanSoft's present business
organization, keep available the services of its present officers and employees
and preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others with which it has business dealings.
In addition, except as contemplated or permitted by the terms of the merger
agreement, without the prior written consent of Caere, which consent will not be
unreasonably withheld or delayed, during the period from the date of the merger
agreement and continuing until the earlier of the
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termination of the merger agreement pursuant to its terms or the closing of the
merger, ScanSoft has agreed not do any of the following or to permit its
subsidiaries to do any of the following:
- engage in any action or enter into any transaction or permit any action
to be taken or transaction to be entered into that could reasonably be
expected to:
(1) delay the consummation of any of the transactions contemplated
by the Merger Agreement or
(2) increase the possibility that a governmental entity will seek
to object to or challenge or take any action to interfere in any respect
with or delay the consummation of any of the transactions contemplated
by the merger agreement;
- cause, permit or propose any amendments to ScanSoft's charter documents,
or similar governing instruments of any of ScanSoft's subsidiaries;
- engage in any action that could reasonably be expected to cause the
merger to fail to qualify as a "reorganization" under Section 368(a) of
the Internal Revenue Code;
- declare, set aside or pay any dividends on or make any other
distributions, whether in cash, stock, equity securities or property, in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for any capital stock;
- take any action to acquire or agree to acquire by merging or
consolidating with, or by purchasing any equity interest in or a portion
of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets in
a transaction that would require the approval of the stockholders of
ScanSoft; or
- agree in writing or otherwise to take any of the actions described above.
NO SOLICITATION
Under the merger agreement, Caere has agreed that, until the earlier of the
closing of the merger or the termination of the merger agreement, the officers,
directors and affiliates of Caere and its subsidiaries will not, nor will Caere
authorize its financial advisor, legal counsel or other advisor to Caere to, and
Caere will use its reasonable efforts to not allow any of its employees,
stockholders or agents to, directly or indirectly, take any of the following
actions with any party other than ScanSoft and its affiliates:
- solicit, initiate, knowingly encourage, or induce the making of any
proposal, an "Acquisition Proposal," to effect a transaction, an
"Acquisition Transaction," to:
(1) acquire or purchase more than a 10% interest in the total
outstanding voting securities of Caere;
(2) other than in the ordinary course of business, sell, lease,
exchange, transfer, license, acquire or dispose of more than 10% of
Caere's assets; or
(3) liquidate or dissolve Caere;
- participate in any discussions or negotiations regarding, or furnish to
any person any non-public information with respect to, or take any action
to facilitate inquiries or the making of any proposal that constitutes or
could reasonably be expected to lead to an Acquisition Proposal;
- engage in any discussions with any person with respect to an Acquisition
Proposal other than to inform them of the existence of the
non-solicitation provisions;
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- subject to the fiduciary duties of the Caere board of directors, approve,
endorse or recommend any Acquisition Proposal; or
- enter into any letter of intent or agreement relating to an Acquisition
Transaction.
Notwithstanding the restrictions described in the preceding paragraph,
provided that Caere has not violated the nonsolicitation provisions of the
merger agreement, and Caere's board of directors determines after consultation
with its attorneys that its fiduciary duties require it to do so, Caere may
furnish nonpublic information regarding Caere and its subsidiaries to, or enter
into a confidentiality agreement or discussion and negotiations with, any person
who has made a written offer to acquire 50% or more of the outstanding voting
securities or assets of Caere on terms that the Caere board of directors
determines, based on the written advice of a financial advisor of nationally
recognized reputation, to be more favorable to Caere's stockholders from a
financial point of view than the terms of the merger.
In addition, if prior to the closing of the merger or the termination of
the merger agreement, Caere receives a superior offer, Caere has agreed to give
five days prior written notice of Caere's intent to give nonpublic information
to, or enter into discussions with, the party making the superior offer and to
provide to ScanSoft any non-public information that Caere has not previously
provided to ScanSoft.
Regardless of whether there has been a superior offer, Caere is obligated
under the Merger Agreement to hold and convene the Caere special meeting of
stockholders.
AGREEMENT REGARDING REGULATORY APPROVAL
Until June 30, 2000, ScanSoft and Caere have agreed:
- subject to the terms of the merger agreement, to use reasonable efforts
to resolve as promptly as possible any objections asserted by any
governmental entity with respect to the merger and to obtain as promptly
as possible any waivers, consents, approvals, authorizations or
clearances as may be required under any applicable law or by any
governmental entity in connection with the merger;
- that in the event a suit, claim, action, investigation or proceeding,
whether judicial or administrative, is commenced or threatened by any
governmental entity in connection with the merger, to use their best
efforts to resist the suit, claim, action, investigation or proceeding;
- that in the event any injunction, temporary restraining order or other
order is issued which has the effect of preventing or delaying the
consummation of the merger, to use their best efforts to have the
injunction, temporary restraining order or other order vacated and
reversed as promptly as possible; and
- to consider the disposition, and any other action in connection with such
disposition as may be reasonably required, of certain product lines or
assets of ScanSoft or Caere, or the license, and any other action in
connection with such license as may be reasonably required, of certain
product lines or assets of ScanSoft or Caere, and agree to take such
action unless in the mutual determination of the boards of directors of
ScanSoft and Caere disposing of or licensing certain product lines or
assets, is not in the best interest of the ScanSoft stockholders or Caere
stockholders as may be appropriate in order to resolve the objections,
obtain the waivers, consents, approvals, authorizations or clearances,
settle the suits, claims, actions, investigations or proceedings or have
vacated and reversed the injunctions, temporary restraining orders or
other orders referred to above.
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CONDITIONS TO THE MERGER
The obligations of ScanSoft and Caere to complete the merger are subject to
the satisfaction or waiver of the following conditions:
- ScanSoft's registration statement on Form S-4 must be effective, no stop
order suspending its effectiveness can be in effect and no proceeding for
suspension of its effectiveness can have been initiated or threatened in
writing by the SEC;
- no law, regulation or order can have been enacted or issued that has the
effect of making the merger illegal or otherwise prohibiting completion
of the merger substantially on the terms contemplated by the merger
agreement;
- the shares of ScanSoft common stock to be issued in the merger must be
authorized for listing on the Nasdaq National Market, subject to notice
of issuance;
- the Caere stockholders must adopt the merger agreement;
- the ScanSoft stockholders must approve the issuance of shares of ScanSoft
common stock in the merger and the required amendment to ScanSoft's
certificate of incorporation; and
- Caere and ScanSoft must each receive written opinions from their
respective tax counsel that the merger should constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code.
However, if tax counsel to either Caere or ScanSoft does not deliver this
opinion, this condition will be satisfied with respect to either party if
tax counsel to the other party delivers the opinion to the party whose
tax counsel did not deliver this opinion.
Caere's Conditions to Completion of the Merger. The obligation of Caere to
complete the merger is subject to the satisfaction or waiver of each of the
following additional conditions:
- ScanSoft's representations and warranties must be true and correct as of
January 15, 2000 and at and as of the closing date of the merger as if
made as of the closing date, except:
(1) to the extent ScanSoft's representations and warranties address
matters only as of a particular date, they must be true and correct as
of that date, and
(2) if any of ScanSoft's representations and warranties are not true and
correct, but the effect in each case, or in the aggregate, of the
inaccuracies of these representations and warranties, other than those
concerning board approval and receipt of the fairness opinion, does
not have a material adverse effect on ScanSoft, then this condition
will be deemed satisfied;
- ScanSoft must have performed or complied in all material respects with
all of its agreements and covenants required by the merger agreement to
be performed or complied with by ScanSoft at or before completion of the
merger; and
- no material adverse effect with respect to ScanSoft can have occurred
since January 15, 2000.
ScanSoft's Conditions to Completion of the Merger. ScanSoft's obligations
to complete the merger and the other transactions contemplated by the merger
agreement are subject to the satisfaction or waiver of each of the following
additional conditions before completion of the merger:
- Caere's representations and warranties must be true and correct as of
January 15, 2000 and at and as of the date the merger is to be completed
as if made at and as of the closing date except:
(1) to the extent Caere's representations and warranties address matters
only as of a particular date, they must be true and correct as of that
date, and
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(2) if any of Caere's representations and warranties are not true and
correct, but the effect in each case, or in the aggregate, of the
inaccuracies of these representations and warranties, other than those
concerning board approval and receipt of the fairness opinion, which
must be true and correct in all respects, does not have a material
adverse effect on Caere, then this condition will be deemed satisfied;
- Caere must have performed or complied in all material respects with all
of its agreements and covenants required by the merger agreement to be
performed or complied with by Caere at or before completion of the
merger;
- no material adverse effect with respect to Caere can have occurred since
January 15, 2000;
- each of Caere's affiliates must have entered into a company
voting/affiliate agreement and each of those agreements must be in full
force and effect as of the closing of the merger;
- Caere must have obtained all consents, waivers and approvals required to
be obtained by Caere under the merger agreement in connection with the
consummation of the transactions contemplated by the merger agreement;
- all actions necessary to extinguish and cancel all outstanding rights
under Caere's stockholder rights plan at the time of the merger and to
render those rights inapplicable to the merger must have been taken; and
- at the closing of the merger, Caere must have cash and cash equivalents
which are readily marketable of at least $48 million.
Definition of "Material Adverse Effect."
For purposes of the merger agreement, the term "material adverse effect"
when used in connection with an entity means any change, event, violation,
inaccuracy, circumstance or effect that is materially adverse to the business,
assets (including intangible assets), capitalization, financial condition, or
results of operations of that entity and its subsidiaries taken as a whole.
However, in no event will any of the following constitute a material adverse
effect or be taken into account in determining whether a material adverse effect
has occurred:
(i) a change in the trading prices of either of ScanSoft's or Caere's
equity securities between the date hereof and the effective time of the
merger, in and of itself;
(ii) a failure of ScanSoft or Caere to meet analyst's expectations
between the date hereof and the effective time of the merger;
(iii) changes, events, violations, inaccuracies, circumstances,
conditions or effects generally affecting the industry in which either
ScanSoft or Caere operate or arising from changes in general business or
economic conditions in the United States or in any jurisdiction in which
ScanSoft or Caere transacts business;
(iv) changes, events, violations, inaccuracies, circumstances,
conditions or effects directly attributable to (a) subject to the
satisfaction of the condition that Caere has $48 million in cash or readily
marketable cash equivalents on the closing date of the merger,
out-of-pocket fees and expenses (including without limitation legal,
accounting, investigatory, investment banking, and other fees and expenses)
incurred in connection with the transactions contemplated by the merger
agreement, or (b) the payment by ScanSoft or Caere of all amounts due to
any officers or employees of Caere under employment contracts,
non-competition agreements, employee benefit plans or severance
arrangements approved by ScanSoft or in existence on January 15, 2000 and
disclosed to ScanSoft;
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(v) changes, events, violations, inaccuracies, circumstances,
conditions or effects resulting from any change in law or generally
accepted accounting principles, which affect generally entities such as
ScanSoft and Caere;
(vi) changes, events, violations, inaccuracies, circumstances,
conditions or effects (including, without limitation, delays in customer
orders, a reduction in sales, a disruption in supplier, distributor or
similar relationships or a loss of employees) directly caused by the
announcement or pendency of the merger agreement or of any of the
transactions contemplated by the merger agreement; and
(vii) changes, events, violations, inaccuracies, circumstances,
conditions or effects resulting from compliance by ScanSoft or Caere with
the terms of, or the taking of any action contemplated or permitted by, the
merger agreement.
TERMINATION
The merger agreement may be terminated and the merger abandoned at any time
prior to the closing of the merger:
- by mutual written consent duly authorized by the boards of directors of
ScanSoft and Caere;
- by Caere or ScanSoft if the merger is not completed before 5:00 p.m.,
Pacific time, on June 30, 2000, except as otherwise provided in the
merger agreement;
- by Caere or ScanSoft if there is any final and nonappealable order of
court or governmental authority having jurisdiction over either of us
permanently enjoining, restraining or prohibiting the completion of the
merger;
- by Caere or ScanSoft if the issuance of shares of ScanSoft common stock
and the amendment of ScanSoft's certificate of incorporation fail to
receive the requisite vote for approval by the stockholders of ScanSoft
at the ScanSoft special meeting or at any adjournment or postponement of
the ScanSoft special meeting, except that this right to terminate the
merger agreement is not available to ScanSoft where the failure to obtain
ScanSoft stockholder approval was caused by the action, or failure to
act, of ScanSoft and this action or failure to act constitutes a breach
by ScanSoft of the merger agreement;
- by Caere or ScanSoft if the adoption of the merger agreement fails to
receive the requisite vote for approval by the stockholders of Caere at
the Caere special meeting or at any adjournment or postponement of the
Caere special meeting, except that this right to terminate the merger
agreement is not available to Caere where the failure to obtain Caere
stockholder approval was caused by the action or failure to act by Caere
and this action or failure to act constitutes a breach by Caere of the
merger agreement;
- by ScanSoft, upon a material breach of the covenants described in the
section of this prospectus/proxy statement entitled "No Solicitation";
- by Caere, upon a breach of any representation, warranty, covenant or
agreement on the part of ScanSoft set forth in the merger agreement, or
if any of ScanSoft's representations or warranties are or become untrue
so that the corresponding condition to completion of the merger would not
be met. However, if the breach or inaccuracy is curable by ScanSoft
through the exercise of its commercially reasonable efforts, and ScanSoft
continues to exercise its commercially reasonable efforts, Caere may not
terminate the merger agreement for 30 days after delivery of written
notice from Caere to ScanSoft of the breach;
- by ScanSoft, upon a breach of any representation, warranty, covenant or
agreement on the part of Caere set forth in the merger agreement, or if
any of Caere's representations or warranties
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are or become untrue so that the corresponding condition to completion of
the merger would not be met. However, if the breach or inaccuracy is
curable by Caere through the exercise of its commercially reasonable
efforts and Caere continues to exercise its commercially reasonable
efforts ScanSoft may not terminate the merger agreement for 30 days after
delivery of written notice from ScanSoft to Caere of the breach; or
- by ScanSoft if a triggering event has occurred.
A triggering event will be deemed to have occurred if:
- Caere's board of directors withdraws or amends or modifies in a manner
adverse to ScanSoft the board's unanimous recommendation in favor of the
adoption of the merger agreement;
- Caere fails to include in this prospectus/proxy statement the unanimous
recommendation of Caere's board of directors in favor of the adoption of
the merger agreement;
- Caere's board of directors fails to reaffirm its unanimous recommendation
in favor of the adoption of the merger agreement within ten business days
after ScanSoft requests in writing that the board's recommendation be
reaffirmed;
- Caere's board of directors approves or recommends any Acquisition
Proposal;
- Caere enters into any binding letter of intent or similar document or
agreement, contract or commitment accepting any Acquisition Proposal; or
- a tender or exchange offer relating to the securities of Caere is
commenced by a person unaffiliated with ScanSoft, and Caere does not send
to its securityholders within 10 business days after the tender or
exchange offer is first commenced a statement disclosing that Caere
recommends to the Caere stockholders that they reject the tender or
exchange offer.
REIMBURSEMENT OF EXPENSES AND PAYMENT OF TERMINATION FEES BY CAERE AND SCANSOFT
If the merger agreement is terminated because Caere's stockholders do not
adopt the merger agreement, then Caere will reimburse ScanSoft for its
out-of-pocket fees and expenses incurred in connection with the merger. If the
merger agreement is terminated because ScanSoft's stockholders do not approve
the issuance of ScanSoft common stock in the merger or the required amendment of
ScanSoft's certificate of incorporation, then ScanSoft will reimburse Caere for
its out-of-pocket fees and expenses incurred in connection with the merger.
If the merger agreement is terminated by ScanSoft because of the occurrence
of a triggering event described in the preceding section of this
prospectus/proxy statement or the material breach of those covenants described
in the section of this prospectus/proxy statement entitled "No Solicitation,"
Caere will pay ScanSoft a termination fee of $4 million.
If the merger agreement is terminated by ScanSoft or Caere because the
merger is not consummated by June 30, 2000 or because Caere's stockholders do
not approve the Merger Agreement, Caere will pay ScanSoft a termination fee of
$4 million if either of the following occur:
- after January 15, 2000 and prior to the termination of the merger
agreement a third party has publicly announced an Acquisition Proposal
and within fifteen months following the termination of the merger
agreement Caere is acquired by a party other than ScanSoft; or
- after January 15, 2000 and prior to the termination of the merger
agreement a third party has publicly announced an Acquisition Proposal
and within fifteen months following the termination of the merger
agreement Caere enters into a definitive acquisition agreement or binding
letter of intent providing for the acquisition of Caere.
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<PAGE> 72
If the merger is not completed as a result of any action taken by any
governmental entity under any antitrust laws or regulations, ScanSoft will pay
Caere a termination fee of $4 million.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
ScanSoft and Caere may amend the merger agreement before completion of the
merger provided we comply with applicable state law in doing so.
Either ScanSoft or Caere may extend the other's time for the performance of
any of the obligations or other acts under the merger agreement, waive any
inaccuracies in the other's representations and warranties and waive compliance
by the other with any of the agreements or conditions contained in the merger
agreement.
INDEMNIFICATION OF CAERE OFFICERS AND DIRECTORS
The merger agreement provides that from and after the closing of the
merger, (1) the surviving corporation will fulfill the obligations of Caere
pursuant to the indemnification agreements between Caere and its directors and
officers in effect prior to the closing of the merger and any indemnification
obligations of Caere pursuant to Caere's certificate of incorporation and bylaws
as in effect on the date of the merger agreement, and (2) ScanSoft will
indemnify and hold harmless each of Caere's officers and directors against and
from any costs, expenses (including reasonable attorney's fees), settlement
payments, judgments and other losses, damages and liabilities incurred in
connection with any claim, suit, action or proceeding that arises from or
relates to the merger or any of the transactions contemplated by the merger
agreement. Furthermore, for a period of six years after the closing of the
merger, the surviving corporation will maintain directors and officers liability
insurance in accordance with the terms of the merger agreement.
SCANSOFT BOARD OF DIRECTORS
Under the merger agreement, ScanSoft has agreed to cause Robert Teresi and
Robert Frankenberg to be elected to the ScanSoft board of directors immediately
following the closing of the merger.
THE COMPANY VOTING/AFFILIATE AGREEMENTS
The following is a brief summary of certain provisions of the company
voting/affiliate agreements, a form of which is attached hereto as Annex B and
incorporated herein by reference; this summary is qualified in its entirety by
reference to Annex B.
On January 15, 2000, ScanSoft entered into agreements with each of the
directors and officers of Caere. Together, on January 15, 2000, the directors
and officers of Caere held 252,901 shares of Caere common stock, or
approximately 2.1% of the outstanding shares of Caere common stock. Under the
terms of the company voting/affiliate agreement, each party has agreed to vote
or cause to be voted at the special meeting or in any other circumstances upon
which a vote, consent or other approval with respect to the merger and the
merger agreement is sought his or her shares of Caere stock now owned or
subsequently acquired in favor of approval and adoption of the merger and the
merger agreement and in favor of each of the other transactions contemplated
thereby.
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<PAGE> 73
THE XEROX VOTING AGREEMENT
The following is a brief summary of certain provisions of the Xerox voting
agreement, a copy of which is attached hereto as Annex C and incorporated herein
by reference; this summary is qualified in its entirety by reference to Annex C.
On January 15, 2000, Caere entered into a voting agreement with Xerox
Imaging Systems, Inc., a principal stockholder of ScanSoft. On January 15, 2000,
Xerox held 11,853,602 shares of ScanSoft common stock, or approximately 44.4% of
the outstanding shares of ScanSoft common stock. Under the terms of the Xerox
voting agreement, Xerox has agreed to vote (or cause to be voted) at the special
meeting or in any other circumstances upon which a vote, consent or other
approval with respect to the issuance of shares pursuant to the merger or the
amendment of the ScanSoft certificate of incorporation is sought its shares of
ScanSoft stock now owned or subsequently acquired in favor of approval of the
issuance of shares of ScanSoft common stock in the merger and the amendment of
ScanSoft's certificate of incorporation.
THE TERESI NON-COMPETITION AND CONSULTING AGREEMENT
The following is a brief summary of certain provisions of the
non-competition and consulting agreement, a copy of which is attached hereto as
Annex D and incorporated herein by reference; this summary is qualified in its
entirety by reference to Annex D.
On January 15, 2000, ScanSoft and Robert Teresi entered into a
non-competition and consulting agreement to take effect on the closing of the
merger. Under the agreement, Mr. Teresi will provide consulting services to
ScanSoft for a period of up to six months and will agree to keep confidential
the proprietary information of Caere and agree to not compete with the
businesses of Caere following the merger for a period of two years from the date
of the closing of the merger.
In addition, beginning on the closing date of the merger and ending on the
second anniversary of the merger, Mr. Teresi will not, without the consent of
ScanSoft, engage in certain competitive business activities directly or
indirectly relating to ScanSoft's line of business in any country, province,
state, city or other political subdivision of North America, Asia and Europe in
which ScanSoft or Caere engages in business or otherwise distributes, licenses
or sells their products. Mr. Teresi also will not directly or indirectly
solicit, encourage or induce any employee of ScanSoft to terminate that
employee's employment with ScanSoft.
In consideration for Mr. Teresi's consulting services and agreement to keep
confidential the proprietary information of Caere and not compete with the
businesses of Caere under this agreement and his Executive Benefits Agreement
with Caere, ScanSoft would pay Mr. Teresi a consulting fee equal to $156 for
each hour of consulting performed by Mr. Teresi, up to a maximum of thirty-five
hours each month for up to six months following the closing of the merger. In
addition, within five business days following the second anniversary of the
closing of the merger, ScanSoft will pay a cash bonus to Mr. Teresi equal in
amount to the product of (1) the difference between $13.50 and the average of
the closing prices for ScanSoft common stock on the Nasdaq Stock Market as
reported in the Wall Street Journal during the five business day period ending
on the second anniversary of the closing of the merger and (2) 486,548. However,
if during the two-year period ending on the second anniversary of the closing of
the merger the closing prices for ScanSoft's Common Stock for three consecutive
trading days during any permitted window, as defined below, exceeds $13.50, then
ScanSoft will not be obligated to pay the cash bonus with respect to the number
of shares that Mr. Teresi owns and sells or could have sold under federal
securities laws and ScanSoft's federal securities law compliance program within
the Permitted Window (i.e., the 486,548 figure above will be reduced by the
number of shares that Mr. Teresi owns and sells or could have sold during the
Permitted Window). "Permitted window" means any trading day during which Mr.
Teresi is not
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<PAGE> 74
precluded from engaging in transactions in ScanSoft's securities by ScanSoft's
federal securities law compliance program and federal securities laws. In
addition, the exercise period for all stock options that Mr. Teresi holds at the
time of the closing of the merger will be extended to the second anniversary of
the closing of the merger, provided that any incentive stock options that are
not exercised within three months of the termination of Mr. Teresi's employment
with Caere will be converted into nonstatutory stock options that may be
exercised up to the second anniversary of the closing of the merger.
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<PAGE> 75
COMPARATIVE PER SHARE MARKET PRICE DATA
Caere common stock has been traded on Nasdaq under the symbol "CAER" since
October 19, 1989, the date of Caere's initial public offering. ScanSoft common
stock has been traded on Nasdaq under the symbol "SSFT" since March 3, 1999 and
prior to that time under the symbol "VSNR" since December 11, 1995. Because the
number of shares of ScanSoft common stock that Caere stockholders will receive
in the merger will be determined based on the market price of ScanSoft common
stock prior to the merger, you are urged to obtain current market quotations.
The following table sets forth, for the calendar quarters indicated, the
high and low sale prices per share of Caere common stock and ScanSoft common
stock as reported on Nasdaq.
<TABLE>
<CAPTION>
CAERE SCANSOFT
COMMON STOCK COMMON STOCK
------------- -------------
HIGH LOW HIGH LOW
----- ---- ----- ----
<S> <C> <C> <C> <C>
Year Ended December 31, 1998:
First Quarter............................................. 12 1/2 8 3 1/2 1 9/16
Second Quarter............................................ 15 3/8 10 4 1/8 2 1/16
Third Quarter............................................. 14 3/4 9 2 7/8 1 1/16
Fourth Quarter............................................ 14 1/16 7 1/2 2 7/8 1 1/16
Year Ended December 31, 1999:
First Quarter............................................. 18 3/4 8 1/4 2 3/4 1 1/32
Second Quarter............................................ 13 5/8 9 3/4 3 1/16 1 1/4
Third Quarter............................................. 14 3/8 7 3/8 4 1/8 2
Fourth Quarter............................................ 8 1/4 5 1/8 15 3/8 1 17/32
Year Ending December 31, 2000:
First Quarter (through February 8, 2000).................. 9 21/32 7 1/8 6 9/16 4 21/32
</TABLE>
The following table sets forth the closing prices per share of ScanSoft
common stock and Caere common stock as reported on Nasdaq on (1) January 14,
2000, the business day preceding public announcement that ScanSoft and Caere had
entered into the merger agreement and (2) February 7, 2000, the last full
trading day for which closing prices were available at the time of the printing
of this prospectus/proxy statement.
The following table also sets forth the equivalent price per share of Caere
common stock on those dates. The equivalent price per share is equal to $7.75
divided by the average closing sale price of a share of ScanSoft common stock
for the 10 trading days prior to the applicable date, but if the average closing
sale price is greater than $8.50 then it will be deemed to be $8.50, and if the
average closing sale price is less than $4.50, then it will be deemed to be
$4.50, multiplied by the closing sale price of a share of ScanSoft common stock
on January 14, 2000 and February 8, 2000, respectively, plus $4.00.
<TABLE>
<CAPTION>
CAERE SCANSOFT EQUIVALENT PER
COMMON STOCK COMMON STOCK SHARE PRICE
------------ ------------ --------------
<S> <C> <C> <C>
January 14, 2000.................... $7.44 $5.38 $12.27
February 8, 2000.................... $9.50 $5.38 $11.93
</TABLE>
Caere stockholders are advised to obtain current market quotations for
ScanSoft common stock and Caere common stock. No assurance can be given as to
the market prices of ScanSoft common stock or Caere common stock at any time
before the completion of the merger or as to the market price of ScanSoft common
stock at any time afterwards. The number of shares of ScanSoft common stock to
be received in the merger in exchange for Caere common stock will fluctuate with
the market price of ScanSoft common stock prior to the completion of the merger.
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<PAGE> 76
ScanSoft and Caere have never paid cash dividends on their respective
shares of capital stock. Pursuant to the merger agreement, both ScanSoft and
Caere have agreed not to pay cash dividends pending the completion of the
merger, without written consent of the other. If the merger is not completed,
the Caere board of directors presently intends that it would continue its policy
of retaining all earnings to finance the expansion of its business. The ScanSoft
board of directors presently intends to retain all earnings for use in its
business and has no present intention to pay cash dividends before or after the
merger.
AMENDMENT TO SCANSOFT CERTIFICATE OF INCORPORATION
The ScanSoft certificate of incorporation currently authorizes the issuance
of a total of 90 million shares of capital stock, 70 million of which is common
stock and 20 million of which is preferred stock. Of such authorized shares of
common stock, 26,695,511 shares were outstanding as of February 7, 2000, a
further 4,504,365 shares are reserved for issuance pursuant to ScanSoft's
stockholder, employee and director benefit plans and a further 20,000,000 shares
are reserved for issuance upon conversion of preferred stock. Giving effect to
the foregoing, 18,800,124 shares of ScanSoft common stock are available for
issuance as of February 7, 2000. Completion of the merger is expected to require
the issuance, or the reservation for future issuance, of approximately an
additional 19,273,000 million shares of ScanSoft common stock. ScanSoft does not
presently have a sufficient number of authorized shares of ScanSoft common stock
not otherwise reserved for issuance to consummate the merger. Accordingly,
ScanSoft's board of directors is proposing an amendment to the ScanSoft
certificate of incorporation, pursuant to which the ScanSoft certificate of
incorporation would be amended to increase the number of shares of ScanSoft
common stock authorized for issuance thereunder from 70 million to 140 million
shares. In addition, ScanSoft's board of directors is proposing that the
ScanSoft certificate of incorporation be further amended to increase the number
of shares of ScanSoft preferred stock authorized for issuance from 20 million to
40 million shares. Approval of the amendment by ScanSoft stockholders, together
with approval by such ScanSoft stockholders of the issuance of shares of
ScanSoft common stock in the merger, is a condition to the parties' obligations
to consummate the merger.
The additional shares of ScanSoft capital stock authorized pursuant to the
amendment to the ScanSoft certificate of incorporation and not issued in the
merger or otherwise reserved could be issued at the discretion of the ScanSoft
board of directors without further action by ScanSoft stockholders, except as
required by applicable law, regulation or rule (including applicable rules of
NASDAQ or other securities exchange or market on which the shares of ScanSoft
common stock may then be listed or authorized for quotation), in connection with
acquisitions, efforts to raise additional capital for ScanSoft and for other
corporate purposes. The issuance of shares of ScanSoft capital stock, including
the additional shares, may, in certain situations, dilute the present equity
ownership position of current ScanSoft stockholders. Shares of ScanSoft capital
stock will be issued only upon a determination by the ScanSoft board of
directors that such proposed issuance is in the best interests of ScanSoft.
As of the date of this prospectus/proxy statement, ScanSoft has no plans or
commitments that would involve the issuance of the additional shares, other than
pursuant to the merger agreement. The increase in the authorized shares of
ScanSoft capital stock will allow ScanSoft's board of directors to consider and,
if in the best interests of ScanSoft stockholders, take advantage of other
merger or acquisition possibilities. ScanSoft periodically considers potential
strategic business combinations, and it is the policy of ScanSoft not to comment
on such matters publicly until the definitive agreement with respect thereto has
been reached. In addition, the discretion vested in the ScanSoft board of
directors to authorize the issuance and sale of authorized but unissued shares
of ScanSoft capital stock could, under some circumstances, be used to discourage
certain potential business combinations that some ScanSoft stockholders may
believe to be in the best interests of
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<PAGE> 77
ScanSoft stockholders and make more difficult management changes that may occur
if a potential business combination were successful, although ScanSoft has no
current intention of issuing shares of ScanSoft capital stock for this purpose.
If the amendment to ScanSoft's certificate of incorporation is approved,
the relevant part of Article IV of the ScanSoft certificate of incorporation
would read in its entirety as follows:
"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."
SCANSOFT'S BOARD OF DIRECTORS RECOMMENDS STOCKHOLDERS VOTE "FOR" THE
AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
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<PAGE> 78
SCANSOFT, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial information
gives effect to the merger using the purchase method of accounting, after giving
effect to the pro forma adjustments described in the accompanying notes. The
unaudited pro forma combined condensed financial information should be read in
conjunction with the audited historical consolidated financial statements and
notes thereto of ScanSoft and Caere, which are incorporated herein by reference.
You may obtain the information incorporated by reference into this
prospectus/proxy statement without charge by following the instructions in the
section entitled "Where You Can Find More Information" on page 92 of this
prospectus/proxy statement.
The unaudited pro forma combined condensed statements of operations give
effect to the merger as if it had occurred at the beginning of the periods
presented. The unaudited pro forma combined condensed statements of operations
for the year ended December 31, 1998 and the nine months ended September 30,
1999 combine the historical consolidated statements of operations of ScanSoft
with the unaudited pro forma consolidated statements of operations of Caere for
the year ended December 31, 1998 and the nine months ended September 30, 1999,
respectively. The unaudited pro forma consolidated statements of operations of
Caere for the year ended December 31, 1998 and the nine months ended September
30, 1999 appear elsewhere in this prospectus/proxy statement and reflect the
discontinuation of Caere's hardware business.
The unaudited pro forma combined condensed statements of operations also
give effect to the sale of the hardware assets of Visioneer (which occurred
January 6, 1999) and the merger of Visioneer and ScanSoft (which occurred March
2, 1999) as if each of these transactions had occurred at the beginning of the
periods presented.
The unaudited pro forma combined condensed balance sheet gives effect to
the merger as if it had occurred on September 30, 1999. The unaudited pro forma
condensed combined balance sheet combines the unaudited historical consolidated
balance sheets of ScanSoft and Caere as of September 30, 1999.
The unaudited pro forma combined condensed financial information is
presented for illustrative purposes only and does not purport to be indicative
of the operating results or financial position that would have actually occurred
if the merger had been in effect on the dates indicated, nor is it necessarily
indicative of future operating results or financial position of the merged
companies. The pro forma adjustments are based on the information and
assumptions available at the time of the filing.
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<PAGE> 79
SCANSOFT, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
PRO
FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
SCANSOFT CAERE (NOTE 2) COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents............... $ 5,376 $23,763 $(22,506)(d) $ 6,633
Short term investments.................. -- 25,838 (25,838)(d) --
Accounts receivable, net................ 8,374 5,151 -- 13,525
Inventory, net.......................... 805 1,669 300(f) 2,774
Deferred taxes.......................... -- 2,953 -- 2,953
Prepaid expenses and other current
assets............................... 1,062 1,062 -- 2,124
-------- ------- -------- ---------
Total current assets................. 15,617 60,436 (48,044) 28,009
Property and equipment, net............. 863 3,847 4,710
Acquired intangible assets, net......... 13,642 -- 92,465(a) 106,107
Other assets............................ 221 2,835 -- 3,056
-------- ------- -------- ---------
Total Assets....................... $ 30,343 $67,118 $ 44,421 $ 141,882
======== ======= ======== =========
Current Liabilities:
Note payable............................ $ 1,600 $ -- $ -- $ 1,600
Accounts payable........................ 1,159 2,399 -- 3,558
Accrued sales and marketing expenses.... 1,364 -- -- 1,364
Accrued costs of discontinued
operations........................... -- -- 2,000(h) 2,000
Deferred revenue........................ 1,004 362 (362)(g) 1,004
Other accrued expenses.................. 3,377 3,715 7,525(b) 14,617
-------- ------- -------- ---------
Total current liabilities............ 8,504 6,476 9,163 24,143
-------- ------- -------- ---------
Stockholders' equity:
Non-voting Preferred stock.............. 4 -- -- 4
Common stock............................ 27 12 7(e) 46
Treasury stock.......................... (684) -- -- (684)
Additional paid in capital, Common...... 100,976 41,251 82,630(e) 224,857
Additional paid in capital, Preferred... 4,628 -- -- 4,628
Accumulated deficit..................... (83,112) 19,379 (47,379)(c) (111,112)
-------- ------- -------- ---------
Total stockholders' equity........... 21,839 60,642 35,258 117,739
-------- ------- -------- ---------
Total Liabilities and Stockholders'
Equity.......................... $ 30,343 $67,118 $ 44,421 $ 141,882
======== ======= ======== =========
</TABLE>
See accompanying notes.
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<PAGE> 80
SCANSOFT, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
LESS
HISTORICAL VISIONEER SCANSOFT
SCANSOFT HARDWARE PRO FORMA CAERE
(FORMERLY BUSINESS SCANSOFT ADJUSTMENTS SCANSOFT PRO FORMA
VISIONEER) (NOTE 5) ACQUISITION (NOTE 4) AS ADJUSTED (NOTE 6)
---------- --------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue................................. $79,070 $66,015 $21,736 $ -- $34,791 $57,351
Costs and expenses:
Cost of revenue....................... 59,370 55,474 5,772 -- 9,668 9,963
Research and development.............. 4,408 734 6,138 -- 9,812 11,298
Selling, general and administrative... 19,150 15,887 11,743 -- 15,006 26,364
Amortization of intangible assets..... -- -- -- 2,148(a) 2,148 --
------- ------- ------- ------ ------- -------
Total costs and expenses........ 82,928 72,095 23,653 2,148 36,634 47,625
------- ------- ------- ------ ------- -------
Income (loss) from operations........... (3,858) (6,080) (1,917) (2,148) (1,843) 9,726
Other income (expense), net............. 53 26 -- -- 27 2,621
------- ------- ------- ------ ------- -------
Income (loss) before income taxes....... (3,805) (6,054) (1,917) (2,148) (1,816) 12,347
Provision for income taxes.............. -- -- -- -- -- 3,087
------- ------- ------- ------ ------- -------
Net income (loss)....................... $(3,805) $(6,054) $(1,917) $(2,148) $(1,816) $ 9,260
======= ======= ======= ====== ======= =======
Net income (loss) per share: Basic and
diluted............................... $ (0.19)
Weighted average common shares:
Basic and diluted..................... 19,728 6,977
<CAPTION>
CAERE
PRO FORMA
ADJUSTMENTS PRO FORMA
(NOTE 3) COMBINED
----------- ---------
<S> <C> <C>
Revenue................................. $ -- $ 92,142
Costs and expenses:
Cost of revenue....................... -- 19,631
Research and development.............. -- 21,110
Selling, general and administrative... -- 41,370
Amortization of intangible assets..... 18,493(a) 20,641
-------- ---------
Total costs and expenses........ 18,493 102,752
-------- ---------
Income (loss) from operations........... (18,493) (10,610)
Other income (expense), net............. (2,417)(b) 231
-------- ---------
Income (loss) before income taxes....... (20,910) (10,379)
Provision for income taxes.............. (3,087)(c) --
-------- ---------
Net income (loss)....................... $(17,823) $ (10,379)
======== =========
Net income (loss) per share: Basic and
diluted............................... $ (0.23)
Weighted average common shares:
Basic and diluted..................... 18,594 45,299
</TABLE>
See accompanying notes.
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<PAGE> 81
SCANSOFT, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
SCANSOFT SCANSOFT CAERE
ACQUISITION PRO FORMA CAERE PRO FORMA
HISTORICAL (JANUARY 1 TO ADJUSTMENTS SCANSOFT PRO FORMA ADJUSTMENTS PRO FORMA
SCANSOFT MARCH 2, 1999) (NOTE 4) AS ADJUSTED (NOTE 6) (NOTE 3) COMBINED
---------- -------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue......................... $22,986 $2,877 $ -- $25,863 $42,190 $ -- $68,053
Costs and expenses:
Cost of revenue............... 5,427 741 -- 6,168 6,892 -- 13,060
Research and development...... 5,140 948 -- 6,088 8,905 -- 14,993
Selling, general and
administrative.............. 10,288 2,097 -- 12,385 20,425 -- 32,810
Amortization of intangible
assets...................... 1,288 323(a) 1,611 -- 13,870(a) 15,481
Restructuring charges......... 346 -- -- 346 -- -- 346
Gain on sale of hardware
business, net............... (882) -- 882(b) -- -- -- --
Acquired in-process research
and development............. 3,944 -- (3,944)(c) -- -- -- --
------- ------ ------ ------- ------- -------- -------
Total costs and expenses........ 25,551 3,786 (2,739) 26,598 36,222 13,870 76,690
------- ------ ------ ------- ------- -------- -------
Income (loss) from operations... (2,565) (909) 2,739 (735) 5,968 (13,870) (8,637)
Other income (expense), net..... 136 (24) -- 112 1,838 (1,813)(b) 137
------- ------ ------ ------- ------- -------- -------
Income (loss) before income
taxes......................... (2,429) (933) 2,739 (623) 7,806 (15,683) (8,500)
Provision for income taxes...... 300 -- -- 300 2,341 (2,341)(c) 300
------- ------ ------ ------- ------- -------- -------
Net income (loss)............... $(2,729) $ (933) $2,739 $ (923) $ 5,465 $(13,342) $(8,800)
======= ====== ====== ======= ======= ======== =======
Net income (loss) per share:
Basic and diluted............. $ (0.11) $ (0.19)
Weighted average common shares:
Basic and diluted............. 25,220 1,539 18,594 45,353
</TABLE>
See accompanying notes.
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<PAGE> 82
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE 1 -- THE TRANSACTION
ScanSoft was formerly named Visioneer and changed its name to ScanSoft upon
its acquisition of ScanSoft from Xerox on March 2, 1999, in a transaction
accounted for as a purchase. On January 15, 2000 ScanSoft signed a definitive
agreement to acquire Caere in a purchase transaction. Subject to the
qualifications discussed below, under the merger agreement, ScanSoft will issue
approximately 18.6 million shares of its common stock, $48.3 million in cash and
options to purchase 4.7 million shares of its common stock in exchange for the
outstanding shares and options of Caere.
The purchase price of the Caere acquisition is estimated to be
approximately $179.8 million, which has been determined as follows (in
thousands):
<TABLE>
<S> <C>
Shares of common stock...................................... $107,845
Fair value of options....................................... 16,055
Cash........................................................ 48,344
Estimated transaction costs................................. 3,925
Estimated restructuring costs............................... 3,600
--------
Total............................................. $179,769
========
</TABLE>
Common stock has been valued using an average price of ScanSoft common
stock for a few days before and after the announcement of the Caere merger. The
estimated transaction costs represent estimated fees for the financial advisors,
accountants, attorneys and expenses expected to be incurred in conjunction with
the Caere merger. ScanSoft management plans to terminate redundant employees
primarily associated with duplicate corporate, sales, marketing and other
administrative functions soon after consummation of the merger. The associated
restructuring costs of termination have been included in the purchase
accounting. These costs have been based on preliminary estimates of management
and are subject to further revision upon finalization of ScanSoft management's
plans with respect to Caere's operations.
The purchase price for pro forma purposes has been allocated to tangible
assets acquired and liabilities assumed based on the book value of Caere's
assets and liabilities, which (with the exception of inventories and deferred
revenue) management believes approximate their fair value. ScanSoft's management
has engaged an independent appraiser to value the intangible assets, including
amounts allocable to Caere's in-process research and development, which will be
expensed immediately. For the purposes of these unaudited pro forma condensed
combined financial statements the acquired in-process research and development
has been assigned a value of approximately $28 million for presentation purposes
only. The exact amount of the in-process research and development charge will be
determined upon completion of the independent appraisal and will be different
from the amount presented in these unaudited pro forma condensed combined
financial statements. The in-process research and development charge relates to
Caere's products in development for which technological feasibility has not been
established.
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<PAGE> 83
The allocation of the purchase price is estimated as follows (in
thousands):
<TABLE>
<S> <C>
Property and equipment...................................... $ 3,847
Current and other assets.................................... 63,571
Liabilities assumed......................................... (8,114)
Intangible assets including goodwill........................ 92,465
Acquired in-process research and development................ 28,000
--------
Total............................................. $179,769
========
</TABLE>
The exact number of shares and options to be issued for the purchase of
Caere will be affected by the average closing price of ScanSoft's common stock
for ten trading days ending on the day preceding the closing of the merger, and,
therefore, the final purchase price will be different from the amounts presented
in these unaudited pro forma condensed combined financial statements.
The unaudited pro forma combined condensed balance sheet reflects the
acquisition of Caere as of September 30, 1999. In addition, the unaudited pro
forma combined condensed balance sheet reflects the impact of discontinuation in
October 1999 by Caere of its hardware business, as if such discontinuation had
occurred on September 30, 1999.
The unaudited pro forma combined condensed statements of operations
reflect:
- The sale on January 6, 1999 of the hardware assets of Visioneer to
Primax, one of Visioneer's primary manufacturing partners, as if such
sale had occurred at the beginning of the periods presented.
- The acquisition of ScanSoft on March 2, 1999 for approximately 6.9
million shares of common stock, 3.6 million shares of preferred stock and
options to purchase 1.7 million shares of common stock, as if such
acquisition had occurred at the beginning of the periods presented.
- The acquisition of Caere as if such acquisition had occurred at the
beginning of the periods presented.
- The discontinuation by Caere in October 1999 of its hardware business, as
if such discontinuation had occurred at the beginning of the periods
presented.
NOTE 2 -- UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
The following adjustments were applied to the historical balance sheet of
ScanSoft and Caere at September 30, 1999 to arrive at the unaudited pro forma
combined condensed balance sheet:
(a) To record intangible assets including goodwill.
(b) To record the estimated transaction costs of $3.9 million and
estimated restructuring charges of $3.6 million related to the merger.
Estimated transaction costs include all costs directly incurred as a result
of the merger agreement including, but not limited to, fees for the
financial advisors, accountants, and attorneys and other related costs.
Restructuring charges include primarily severance costs.
(c) To reflect the estimated one time charge for acquired in-process
research and development of $28.0 million and to eliminate the retained
earnings of Caere as a result of the purchase transaction.
(d) To record cash portion of the Caere purchase price.
(e) To record the increase in stockholders' equity of ScanSoft as a
result of the issuance of common shares and fair value of the ScanSoft
options issued in exchange for options of Caere option holders.
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<PAGE> 84
(f) To increase inventory to its estimated fair value.
(g) To record Caere's deferred revenue at its estimated fair value.
(h) To record costs of discontinuation of Caere's hardware business as
if such discontinuation had occurred on September 30, 1999.
NOTE 3 -- UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
The following adjustments were applied to the historical statements of
operations for ScanSoft and Caere for the year ended December 31, 1998 and the
nine months ended September 30, 1999 to arrive at the unaudited pro forma
combined condensed statement of operations of the respective periods as though
the acquisition took place on January 1, 1998:
(a) Adjustment to recognize amortization of identified intangibles
arising from the merger over their average estimated useful lives of five
years.
(b) Adjustment to reflect the decrease in interest earnings that
results from using Caere's cash balance to fund the transaction.
(c) Adjustment to reflect the estimated combined effective tax rate of
the combined companies.
NOTE 4 -- SCANSOFT PRO FORMA ADJUSTMENTS
Visioneer completed the acquisition of ScanSoft in March 1999. For the
purposes of preparing the unaudited pro forma combined condensed statements of
operations, ScanSoft has reflected the Visioneer/ScanSoft acquisition as if such
acquisition had occurred at the beginning of the periods presented.
(a) Adjustment to record amortization of intangibles created as a
result of the acquisition of ScanSoft by Visioneer.
(b) To eliminate the one time non recurring gain associated with sale
of the hardware business.
(c) To eliminate the one time non recurring charge for in-process
research and development associated with the acquisition of ScanSoft.
NOTE 5 -- VISIONEER HARDWARE BUSINESS
In January 1999, Visioneer completed the disposition of its hardware
business. For the purposes of preparing the unaudited pro forma combined
condensed statements of operations, ScanSoft has reflected the disposition of
hardware business as occurring at the beginning of the periods presented.
Management of ScanSoft has allocated the financial activity of Visioneer in the
unaudited pro forma condensed combined statement of operations between the
hardware and software components of its business. These allocations have been
made by management based upon actual revenue or costs incurred to the extent
practical, and reasonable estimations made by management when actual
identification was not possible. The allocation of net revenue and cost of
revenue has been based primarily on specific identification of hardware and
software revenue and related costs incurred and on specific identification of
royalty and development revenue. Employees performing research and development
activities are dedicated primarily to either hardware or software development
and therefore such costs have been allocated primarily based on the number of
individuals involved in hardware or software development. Sales and marketing
costs have been allocated based primarily on the number of individuals involved
in hardware or software related activities. General and
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<PAGE> 85
administrative costs have been allocated by management based on the relative
revenues of the hardware and software components of the business.
NOTE 6 -- CAERE HARDWARE BUSINESS
The Caere column of these unaudited pro forma combined condensed statements
of operations has been derived from the unaudited pro forma condensed statements
of operations of Caere appearing elsewhere in this prospectus/proxy statement.
In October 1999 Caere management decided to discontinue its hardware
business. The amounts presented in these unaudited pro forma combined condensed
statements of operations will account for the disposition as a discontinued
operation in accordance with the Accounting Principles Board Opinion No. 30 as
if such discontinuation had taken place as of the beginning of the periods
presented.
NOTE 7 -- UNAUDITED PRO FORMA COMBINED NET LOSS PER SHARE
Shares used in the per share calculation reflect the addition of
approximately 18.6 million shares of ScanSoft voting common stock estimated to
be issued to stockholders of Caere and approximately 6.9 million shares of
voting common stock issued in connection with the ScanSoft acquisition by
Visioneer as if they were outstanding from the beginning of each period
presented. Basic and diluted weighted average shares exclude the nonvoting
preferred stock, employee stock options and warrants outstanding in each period
because of the pro forma combined net loss.
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<PAGE> 86
CAERE CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
The following unaudited pro forma condensed statements of operations gives
effect to the discontinuation by Caere in October 1999 of its hardware business
as if such discontinuation had occurred at the beginning of the periods
presented. The disposition will be accounted for as a discontinued operation in
accordance with Accounting Principles Board Opinion No. 30. The unaudited pro
forma condensed financial information should be read in conjunction with the
audited historical consolidated financial statements and notes thereto of Caere,
which are incorporated herein by reference. You may obtain the information
incorporated by reference into this prospectus/proxy statement without charge by
following the instructions in the section entitled "Where You Can Find More
Information" on page of this prospectus/proxy statement.
Management of Caere has allocated the financial activity of Caere in the
unaudited pro forma condensed statement of operations between the hardware and
software components of its business. These allocations have been made by Caere
management based upon actual revenues or costs incurred to the extent practical,
and reasonable estimations made by Caere management when actual identification
was not possible. The allocation of net revenue and cost of revenue has been
based primarily on specific identification of hardware and software revenue and
related costs incurred. Employees performing research and development activities
are dedicated primarily to either hardware or software development and therefore
such costs have been allocated primarily based on the number of individuals
involved in hardware or software development. Sales and marketing costs have
been allocated based primarily on the number of individuals involved in hardware
or software related activities.
The unaudited pro forma condensed statements of operations are presented
for illustrative purposes only and do not purport to be indicative of the
operating results that would have actually occurred if the discontinuance had
been in effect on the dates indicated, nor is it necessarily indicative of
future operating results of Caere.
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<PAGE> 87
CAERE CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
LESS
CAERE
HISTORICAL HARDWARE PRO FORMA
CAERE BUSINESS CAERE
---------- -------- ---------
<S> <C> <C> <C>
Revenue................................................ $54,528 $8,731 $45,797
Costs and expenses:
Cost of revenue...................................... 16,473 3,675 12,798
Research and development............................. 7,069 1,474 5,595
Selling, general and administrative.................. 26,193 1,560 24,633
Acquired in-process research and development......... 4,373 0 4,373
------- ------ -------
Total costs and expenses............................... 54,108 6,709 47,399
------- ------ -------
Income (loss) from operations.......................... 420 2,022 (1,602)
Other income (expense), net............................ 76 0 76
------- ------ -------
Income (loss) before income taxes...................... 496 2,022 (1,526)
Provision for income taxes............................. 100 408 (308)
------- ------ -------
Net income (loss)...................................... $ 396 $1,614 $(1,218)
======= ====== =======
</TABLE>
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CAERE CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
LESS
CAERE
HISTORICAL HARDWARE PRO FORMA
CAERE BUSINESS CAERE
---------- -------- ---------
<S> <C> <C> <C>
Revenue................................................ $55,018 $7,899 $47,119
Costs and expenses:
Cost of revenue...................................... 14,320 4,060 10,260
Research and development............................. 9,370 1,135 8,235
Selling, general and administrative.................. 26,878 1,754 25,124
Acquired in-process research and development......... 2,935 -- 2,935
------- ------ -------
Total costs and expenses.......................... 53,503 6,949 46,554
------- ------ -------
Income (loss) from operations.......................... 1,515 950 565
Other income (expense), net............................ 2,502 -- 2,502
------- ------ -------
Income (loss) before income taxes...................... 4,017 950 3,067
Provision for income taxes............................. 877 207 670
------- ------ -------
Net income (loss)...................................... $ 3,140 $ 743 $ 2,397
======= ====== =======
</TABLE>
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CAERE CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
LESS
CAERE
HISTORICAL HARDWARE PRO FORMA
CAERE BUSINESS CAERE
---------- -------- ---------
<S> <C> <C> <C>
Revenue..................................................... $65,802 $ 8,451 $57,351
Costs and expenses:
Cost of revenue........................................... 14,144 4,181 9,963
Research and development.................................. 12,442 1,144 11,298
Selling, general and administrative....................... 28,136 1,772 26,364
------- ------- -------
Total costs and expenses.......................... 54,722 7,097 47,625
------- ------- -------
Income (loss) from
operations................................................ 11,080 1,354 9,726
Other income (expense), net................................. 2,621 -- 2,621
------- ------- -------
Income (loss) before income taxes........................... 13,701 1,354 12,347
Provision for income taxes.................................. 3,425 338 3,087
------- ------- -------
Net income (loss)........................................... $10,276 $ 1,016 $ 9,260
======= ======= =======
</TABLE>
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CAERE CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
LESS
CAERE
HISTORICAL HARDWARE PRO FORMA
CAERE BUSINESS CAERE
---------- -------- ---------
<S> <C> <C> <C>
Revenue..................................................... $47,534 $6,665 $ 40,869
Costs and expenses:
Cost of revenue........................................... 10,866 3,298 7,568
Research and development.................................. 8,992 885 8,107
Selling, general and administrative....................... 20,730 1,339 19,391
------- ------ ---------
Total costs and expenses.................................... 40,588 5,522 35,066
------- ------ ---------
Income (loss) from operations............................... 6,946 1,143 5,803
Other income (expense),
net....................................................... 1,965 -- 1,965
------- ------ ---------
Income (loss) before income taxes........................... 8,911 1,143 7,768
Provision for income taxes.................................. 2,094 269 1,825
------- ------ ---------
Net income (loss)........................................... $ 6,817 $ 874 $ 5,943
======= ====== =========
</TABLE>
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CAERE CORPORATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
CAERE
HISTORICAL HARDWARE PRO FORMA
CAERE BUSINESS CAERE
---------- -------- ---------
<S> <C> <C> <C>
Revenue..................................................... $47,022 $4,832 $42,190
Costs and expenses:
Cost of revenue........................................... 9,419 2,527 6,892
Research and development.................................. 9,931 1,026 8,905
Selling, general and administrative....................... 21,472 1,047 20,425
------- ------ -------
Total costs and expenses.................................... 40,822 4,600 36,222
------- ------ -------
Income (loss) from operations............................... 6,200 232 5,968
Other income (expense), net................................. 1,838 -- 1,838
------- ------ -------
Income (loss) before income taxes........................... 8,038 232 7,806
Provision for income taxes.................................. 2,411 70 2,341
------- ------ -------
Net income (loss)........................................... $ 5,627 $ 162 $ 5,465
======= ====== =======
</TABLE>
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COMPARISON OF RIGHTS OF HOLDERS OF
CAERE COMMON STOCK AND SCANSOFT COMMON STOCK
This section of the prospectus/proxy statement describes material
differences between the rights of holders of Caere common stock and ScanSoft
common stock. This summary may not contain all of the information that is
important to you. You should read this entire document and the other documents
we refer to carefully for a more complete understanding of the differences
between Caere common stock and ScanSoft common stock. You may obtain the
information incorporated by reference into this prospectus/proxy statement
without charge by following the instructions in the section entitled "Where You
Can Find More Information" on page 92 of this prospectus/proxy statement.
INTRODUCTION
After consummation of the Merger, the holders of Caere common stock who
receive ScanSoft common stock under the terms of the merger agreement will
become stockholders of ScanSoft. Because Caere and ScanSoft are both Delaware
corporations, the Delaware General Corporation Law, or the "DGCL," will continue
to govern the rights of Caere stockholders. The Caere certificate of
incorporation and the Caere bylaws currently govern the rights of the
stockholders of Caere. As stockholders of ScanSoft, the ScanSoft certificate of
incorporation, as amended and restated, and the ScanSoft bylaws, as amended and
restated, will instead govern their rights following the completion of the
Merger. The following paragraphs summarize certain differences between the
rights of ScanSoft stockholders and Caere stockholders under the certificates of
incorporation and bylaws of ScanSoft and Caere, respectively. This summary does
not purport to be complete and is qualified in its entirety by reference to the
ScanSoft certificate of incorporation and bylaws, the Caere certificate of
incorporation and bylaws and the relevant provisions of the DGCL.
AUTHORIZED CAPITAL STOCK
ScanSoft's certificate provides that ScanSoft has authority to issue (1)
70,000,000 shares of ScanSoft common stock, par value $.001 per share and (2)
20,000,000 shares of preferred stock, par value $.001 per share. In connection
with the merger, holders of ScanSoft common stock are being asked to approve an
amendment to ScanSoft's certificate of incorporation to increase the authorized
number of shares of ScanSoft common stock to 140,000,000 and ScanSoft preferred
stock to 40,000,000. Caere's certificate of incorporation provides that Caere
has the authority to issue (1) 30,000,000 shares of Caere common stock, par
value $.001 per share and (2) 2,000,000 shares of preferred stock, par value
$.001 per share.
BOARD OR STOCKHOLDER APPROVED PREFERRED STOCK
ScanSoft has the authority to issue the preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions granted
to or imposed upon any unissued and undesignated shares of preferred stock and
to fix the number of shares constituting any series and the designations of such
series without the approval of the stockholders of ScanSoft. Of the 20,000,000
authorized shares of ScanSoft preferred stock, 100,000 shares have been
designated Series A Participating Preferred Stock, in connection with the
ScanSoft Preferred Shares Rights Agreement, none of which are outstanding, and
15,000,000 shares have been designated Series B Preferred Stock, of which
3,562,238 are outstanding. The Caere board of directors has the authority to
issue the Caere preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any unissued
and undesignated shares of preferred stock and to fix the number of shares
constituting any series and the designations of such series, without any further
vote or action by the stockholders. Of the 2,000,000 authorized shares of Caere
preferred stock, 100,000
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shares have been designated Series A Junior Participating Preferred Stock in
connection with the Caere Rights Agreement, none of which are outstanding.
VOTING RIGHTS
The holders of shares of ScanSoft common stock are entitled to one vote per
share on all matters to be voted on by the stockholders of ScanSoft. The holders
of ScanSoft Series B Preferred Stock are entitled to vote with the holders of
Common Stock on an as-converted basis as a single class for or against any
proposal amending ScanSoft's certificate of incorporation to (1) increase or
decrease the aggregate number of authorized shares of the class or series, (2)
increase or decrease the par value of the class, or (3) or alter or change the
powers, preferences or special rights of the shares of the class or series so as
to affect it or them adversely. The holders of shares of Caere common stock are
entitled to one vote per share on all matters to be voted on by the stockholders
of Caere.
NUMBER OF DIRECTORS
The ScanSoft bylaws provide that the number of members of the ScanSoft
board of directors shall be determined by the stockholders at the annual meeting
of stockholders or by resolution of the ScanSoft board of directors. The number
of directors on the ScanSoft board of directors is currently five. The Caere
bylaws specify that the number of directors shall be determined from time to
time by resolution or bylaw adopted by the Caere board of directors. The number
of directors on the Caere board of directors is currently four.
ELECTION OF BOARD OF DIRECTORS
The ScanSoft board of directors is not divided into separate classes. The
Caere board of directors is divided into three classes. Each class of directors
serves for a term of three years. Each year, one class of directors is elected
to a new three-year term.
VOTE ON MERGER, CONSOLIDATION OR SALE OF SUBSTANTIALLY ALL ASSETS
ScanSoft's certificate of incorporation requires approval of stockholders
holding at least sixty-six and two-thirds percent of its outstanding shares of
common stock to sell, convey or encumber all or substantially all of its assets.
Caere's certificate of incorporation does not require a greater vote with
respect to business combinations unless the combination is made with an
"Interested Stockholder," which is defined as a person who or which beneficially
owns 10% or more of the voting power of the then outstanding voting stock, or an
Affiliate, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, of
such Interested Stockholder.
SPECIAL MEETINGS OF STOCKHOLDERS
Under the ScanSoft bylaws, special meetings of the stockholders may be
called by the President, the Secretary or President upon the written request of
the ScanSoft board of directors, or by stockholders holding not less than ten
percent of the entire capital stock of the corporation entitled to vote in such
a special meeting. Written notice of a special meeting shall state the date,
time, place and purpose(s) of the meeting. Caere's bylaws provide that special
meetings of the stockholders may be called, for any purpose, by the Chairman of
the Board, the Chief Executive Officer, or by the Caere board of directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors. Special meetings called by any person or persons other than the Caere
board of directors shall be in writing specifying the general nature of the
business proposed to be transacted.
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AMENDMENT OF CERTIFICATE OF INCORPORATION
ScanSoft's certificate of incorporation contains a provision requiring the
affirmative vote of at least sixty-six and two-thirds percent of the common
stock of ScanSoft to alter or change the rights, preferences or privileges of
the shares of Series B Preferred Stock so as to adversely affect these shares
and to increase or decrease, other than by conversion, the total number of
authorized shares of Series B Preferred Stock. Caere's certificate of
incorporation contains a provision requiring the affirmative vote of at least
sixty-six and two-thirds percent of the voting power of all of the then-
outstanding shares of the voting stock, voting together as a single class, to
alter, amend or repeal certain sections of Caere's certificate of incorporation.
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The DGCL provides that a corporation may limit or eliminate a director's
personal liability for monetary damages to the corporation or its stockholders
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to such corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for paying or
approving a stock repurchase in violation of Section 174 of the DGCL or (iv) for
any transaction from which the director derived an improper personal benefit.
Under the DGCL, directors and officers as well as other employees and
individuals may be indemnified against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation as a
derivative action) if they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and, with respect to any criminal action or proceeding, if they had no
reasonable cause to believe their conduct was unlawful.
ScanSoft's certificate of incorporation provides that its directors will be
indemnified to fullest extent permitted by law for monetary damages for breach
of fiduciary duty as a director. ScanSoft's certificate of incorporation further
provides that to the fullest extent permitted by law, ScanSoft may provide
indemnification of and advancement of expenses to its agents through bylaw
provisions, agreements with such agents, the vote of stockholders or
disinterested directors or otherwise in excess of the indemnification and
advancement of expenses otherwise permitted by the DGCL. ScanSoft's bylaws
provide that except in a suit or proceeding brought by the corporation and
approved by the majority of the board of directors of the corporation which
alleges (1) willful misappropriation of corporate assets, (2) disclosure of
confidential information in violation of such director's fiduciary and
contractual obligations to the corporation or (3) any other willful and
deliberate breach in bad faith of such director's duty to the corporation or its
stockholders, that expenses incurred by a director of ScanSoft in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation, or was serving at the corporation's request
as a director or officer of another corporation will be paid by the corporation
in advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such director to repay such amount
if it is ultimately be determined that he is not entitled to be indemnified by
the corporation. ScanSoft's bylaws further provide that the board of directors
may indemnify any party other than a director made a party to an action, suit or
proceeding by reason of the fact that he, his testator or intestate, is or was
an officer or employee of the corporation.
Caere's bylaws provide that Caere will indemnify its directors and
executive officers to the fullest extent permitted by law; provided, however,
that Caere may limit the extent of such indemnification by individual contracts
with its directors and executive officers; and, provided further, that Caere
will not be required to indemnify any director or executive officer in
connection with any proceeding (or
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part thereof) initiated by that person or any proceeding by that person against
Caere or its directors, officers, employees or other agents unless (1) such
indemnification is expressly required by law, (2) the proceeding was authorized
by the board of directors, (3) indemnification is provided by Caere, in its sole
discretion, pursuant to the powers vested in Caere under the DGCL, or (4) such
indemnification is otherwise required. Caere's bylaws further provide that Caere
will advance, prior to the final disposition of any proceeding, promptly
following request therefor, all expenses incurred by an director or executive
officer in connection with such proceeding upon receipt of an undertaking by or
on behalf of such person to repay said amounts if it should be determined
ultimately that that person is not entitled to be indemnified. Caere's bylaws
also give Caere the authority to indemnify its other officers, employees and
other agents as provided by the DGCL.
PAYMENT OF DIVIDENDS
ScanSoft's certificate of incorporation provides for the payment of
non-cumulative dividends of $0.065 per share of Series B Preferred Stock
outstanding per annum whenever funds are legally available for distribution,
payable when, as and if declared by the ScanSoft board of directors and provides
for a dividend on the Series A Participating Preferred Stock when a dividend
(other than a dividend payable in ScanSoft common stock) is declared on the
ScanSoft common stock. Caere's certificate of incorporation contains no
provision regarding the payment of dividends except upon distribution of its
Series A Junior Participating Preferred Stock upon an issuance thereof in
connection with the Caere Stockholder Rights Plan.
ANTI-TAKEOVER PROTECTION
On October 23, 1996, as amended December 2, 1998 and as further amended
January 27, 2000, ScanSoft adopted and approved a Preferred Shares Rights
Agreement and declared a dividend distribution of one right for each share of
ScanSoft common stock outstanding on the close of business on November 11, 1996,
and authorized the issuance of one right, subject to adjustment, for each share
of ScanSoft common stock issued between November 12, 1996 and the earlier of (i)
the date the rights are redeemed, (ii) the date the rights expire, and (iii) the
Distribution Date (as defined in the Preferred Share Rights Agreement). The
rights have certain anti-takeover effects and are intended to discourage
coercive and unfair takeover tactics and to encourage any potential acquirer to
negotiate a fair price to all ScanSoft stockholders. The rights may cause
substantial dilution to an acquiring party that attempts to acquire ScanSoft on
terms not approved by the ScanSoft board of directors, but they will not
interfere with any negotiated merger or other business combination. Each right
entitles the registered holder to purchase from ScanSoft one one-thousandth of a
share of Series A Participating Preferred Stock at a purchase price of $27.50
per one one-thousandth of a share, subject to adjustment in the event that a
triggering event occurs. All references in this prospectus/proxy statement to
ScanSoft common stock include the foregoing attached rights.
On April 17, 1991, as amended July 1, 1991, Caere adopted and approved the
Caere Rights Agreement and declared a dividend distribution of one right for
each share of Caere common stock outstanding at the close of business on May 3,
1991, and authorized the issuance of one right, subject to adjustment, for each
share of Caere common stock issued between May 4, 1991 and the earlier of (i)
the date the rights are redeemed, (ii) the date the rights expire, and (iii) the
Distribution Date as defined in the Caere Rights Agreement. The rights have
certain anti-takeover effects and are intended to discourage coercive or unfair
takeover tactics and to encourage any potential acquirer to negotiate a price
fair to all Caere stockholders. The rights may cause substantial dilution to an
acquiring party that attempts to acquire Caere on terms not approved by the
Caere board of directors, but they will not interfere with any negotiated merger
or other business combination. Each right entitles the registered holder to
purchase from Caere one one-hundredth of a share of Series A Junior
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<PAGE> 96
Participating Preferred Stock at a purchase price of $90.00, subject to
adjustment, in the event that a triggering event occurs.
On January 15, 2000, the Caere Rights Agreement was further amended to
ensure that the distribution of rights was not triggered as a result of the
execution of the merger agreement or the merger. Caere may not further amend the
Caere Rights Agreement prior to the termination of the merger agreement or the
closing of the merger except in certain limited circumstances.
88
<PAGE> 97
SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS, MANAGEMENT
AND DIRECTORS OF SCANSOFT
The following table sets forth certain information with respect to the
beneficial ownership of ScanSoft common stock as of February 7, 2000, as to (1)
each person (or group of affiliated persons) who is known by ScanSoft to own
beneficially more than 5% of ScanSoft common stock; (2) each ScanSoft director;
(3) each ScanSoft executive officer; and (4) all directors and executive offices
of ScanSoft as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(2)
------------------------------
NUMBER OF
BENEFICIAL OWNER(1) SHARES PERCENT OF TOTAL
------------------- ---------- ----------------
<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 *
Stanley E. Swiniarski(7)................................ 102,187 *
Mark B. Myers(8)........................................ 5,000 *
J. Larry Smart(9)....................................... 32,097 *
Katharine A. Martin(10)................................. 6,000 *
John J. Rogers, Jr. .................................... 0 *
All directors and executive officers as a group
(8 persons)(11)....................................... 626,678 2.35%
</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 26,695,511 shares of common
stock outstanding as of February 7, 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 February 7, 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
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. Also
excludes 3,562,000 shares of Series B Preferred Stock beneficially owned.
(4) Includes 171,423 shares subject to options exercisable within 60 days of
February 7, 2000.
(5) Excludes 11,853,602 shares of common stock held by Xerox Imaging Systems,
Inc., but includes 5,000 shares subject to options exercisable within 60
days of February 7, 2000.
(6) Includes 94,971 shares subject to options exercisable within 60 days of
February 7, 2000.
(7) Includes 102,187 shares subject to options exercisable within 60 days of
February 7, 2000.
(8) Includes 5,000 shares subject to options exercisable within 60 days of
February 7, 2000.
(9) Includes 30,000 shares subject to options exercisable within 60 days of
February 7, 2000.
(10) Includes 5,000 shares subject to options exercisable within 60 days of
February 7, 2000.
(11) Includes 413,581 shares subject to options exercisable within 60 days of
February 7, 2000.
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<PAGE> 98
SHARE OWNERSHIP BY PRINCIPAL
STOCKHOLDERS, MANAGEMENT AND DIRECTORS OF CAERE
The following table sets forth certain information regarding the ownership
of Caere's common stock as of February 7, 2000, by: (i) each director and
nominee for director, (ii) each of the executive officers of Caere; (iii) all
officers and directors of Caere as a group; and (iv) all those known by Caere to
be beneficial owners of more than five percent of its common stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
---------------------------------------
BENEFICIAL OWNER NUMBER OF SHARES(2) PERCENT OF TOTAL
---------------- ------------------- ----------------
<S> <C> <C>
State of Wisconsin Investment Board.......... 1,391,200 11.48%
P.O. Box 7842
Madison, WI 43707
Lord Abbett & Co............................. 1,762,545 14.54%
90 Hudson Street
Jersey City, NJ 07302
Kalmar Investments........................... 831,050 6.86%
3701 Kennet Pike
Greenville, DE 19807
Robert G. Teresi............................. 366,548 3.02%
James K. Dutton.............................. 114,444 *
Joseph J. Francesconi........................ 10,000 *
Robert J. Frankenberg........................ 30,000 *
Blanche M. Sutter............................ 140,890 1.16%
Wayne E. Rosing.............................. 178,250 1.47%
Duke Borozan................................. 31,250 *
Valorie Cook Carpenter....................... 0 *
Robert Cortale............................... 15,635 *
All executive officers and directors as a
group (9 persons).......................... 887,017 7.32%
</TABLE>
- -------------------------
* Less than 1%
(1) This table is based upon information supplied by executive officers,
directors, and principal stockholders and Schedules 13G filed with the SEC.
Subject to community property laws where applicable, each of the
stockholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned. Applicable
percentages are based on 12,122,504 shares outstanding on February 7, 2000,
adjusted as required by rules promulgated by the SEC.
(2) Includes shares which executive officers and directors of Caere have the
right to acquire within 60 days after the date of this table pursuant to
outstanding options as follows: Robert G. Teresi, 256,658 shares; James K.
Dutton, 84,444 shares; Joseph J. Francesconi, 10,000 shares, Robert J.
Frankenberg, 30,000 shares; Blanche M. Sutter, 116,014 shares; Wayne E.
Rosing, 103,750 shares; Duke Borozan, 21,250 shares; Robert Cortale, 12,000
shares; Valorie Cook Carpenter, 0 shares; and all executive officers and
directors as a group, 634,116 shares.
LEGAL OPINION
The validity of the shares of ScanSoft common stock offered by this
prospectus/proxy statement will be passed upon for ScanSoft by Wilson Sonsini
Goodrich & Rosati, Professional Corporation. As of the date of this
prospectus/proxy statement, Katharine A. Martin, a member of Wilson Sonsini
90
<PAGE> 99
Goodrich & Rosati, legal counsel to ScanSoft, and a member of the board of
directors of ScanSoft, beneficially owned an aggregate of 6,000 shares of
ScanSoft common stock.
EXPERTS
The financial statements of ScanSoft, Inc. incorporated in this
prospectus/proxy statement by reference to the Annual Report on Form 10-K for
the year ended January 3, 1999, have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements and schedule of Caere Corporation as of December
31, 1998 and 1997, and for each of the years in the three-year period ended
December 31, 1998, have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, ScanSoft stockholders may
present proper proposals for inclusion in ScanSoft's proxy statement and for
consideration at the next annual meeting of its stockholders by submitting such
proposals to ScanSoft in a timely manner. As noted in ScanSoft's proxy statement
relating to its 1999 annual meeting of stockholders, in order to be so included
in the proxy statement for the 2000 annual meeting, stockholder proposals must
have been received by ScanSoft no later than February 2, 2000 and must have
otherwise complied with the requirements of Rule 14a-8. The deadline for
submitting a stockholder proposal that is not to be included in the proxy
statement for the 2000 annual meeting is not later than June 9, 2000, nor
earlier than the close of business on May 1, 2000.
Pursuant to Rule 14a-8 under the Exchange Act, Caere stockholders may
present proper proposals for inclusion in Caere's proxy statement and for
consideration at the next annual meeting of its stockholders by submitting such
proposals to Caere in a timely manner. As noted in Caere's proxy statement
relating to its 1999 annual meeting of stockholders, in order to be so included
in the proxy statement for the 2000 annual meeting, stockholder proposals must
have been received by Caere no later than December 8, 1999 and must have
otherwise complied with the requirements of Rule 14a-8. The deadline for
submitting a stockholder proposal that is not to be included in the proxy
statement for the 2000 annual meeting was not later than the close of business
on February 5, 2000.
DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS/PROXY STATEMENT
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act, after the date hereof and before the date of the
Caere special meeting and the ScanSoft special meeting are incorporated by
reference into and to be a part of this prospectus/proxy statement from the date
of filing of those documents.
The following documents, which have been filed by ScanSoft with the
Securities and Exchange Commission, are incorporated by reference into this
prospectus/proxy statement:
- ScanSoft's Annual Report on Form 10-K for the fiscal year ended December
31, 1998, as amended;
91
<PAGE> 100
- ScanSoft's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1999, June 30, 1999 and September 30, 1999;
- ScanSoft's Current Reports on Form 8-K filed on July 14, 1999, April 9,
1999, March 2, 1999 and January 21, 1999; and
- ScanSoft's Registration Statement on Form 8-A (which describes ScanSoft's
Common Stock).
The following documents, which have been filed by Caere with the Securities
and Exchange SEC, are incorporated by reference into this prospectus/proxy
statement:
- Caere's Annual Report on Form 10-K for the fiscal year ended December 31,
1998;
- Caere's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999; and
- Caere's Current Report on Form 8-K filed on February 3, 2000
You should rely only on the information contained or incorporated by
reference in this prospectus/proxy statement to vote on the approval of the
proposal upon which you are entitled to vote. Neither Caere nor ScanSoft has
authorized anyone to provide you with information that is different from what is
contained in this prospectus/proxy statement. This prospectus/proxy statement is
dated February 9, 2000. You should not assume that the information contained in
the prospectus/ proxy statement is accurate as of any other date, and neither
the mailing of this prospectus/proxy statement to stockholders nor the issuance
of ScanSoft common stock in the merger should create any implication to the
contrary.
Pagis, TextBridge, PaperPort, PaperPort Deluxe, Scanner Suite,
PhotoFactory, Kai's SuperGood, Kai's PhotoSoap2 and Kai's PowerShow are
registered trademarks or trademarks of ScanSoft, Inc. Caere, OmniPage, OmniPage
Pro, OmniPage Limited Edition, Recognita, Recognita Plus, PageKeeper, OmniForm,
and WordScan are registered trademarks, and OmniPage Web, OmniPage Wizard,
PageKeeper Pro, OmniForm Internet Publisher, Developers Kit 2000, and M/Series
are trademarks of Caere Corporation. ImageAXS and ImageAXS Professional are
trademarks of Digital Arts and Sciences Corporation. Trademarks of other
corporations and organizations are also referenced in this prospectus/proxy
statement.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference will be deemed to be modified or superseded for
purposes of this prospectus/proxy statement to the extent that a statement
contained herein or any other subsequently filed document that is deemed to be
incorporated herein by reference modifies or supersedes the statement. Any
statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this prospectus/proxy statement.
WHERE YOU CAN FIND MORE INFORMATION
The documents incorporated by reference into this prospectus/proxy
statement are available from us upon request. We will provide a copy of any and
all of the information that is incorporated by reference in this
prospectus/proxy statement (not including exhibits to the information unless
those exhibits are specifically incorporated by reference into this
prospectus/proxy statement) to any person,
92
<PAGE> 101
without charge, upon written or oral request. ANY REQUEST FOR DOCUMENTS SHOULD
BE MADE BY MARCH 3, 2000 TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS.
<TABLE>
<S> <C>
Reports, proxy statements and other information regarding Caere and ScanSoft may
be inspected at:
The National Association of
Securities Dealers
1735 K Street, N.W.
Washington, D.C. 20006
Requests for documents relating to Requests for documents relating to
Caere ScanSoft should be directed to:
Should be directed to:
Caere Corporation ScanSoft, Inc.
100 Cooper Court 9 Centennial Drive
Los Gatos, California 95030 Peabody, Massachusetts 01960
(408) 395-7000 (978) 977-2000
</TABLE>
We file reports, proxy statements and other information with the Securities
and Exchange SEC. Copies of our reports, proxy statements and other information
may be inspected and copied at the public reference facilities maintained by the
SEC:
<TABLE>
<S> <C> <C>
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC
maintains a Website that contains reports, proxy statements and other
information regarding each of us. The address of the SEC Website is
http://www.sec.gov.
ScanSoft has filed a registration statement under the Securities Act with
the Securities and Exchange Commission with respect to ScanSoft's common stock
to be issued to Caere stockholders in the merger. This prospectus/proxy
statement constitutes the prospectus of ScanSoft filed as part of the
registration statement. This prospectus/proxy statement does not contain all of
the information set forth in the registration statement because certain parts of
the registration statement are omitted in accordance with the rules and
regulations of the SEC. The registration statement is available for inspection
and copying as set forth above.
If you have any questions about the merger, please call Caere Investor
Relations at (408) 395-7000. You may also call ScanSoft Investor Relations at
(978) 977-2477.
THIS PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS
PROSPECTUS/PROXY STATEMENT, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION
TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER,
SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS/PROXY STATEMENT NOR ANY DISTRIBUTION OF SECURITIES
PURSUANT TO THIS PROSPECTUS/PROXY STATEMENT SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH OR INCORPORATED HEREIN BY REFERENCE OR IN OUR AFFAIRS SINCE THE DATE OF
THIS PROSPECTUS/PROXY STATEMENT. THE INFORMATION CONTAINED HEREIN WITH RESPECT
TO CAERE AND ITS SUBSIDIARIES WAS PROVIDED BY CAERE AND THE INFORMATION
CONTAINED HEREIN WITH RESPECT TO SCANSOFT WAS PROVIDED BY SCANSOFT.
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<PAGE> 102
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This prospectus/proxy statement and the documents incorporated herein by
reference contain forward-looking statements within the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995 with respect to our
financial condition, results of operations and business, and on the expected
impact of the merger on ScanSoft's financial performance. Words such as
"anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates"
and similar expressions identify forward-looking statements. These
forward-looking statements are not guarantees of future performance and are
subject to certain risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking
statements. These risks and uncertainties include:
- the possibility that the merger will not be consummated;
- the possibility that the anticipated benefits from the merger cannot be
fully realized;
- the possibility that costs or difficulties related to the integration of
our businesses are greater than expected;
- our dependence on the timely development, introduction and customer
acceptance of new products;
- the impact of competition on revenues and margins;
- rapidly changing technology and shifting demand requirements;
- other risks and uncertainties, including the risks and uncertainties
involved in obtaining new customers, the impact of competitive services,
products and prices, the unsettled conditions in the high-technology
business and the ability to attract and retain key personnel; and
- other risk factors as may be detailed from time to time in Caere's and
ScanSoft's public announcements and filings with the Securities and
Exchange Commission.
In evaluating the merger, you should carefully consider the discussion of
these and other factors in the section entitled "Risk Factors" on page 13 of
this prospectus/proxy statement.
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<PAGE> 103
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
SCANSOFT, INC.
SCORPION ACQUISITIONS CORPORATION
AND
CAERE CORPORATION
DATED AS OF JANUARY 15, 2000
<PAGE> 104
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER............................................... A-1
The Merger.................................................. A-2
1.1
Effective Time; Closing..................................... A-2
1.2
Effect of the Merger........................................ A-2
1.3
Certificate of Incorporation; Bylaws........................ A-2
1.4
Directors and Officers...................................... A-2
1.5
Effect on Capital Stock..................................... A-2
1.6
Surrender of Certificates................................... A-4
1.7
No Further Ownership Rights in Company Common Stock......... A-5
1.8
Lost, Stolen or Destroyed Certificates...................... A-5
1.9
Dissenting Shares........................................... A-6
1.10
Tax and Accounting Consequences............................. A-6
1.11
Taking of Necessary Action; Further Action.................. A-6
1.12
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY............... A-7
Organization and Qualification; Subsidiaries................ A-7
2.1
Certificate of Incorporation and Bylaws..................... A-7
2.2
Capitalization.............................................. A-7
2.3
Authority Relative to this Agreement........................ A-9
2.4
No Conflict; Required Filings and Consents.................. A-9
2.5
Compliance; Permits......................................... A-10
2.6
SEC Filings; Financial Statements........................... A-10
2.7
No Undisclosed Liabilities.................................. A-11
2.8
Absence of Certain Changes or Events........................ A-11
2.9
Absence of Litigation....................................... A-12
2.10
Employee Benefit Plans...................................... A-12
2.11
Registration Statement; Proxy Statement..................... A-14
2.12
Restrictions on Business Activities......................... A-14
2.13
Title to Property........................................... A-14
2.14
Taxes....................................................... A-15
2.15
Environmental Matters....................................... A-16
2.16
Brokers' and Finders' Fees.................................. A-17
2.17
Intellectual Property....................................... A-17
2.18
Year 2000 Compliance........................................ A-19
2.19
Agreements, Contracts and Commitments....................... A-19
2.20
Company Rights Agreement.................................... A-21
2.21
Insurance................................................... A-21
2.22
Opinion of Financial Advisor................................ A-21
2.23
Board Approval.............................................. A-21
2.24
State Takeover Statutes..................................... A-21
2.25
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB............................................................... A-22
Organization and Qualification; Subsidiaries................ A-22
3.1
Certificate of Incorporation and Bylaws..................... A-22
3.2
Capitalization.............................................. A-22
3.3
Authority Relative to this Agreement........................ A-23
3.4
No Conflict; Required Filings and Consents.................. A-24
3.5
</TABLE>
i
<PAGE> 105
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Compliance; Permits......................................... A-24
3.6
SEC Filings................................................. A-25
3.7
No Undisclosed Liabilities.................................. A-25
3.8
Employee Benefit Plans...................................... A-25
3.9
Registration Statement; Proxy Statement..................... A-27
3.10
Absence of Certain Changes or Events........................ A-27
3.11
Restrictions on Business Activities......................... A-28
3.12
Taxes....................................................... A-28
3.13
Environmental Matters....................................... A-29
3.14
Title to Property........................................... A-30
3.15
Intellectual Property....................................... A-30
3.16
Litigation.................................................. A-31
3.17
Brokers' and Finders' Fees.................................. A-32
3.18
Year 2000 Compliance........................................ A-32
3.19
Agreements, Contracts and Commitments....................... A-32
3.20
Insurance................................................... A-33
3.21
Opinion of Financial Advisor................................ A-33
3.22
Board Approval.............................................. A-33
3.23
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME..................... A-33
Conduct of Business by Company.............................. A-33
4.1
Conduct of Business by Parent............................... A-36
4.2
ARTICLE V ADDITIONAL AGREEMENTS.................................... A-37
Proxy Statement/Prospectus; Registration Statement; Other
5.1 Filings; Board Recommendations.............................. A-37
Meeting of Company Stockholders............................. A-37
5.2
Meeting of Parent Stockholders.............................. A-39
5.3
Confidentiality; Access to Information...................... A-39
5.4
No Solicitation............................................. A-40
5.5
Public Disclosure........................................... A-41
5.6
Efforts; Notification....................................... A-41
5.7
Third Party Consents........................................ A-43
5.8
Stock Options and Employee Benefits......................... A-43
5.9
Form S-8.................................................... A-43
5.10
Indemnification............................................. A-44
5.11
Nasdaq Listing.............................................. A-44
5.12
Amendment of Parent's Certificate of Incorporation.......... A-44
5.13
Company Affiliate Agreement................................. A-44
5.14
Parent Board of Directors................................... A-44
5.15
No Rights Plan Amendment.................................... A-44
5.16
FIRPTA Compliance........................................... A-45
5.17
Standstill Agreement........................................ A-45
5.18
ARTICLE VI CONDITIONS TO THE MERGER.............................. A-45
Conditions to Obligations of Each Party to Effect the
6.1 Merger...................................................... A-45
Additional Conditions to Obligations of Company............. A-46
6.2
Additional Conditions to the Obligations of Parent and
6.3 Merger Sub.................................................. A-46
</TABLE>
ii
<PAGE> 106
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER...................... A-47
Termination................................................. A-47
7.1
Notice of Termination; Effect of Termination................ A-49
7.2
Fees and Expenses........................................... A-49
7.3
Amendment................................................... A-51
7.4
Extension; Waiver........................................... A-51
7.5
ARTICLE VIII GENERAL PROVISIONS.................................... A-51
Non-Survival of Representations and Warranties.............. A-51
8.1
Notices..................................................... A-51
8.2
Interpretation; Knowledge................................... A-52
8.3
Counterparts................................................ A-53
8.4
Entire Agreement; Third Party Beneficiaries................. A-53
8.5
Severability................................................ A-53
8.6
Other Remedies; Specific Performance........................ A-53
8.7
Governing Law............................................... A-54
8.8
Rules of Construction....................................... A-54
8.9
Assignment.................................................. A-54
8.10
Time Is of the Essence...................................... A-54
8.11
WAIVER OF JURY TRIAL........................................ A-54
8.12
</TABLE>
iii
<PAGE> 107
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of
January 15, 2000, by and among ScanSoft, Inc., a Delaware corporation
("Parent"), Scorpion Acquisitions Corporation, a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and Caere Corporation, a
Delaware corporation ("Company").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 below) and in accordance with the Delaware General
Corporation Law ("Delaware Law"), Parent and Company intend to enter into a
business combination transaction.
B. The Board of Directors of Company (i) has determined that the Merger (as
defined in Section 1.1) is consistent with and in furtherance of the long-term
business strategy of Company and fair to, and in the best interests of, Company
and its stockholders, (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) has determined to
recommend that the stockholders of Company adopt this Agreement.
C. The Board of Directors of Parent (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of Parent
and fair to, and in the best interests of, Parent and its stockholders, (ii) has
approved this Agreement, the Merger and the other transactions contemplated by
this Agreement and (iii) has determined to recommend that the stockholders of
Parent approve the issuance of Parent Common Stock in connection with the Merger
and approve the amendment to Parent's certificate of incorporation contemplated
by this Agreement.
D. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, certain
affiliates of Company are entering into Voting/Affiliate Agreements in
substantially the form attached hereto as Exhibit A (the "Company
Voting/Affiliate Agreements").
E. Concurrently with the execution of this Agreement, and as a condition
and inducement to Company's willingness to enter into this Agreement, the
largest stockholder of Parent is entering into a Voting Agreement in
substantially the form attached hereto as Exhibit B (the "Parent Voting
Agreement").
F. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, a
stockholder of Company is entering into a Non-Competition Agreement in
substantially the form attached hereto as Exhibit C (the "Non-Competition
Agreement").
G. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law, Company shall be merged with and into
Merger Sub (the "Merger"), the separate corporate existence of Company shall
cease and Merger Sub shall continue as the surviving corporation. Merger Sub as
the
A-1
<PAGE> 108
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."
1.2 Effective Time; Closing. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing a
certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of Delaware Law (the "certificate of
Merger") (the time of such filing (or such later time as may be agreed in
writing by Company and Parent and specified in the certificate of Merger) being
the "Effective Time") as soon as practicable on or after the Closing Date (as
herein defined). Unless the context otherwise requires, the term "Agreement" as
used herein refers collectively to this Agreement and Plan of Reorganization and
the certificate of Merger. The parties shall consummate and effect the Merger at
a closing (the "Closing") which shall take place at the offices of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, at a time and date to be
specified by the parties, which shall be no later than the second business day
after the satisfaction or waiver of the conditions set forth in Article VI, or
at such other time, date and location as the parties hereto agree in writing
(the "Closing Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of Merger Sub and Company shall vest in the Surviving Corporation, and all
debts, liabilities and duties of Merger Sub and Company shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 certificate of incorporation; Bylaws.
(a) At the Effective Time, the certificate of incorporation of Merger Sub,
as in effect immediately prior to the Effective Time, shall be the certificate
of incorporation of the Surviving Corporation until thereafter amended as
provided by law and such certificate of incorporation of the Surviving
Corporation.
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 Directors and Officers. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving Corporation shall be the
officers of Merger Sub immediately prior to the Effective Time, until their
respective successors are duly appointed.
1.6 Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Parent, Merger Sub, Company or the holders of any of the
following securities, the following shall occur:
(a) Conversion of Company Common Stock. Each share of Common Stock,
$.001 par value per share, of Company including, with respect to each such
share of Company Common Stock, the associated Rights (as defined in that
certain Rights Agreement (the "Company Rights Plan") dated as of April 17,
1991 between Company and BankBoston, N.A., f/k/a The First National Bank of
Boston as Rights Agent, as amended) (the "Company Common Stock") issued and
outstanding immediately prior to the Effective Time, other than any shares
of Company Common Stock to be canceled pursuant to Section 1.6(b) and other
than Dissenting Shares, as defined in Section 1.10, will be canceled and
extinguished and automatically converted (subject to Sections 1.6(e) and
(f)) into (x) that number of shares (rounded to five decimal points) of
Common Stock of Parent $.001 par value per share ("Parent Common Stock")
equal to $7.75 divided by the Average Trading Price (as defined below) (the
"Stock Portion Exchange
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Ratio"), and (y) $4.00 in cash (the aggregate of the per share stock and
cash consideration referred to in this sentence is referred to in this
Agreement as the "Per Share Merger Consideration"). "Average Trading Price"
shall mean the average closing sale price of one share of Parent Common
Stock as reported on the Nasdaq National Market System ("Nasdaq") for the
ten (10) consecutive trading days ending on the trading day immediately
preceding the Closing Date; provided, that if the Average Trading Price
would otherwise be greater than $8.50 pursuant to the foregoing, then the
Average Trading Price shall be $8.50; provided, further, that if the
Average Trading Price would otherwise be less than $4.50 pursuant to the
foregoing, then the Average Trading Price shall be $4.50. If any shares of
Company Common Stock outstanding immediately prior to the Effective Time
are unvested or are subject to a repurchase option, risk of forfeiture or
other condition under any applicable restricted stock purchase agreement or
other agreement with Company, then the shares of Parent Common Stock issued
in exchange for such shares of Company Common Stock will also be unvested
and subject to the same repurchase option, risk of forfeiture or other
condition, and the certificates representing such shares of Parent Common
Stock may accordingly be marked with appropriate legends. The Company shall
take all action that may be necessary to ensure that, from and after the
Effective Time, Parent is entitled to exercise any such repurchase option
or other right set forth in any such restricted stock purchase agreement or
other agreement.
(b) Cancellation of Parent-Owned Stock. Each share of Company Common
Stock held by Company, Merger Sub or Parent or any direct or indirect
wholly-owned subsidiary of Company or of Parent immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof.
(c) Stock Options; Employee Stock Purchase Plans. At the Effective
Time, all options to purchase Company Common Stock then outstanding under
Company's 1981 Incentive Stock Option Plan, as amended (the "1981 ISO
Plan"), 1981 Supplemental Stock Option Plan, as amended (the "1981
Supplemental Plan"), 1992 Non-Employee Directors' Stock Option Plan (the
"1992 Directors Plan"), 1997 Non-Officers Stock Option Plan (the
"Non-Officers Plan"), 2000 Stock Option Plan (the "2000 Stock Option Plan")
and Calera 1993 Stock Option Plan (the "Calera Plan," and together with the
1981 ISO Plan, 1981 Supplemental Plan, Non-Officers Plan, 1992 Directors
Plan, and 2000 Stock Option Plan, the "Company Option Plans") shall be
assumed by Parent in accordance with Section 5.9 hereof. Purchase rights
outstanding under Company's 1990 Employee Stock Purchase Plan and 2000
Employee Stock Purchase Plan (together, the "ESPP") shall be treated as set
forth in Section 5.9. For purposes of this Agreement, the "Option Exchange
Ratio" shall equal the quotient of (i) 4.00 plus the product of (x) the
Stock Portion Exchange Ratio times (y) the average closing sale price of
one share of Parent Common Stock as reported on Nasdaq for the ten (10)
consecutive trading days ending on the trading day immediately preceding
the Closing Date (the "10-Day Average Price"), divided by (ii) the 10-Day
Average Price.
(d) Capital Stock of Merger Sub. Each share of Common Stock, $0.001
par value per share, of Merger Sub (the "Merger Sub Common Stock") issued
and outstanding immediately prior to the Effective Time shall be converted
into one validly issued, fully paid and nonassessable share of Common
Stock, $0.001 par value per share, of the Surviving Corporation. Each
certificate evidencing ownership of shares of Merger Sub Common Stock shall
evidence ownership of such shares of capital stock of the Surviving
Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio, Per Share
Merger Consideration, Option Exchange Ratio and any other applicable
numbers or amounts shall be adjusted to reflect appropriately the effect of
any stock split, reverse stock split, stock dividend (including any
dividend or distribution of securities convertible into Parent Common Stock
or Company
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Common Stock), reorganization, recapitalization, reclassification or other
like change with respect to Parent Common Stock or Company Common Stock
occurring or having a record date on or after the date hereof and prior to
the Effective Time.
(f) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to a
fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock that otherwise would be received
by such holder) shall, upon surrender of such holder's certificates(s) (as
defined in Section 1.7(c)) receive from Parent an amount of cash (rounded
to the nearest whole cent), without interest, equal to the product of such
fraction, multiplied by the 10-Day Average Price.
1.7 Surrender of certificates.
(a) exchange agent. Prior to the Effective Time, Parent shall select a bank
or trust company reasonably acceptable to Company to act as the exchange agent
(the "exchange agent") in the Merger.
(b) Parent to Provide Common Stock. Promptly after the Effective Time,
Parent shall make available to the exchange agent for exchange in accordance
with this Article I, the shares of Parent Common Stock issuable and cash payable
pursuant to Section 1.6 in exchange for outstanding shares of Company Common
Stock, and cash in an amount sufficient for payment in lieu of fractional shares
pursuant to Section 1.6(f) and any dividends or distributions to which holders
of shares of Company Common Stock may be entitled pursuant to Section 1.7(d).
(c) Exchange Procedures. Promptly after the Effective Time, Parent shall
cause the Exchange Agent to mail to each holder of record (as of the Effective
Time) of a certificate or certificates (the "certificates"), which immediately
prior to the Effective Time represented outstanding shares of Company Common
Stock whose shares were converted into shares of Parent Common Stock and cash
pursuant to Section 1.6(a), cash in lieu of any fractional shares pursuant to
Section 1.6(f) and any dividends or other distributions pursuant to Section
1.7(d), (i) a letter of transmittal in customary form (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates shall
pass, only upon delivery of the certificates to the exchange agent and shall
contain such other provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the certificates in exchange
for certificates representing shares of Parent Common Stock and the cash payable
pursuant to Section 1.6(a), cash in lieu of any fractional shares pursuant to
Section 1.6(f) and any dividends or other distributions pursuant to Section
1.7(d). Upon surrender of certificates for cancellation to the exchange agent or
to such other agent or agents as may be appointed by Parent, together with such
letter of transmittal, duly completed and validly executed in accordance with
the instructions thereto, the holders of such certificates shall be entitled to
receive in exchange therefor certificates representing the number of whole
shares of Parent Common Stock into which their shares of Company Common Stock
were converted at the Effective Time, cash to which such holder is entitled
pursuant to Section 1.6(a), payment in lieu of fractional shares which such
holders have the right to receive pursuant to Section 1.6(f) and any dividends
or distributions payable pursuant to Section 1.7(d), and the certificates so
surrendered shall forthwith be canceled. Until so surrendered, outstanding
certificates will be deemed from and after the Effective Time, for all corporate
purposes, subject to Section 1.7(d) as to the payment of dividends, to evidence
only the ownership of the number of full shares of Parent Common Stock into
which such shares of Company Common Stock shall have been so converted, the
right to receive the amount of cash consideration to which the holder of such
certificate is entitled pursuant to Section 1.6(a) and an amount of cash in lieu
of the issuance of any fractional shares in accordance with Section 1.6(f). No
interest will be paid or will accrue on the cash consideration payable upon the
surrender of any certificate.
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(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the date of this Agreement with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holders of any unsurrendered certificates with respect to the shares of
Parent Common Stock represented thereby until the holders of record of such
certificates shall surrender such certificates. Subject to applicable law,
following surrender of any such certificates, the exchange agent shall deliver
to the record holders thereof, without interest, certificates representing whole
shares of Parent Common Stock issued in exchange therefor along with the cash
consideration to which such holder is entitled pursuant to Section 1.6(a),
payment in lieu of fractional shares pursuant to Section 1.6(f) hereof and the
amount of any such dividends or other distributions with a record date after the
Effective Time payable with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If certificates representing shares of Parent
Common Stock are to be issued in a name other than that in which, or payment of
the cash consideration is to be made to a person other than that in whose name,
the certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the persons
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of certificates
representing shares of Parent Common Stock in any name other than that of, or
payment of the cash consideration to a person other than, the registered holder
of the certificates surrendered, or established to the reasonable satisfaction
of Parent or any agent designated by it that such tax has been paid or is not
payable.
(f) Required Withholding. Each of the exchange agent, Parent and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Company Common Stock such amounts as may be required
to be deducted or withheld therefrom under the Code or under any provision of
state, local or foreign tax law or under any other applicable legal requirement.
To the extent such amounts are so deducted or withheld, such amounts shall be
treated for all purposes under this Agreement as having been paid to the person
to whom such amounts would otherwise have been paid.
(g) No Liability. Notwithstanding anything to the contrary in this Section
1.7, neither the exchange agent, Parent, the Surviving Corporation nor any party
hereto shall be liable to a holder of shares of Parent Common Stock or Company
Common Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued and cash paid in accordance with the terms hereof
(including any cash paid in respect thereof pursuant to Sections 1.6(f) and
1.7(d)) shall be deemed to have been issued and paid in full satisfaction of all
rights pertaining to such shares of Company Common Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event that any
certificates shall have been lost, stolen or destroyed, the exchange agent shall
issue in exchange for such lost, stolen or destroyed certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock represented by such certificates were converted pursuant to Section
1.6, the cash consideration to which such holder is entitled pursuant to Section
1.6(a), cash for fractional shares, if any, as may be required pursuant to
Section 1.6(f) and any dividends or distributions payable pursuant to Section
1.7(d);
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provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance of such certificates representing shares of Parent
Common Stock, cash and other distributions, require the owner of such lost,
stolen or destroyed certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the Surviving Corporation or the exchange agent with respect to the
certificates alleged to have been lost, stolen or destroyed.
1.10 Dissenting Shares.
(a) Notwithstanding any other provisions of this Agreement to the contrary,
any shares of Company Common Stock held by a holder who has exercised and
perfected appraisal rights for such shares in accordance with Delaware Law and
who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal rights ("Dissenting Shares"), shall not be converted into or represent
a right to receive the consideration for Company Common Stock set forth in
Section 1.6 hereof, but the holder thereof shall only be entitled to such rights
as are provided by Delaware Law.
(b) Notwithstanding the provisions of Section 1.10(a) hereof, if any holder
of Dissenting Shares shall effectively withdraw or lose (through failure to
perfect or otherwise) such holder's appraisal rights under Delaware Law, then,
as of the later of the Effective Time and the occurrence of such event, such
holder's shares shall automatically be converted into and represent only the
right to receive the consideration for Company Capital Stock set forth in
Section 1.6 hereof, without interest thereon, upon surrender of the certificate
representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written demand
for appraisal received by the Company pursuant to the applicable provisions of
Delaware Law, and (ii) the opportunity to participate in all negotiations and
proceedings with respect to such demands. The Company shall not, except with the
prior written consent of Parent, make any payment with respect to any such
demands or offer to settle or settle any such demands.
1.11 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall constitute a
reorganization within the meaning of Section 368 of the Code. The parties hereto
adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax Regulations.
(b) It is intended by the parties hereto that the Merger shall be treated
as a purchase for accounting purposes.
1.12 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Merger Sub and Company, the officers and directors of Merger
Sub and Company will take all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
As of the date hereof and as of the Closing Date, Company represents and
warrants to Parent and Merger Sub, subject to such exceptions as are
specifically disclosed in writing in the disclosure letter supplied by Company
to Parent dated as of the date hereof and certified on behalf of Company by a
duly authorized officer of Company which disclosure shall provide an exception
to or otherwise qualify the representations or warranties of the Company
specifically referenced in such disclosure
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and such other representations and warranties to the extent such disclosure
reasonably appears to be appropriate to such other representations and
warranties (the "Company Schedule"), as follows:
2.1 Organization and Qualification; Subsidiaries.
(a) Each of Company and its subsidiaries is a corporation duly organized,
validly existing and in good standing (with respect to jurisdictions that
recognize such concept) under the laws of the jurisdiction of its incorporation
and has the requisite corporate power and authority to own, lease and operate
its assets and properties and to carry on its business as it is now being
conducted. Each of Company and its subsidiaries is in possession of all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates, approvals and orders ("Approvals") necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being conducted, except where the failure to have such
Approvals would not, individually or in the aggregate, be material to Company.
Each of Company and its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing (with respect to
jurisdictions that recognize such concept), in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would
not, either individually or in the aggregate, be material to Company.
(b) Company has no subsidiaries except for the corporations identified in
Section 2.1(b) of the Company Schedule. Neither Company nor any of its
subsidiaries has agreed nor is obligated to make nor is bound by any written,
oral or other agreement, contract, subcontract, lease, binding understanding,
instrument, note, option, warranty, purchase order, license, sublicense,
insurance policy, benefit plan, commitment or undertaking of any nature, under
which it is or may become obligated to make any investment in or capital
contribution to any other entity. Company does not directly or indirectly own
any equity or similar interest in or any interest convertible, exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business, association or entity.
2.2 Certificate of Incorporation and Bylaws. Company has previously
furnished to Parent a complete and correct copy of its certificate of
incorporation and Bylaws as amended to date. Such Company charter documents
(together, the "Company Charter Documents") and equivalent organizational
documents of each of its subsidiaries are in full force and effect. Company is
not in violation of any of the provisions of the Company Charter Documents, and
no subsidiary of Company is in violation of its equivalent organizational
documents.
2.3 Capitalization.
(a) The authorized capital stock of Company consists of 30,000,000 shares
of Company Common Stock and 2,000,000 shares of Preferred Stock ("Company
Preferred Stock"), each having a par value of $0.001 per share. As of January
13, 2000, (i) 12,121,616 shares of Company Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable; (ii)
1,420,081 shares of Company Common Stock were held in treasury by Company or by
subsidiaries of Company; (iii) 475,044 shares of Company Common Stock were
available for future issuance pursuant to Company's ESPP; (iv) 1,140,711 shares
of Company Common Stock were subject to issuance pursuant to outstanding options
to purchase Company Common Stock under the 1981 ISO Plan; (v) 520,686 shares of
Company Common Stock were subject to issuance pursuant to outstanding options to
purchase Company Common Stock under the 1981 Supplemental Plan; (vi) 174,444
shares of Company Common Stock were subject to issuance pursuant to outstanding
options to purchase Company Common Stock under the 1992 Directors Plan; (vii)
190,600 shares of Company Common Stock were subject to issuance pursuant to
outstanding options to purchase Company Common Stock under the Non-Officers
Plan; (viii) no shares of Company Common Stock
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were subject to issuance pursuant to outstanding options to purchase Company
Common Stock under the 2000 Stock Option Plan; and (ix) 1,798 shares of Company
Common Stock were subject to issuance pursuant to outstanding options to
purchase Company Common Stock under the Calera Plan. As of the date hereof, no
shares of Company Preferred Stock were issued or outstanding and 100,000 shares
of Company Preferred Stock were reserved for issuance under the Company Rights
Plan. Section 2.3(a) of the Company Schedule sets forth the following
information with respect to each Company Stock Option (as defined in Section
5.9) outstanding as of the date of this Agreement: (i) the name and address of
the optionee; (ii) the particular plan pursuant to which such Company Stock
Option was granted; (iii) the number of shares of Company Common Stock subject
to such Company Stock Option; (iv) the exercise price of such Company Stock
Option; (v) the date on which such Company Stock Option was granted; (vi) the
applicable vesting schedule; (vii) the date on which such Company Stock Option
expires; and (viii) whether the exercisability of such option will be
accelerated in any way by the transactions contemplated by this Agreement, and
indicates the extent of acceleration. Company has made available to Parent
accurate and complete copies of all stock option plans pursuant to which Company
has granted such Company Stock Options that are currently outstanding and the
form of all stock option agreements evidencing such Company Stock Options. All
shares of Company Common Stock subject to issuance as aforesaid, upon issuance
on the terms and conditions specified in the instrument pursuant to which they
are issuable, would be duly authorized, validly issued, fully paid and
nonassessable. There are no commitments or agreements of any character to which
Company is bound obligating Company to accelerate the vesting of any Company
Stock Option as a result of the Merger. All outstanding shares of Company Common
Stock, all outstanding Company Stock Options, and all outstanding shares of
capital stock of each subsidiary of Company have been issued and granted in
compliance with (i) all applicable securities laws and other applicable Legal
Requirements (as defined below) and (ii) all requirements set forth in
applicable contracts. For the purposes of this Agreement, "Legal Requirements"
means any federal, state, local, municipal, foreign or other law, statute,
constitution, principle of common law, resolution, ordinance, code, edict,
decree, rule, regulation, ruling or requirement issues, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Entity (as defined below).
(b) Except for securities Company owns free and clear of all liens,
pledges, hypothecations, charges, mortgages, security interests, encumbrances,
claims, infringements, interferences, options, right of first refusals,
preemptive rights, community property interests or restriction of any nature
(including any restriction on the voting of any security, any restriction on the
transfer of any security or other asset, any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset) directly
or indirectly through one or more subsidiaries, and except for shares of capital
stock or other similar ownership interests of subsidiaries of Company that are
owned by certain nominee equity holders as required by the applicable law of the
jurisdiction of organization of such subsidiaries (which shares or other
interests do not materially affect Company's control of such subsidiaries), as
of the date of this Agreement, there are no equity securities, partnership
interests or similar ownership interests of any class of equity security of any
subsidiary of Company, or any security exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except as set
forth in Section 2.3(a) hereof, as of the date of this Agreement, there are no
subscriptions, options, warrants, equity securities, partnership interests or
similar ownership interests, calls, rights (including preemptive rights),
commitments or agreements of any character to which Company or any of its
subsidiaries is a party or by which it is bound obligating Company or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition of, any shares of capital stock, partnership interests
or similar ownership interests of Company or any of its subsidiaries or
obligating Company or any of its subsidiaries to grant, extend, accelerate the
vesting of or enter into any such subscription, option,
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warrant, equity security, call, right, commitment or agreement. As of the date
of this Agreement, except as contemplated by this Agreement and except for the
Company Rights Plan, there are no registration rights and there is, with the
additional exception of the Company Voting Agreements, no voting trust, proxy,
rights plan, antitakeover plan or other agreement or understanding to which
Company or any of its subsidiaries is a party or by which they are bound with
respect to any equity security of any class of Company or with respect to any
equity security, partnership interest or similar ownership interest of any class
of any of its subsidiaries.
(c) Notwithstanding Section 2 of the Nonsolicitation and Standstill
Agreement dated as of December 23, 1999 by and between Parent and Company (the
"Standstill Agreement"), the execution and delivery of this Agreement and the
performance and consummation of the transactions contemplated hereby do not
constitute a breach of such agreement.
2.4 Authority Relative to this Agreement. Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and, subject to obtaining the approval of the
stockholders of Company of the Merger, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Company and
the consummation by Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
Company and no other corporate proceedings on the part of Company are necessary
to authorize this Agreement or to consummate the transactions so contemplated
(other than, with respect to the Merger, the adoption of this Agreement by
holders of a majority of the outstanding shares of Company Common Stock in
accordance with Delaware Law and the Company Charter Documents). This Agreement
has been duly and validly executed and delivered by Company and, assuming the
due authorization, execution and delivery by Parent and Merger Sub, constitutes
the legal and binding obligation of Company, enforceable against Company in
accordance with its terms except as enforcement thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium and similar laws, both state
and federal, affecting the enforcement of creditors' rights or remedies in
general as from time to time in effect or (ii) the exercise by courts of equity
powers.
2.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Company does not, and
the performance of this Agreement by Company shall not, (i) conflict with or
violate the Company Charter Documents or equivalent organizational documents of
any of Company's subsidiaries, (ii) subject to obtaining the approval of
Company's stockholders of the adoption of this Agreement and compliance with the
requirements set forth in Section 2.5(c) below, conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to Company or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected, or (iii) result in any material breach of or constitute a material
default (or an event that with notice or lapse of time or both would become a
material default) under, or materially impair Company's or any of its
subsidiaries' rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a material lien or material
encumbrance on any of the properties or assets of Company or any of its
subsidiaries pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Company or any of its subsidiaries is a party or by which
Company or any of its subsidiaries or its or any of their respective properties
is bound or affected.
(b) Section 2.5(b) of the Company Schedule lists all consents, waivers and
approvals under any of Company's or any of its subsidiaries' agreements,
contracts, licenses or leases required to be obtained in connection with the
consummation of the transactions contemplated hereby, which, if individually or
in the aggregate not obtained, would result in a material loss of benefits to
Company, Parent or the Surviving Corporation as a result of the Merger.
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(c) The execution and delivery of this Agreement by Company does not, and
the performance of this Agreement by Company shall not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
court, administrative agency, commission, governmental or regulatory authority,
domestic or foreign (a "Governmental Entity"), except (A) for applicable
requirements, if any, of the Securities Act of 1933, as amended (the "Securities
Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
state securities laws ("Blue Sky Laws"), the pre-merger notification
requirements of foreign Governmental Entities, the rules and regulations of
Nasdaq, and the filing and recordation of the certificate of Merger as required
by Delaware Law and (B) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
be material to Company or Parent or have a material adverse effect on the
parties hereto, prevent consummation of the Merger or otherwise prevent the
parties hereto from performing their obligations under this Agreement.
2.6 Compliance; Permits.
(a) Neither Company nor any of its subsidiaries is in conflict with, or in
default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to Company or any of its subsidiaries or by which its or any
of their respective properties is bound or affected, or (ii) any material note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Company or any of its
subsidiaries is a party or by which Company or any of its subsidiaries or its or
any of their respective properties is bound or affected, except for any
conflicts, defaults or violations that (individually or in the aggregate) would
not cause Company to lose any material benefit or incur any material liability.
As of the date hereof and, except as a result of the transactions contemplated
by the Agreement, after the date hereof no investigation or review by any
governmental or regulatory body or authority is pending or, to the knowledge of
Company, threatened against Company or its subsidiaries, nor has any
governmental or regulatory body or authority indicated an intention to conduct
the same, other than, in each such case, those the outcome of which could not,
individually or in the aggregate, reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of Company or any of
its subsidiaries, any acquisition of material property by Company or any of its
subsidiaries or the conduct of business by Company.
(b) Company and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities which are
material to operation of the business of Company and its subsidiaries taken as a
whole (collectively, the "Company Permits"). Company and its subsidiaries are in
compliance in all material respects with the terms of the Company Permits.
2.7 SEC Filings; Financial Statements.
(a) Company has made available to Parent a correct and complete copy of
each report, schedule, registration statement and definitive proxy statement
filed by Company with the Securities and Exchange SEC ("SEC") since January 1,
1999 (the "Company SEC Reports"), which are all the forms, reports and documents
required to be filed by Company with the SEC since January 1, 1999. The Company
SEC Reports (A) were prepared in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and (B) did not at the
time they were filed (and if amended or superseded by a filing prior to the date
of this Agreement then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of Company's
subsidiaries is required to file any reports or other documents with the SEC.
(b) Each set of consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports was prepared in
accordance with generally accepted
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accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, do not contain certain footnotes as permitted by
Form 10-Q of the Exchange Act) and each fairly presents the consolidated
financial position of Company and its subsidiaries at the respective dates
thereof and the consolidated results of its operations and cash flows for the
periods indicated, except that the unaudited interim financial statements were
or are subject to normal adjustments which were not or are not expected to be
material in amount. The balance sheet of Company contained in the Company SEC
Report as of September 30, 1999 is hereinafter referred to as the "Company
Balance Sheet."
(c) Company has previously furnished to Parent a complete and correct copy
of any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Company with the SEC pursuant to
the Securities Act or the Exchange Act.
(d) As of the date hereof, the Company has cash and cash equivalents which
are readily marketable of at least $48 million.
2.8 No Undisclosed Liabilities. Neither Company nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise) of
a nature required to be disclosed on a balance sheet or in the related notes to
the consolidated financial statements prepared in accordance with GAAP which
are, individually or in the aggregate, material to the business, results of
operations or financial condition of Company and its subsidiaries taken as a
whole, except (i) liabilities provided for in the Company Balance Sheet or (ii)
liabilities incurred since September 30, 1999 in the ordinary course of
business, none of which is material to the business, results of operations or
financial condition of Company and its subsidiaries taken as a whole.
2.9 Absence of Certain Changes or Events. Between September 30, 1999 and
the date of this Agreement, there has not been: (i) any Material Adverse Effect
on Company, (ii) any declaration, setting aside or payment of any dividend on,
or other distribution (whether in cash, stock or property) in respect of, any of
Company's or any of its subsidiaries' capital stock, or any purchase, redemption
or other acquisition by Company of any of Company's capital stock or any other
securities of Company or its subsidiaries or any options, warrants, calls or
rights to acquire any such shares or other securities except for repurchases
from employees following their termination pursuant to the terms of their
pre-existing stock option or purchase agreements, (iii) any split, combination
or reclassification of any of Company's or any of its subsidiaries' capital
stock, (iv) any granting by Company or any of its subsidiaries of any increase
in compensation or fringe benefits, except for normal increases of cash
compensation in the ordinary course of business consistent with past practice,
or any payment by Company or any of its subsidiaries of any bonus, except for
bonuses made in the ordinary course of business consistent with past practice,
or any granting by Company or any of its subsidiaries of any increase in
severance or termination pay or any entry by Company or any of its subsidiaries
into any currently effective employment, severance, termination or
indemnification agreement or any agreement the benefits of which are contingent
or the terms of which are materially altered upon the occurrence of a
transaction involving Company of the nature contemplated hereby, (v) entry by
Company or any of its subsidiaries into any licensing or other agreement with
regard to the acquisition or disposition of any Intellectual Property (as
defined in Section 2.19) other than licenses in the ordinary course of business
consistent with past practice or any amendment or consent with respect to any
licensing agreement filed or required to be filed by Company with the SEC, (vi)
any material change by Company in its accounting methods, principles or
practices, except as required by changes in GAAP or the rules and regulations
promulgated by the SEC, or (vii) any revaluation by Company of any of its
assets, including, without limitation, writing down the value of capitalized
inventory or writing off notes or accounts receivable.
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2.10 Absence of Litigation. There are no claims, suits, actions or
proceedings pending or, to the knowledge of Company, threatened against, Company
or any of its subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that seeks
to restrain or enjoin the consummation of the transactions contemplated by this
Agreement or which could reasonably be expected, either singularly or in the
aggregate with all such claims, actions or proceedings, to be material to
Company. No Governmental Entity has at any time challenged or questioned in a
writing delivered to Company the legal right of Company to design, manufacture,
offer or sell any of its products or services in the present manner or style
thereof. As of the date hereof, to the knowledge of Company, no event has
occurred, and no claim, dispute or other condition or circumstance exists, that
will, or that would reasonably be expected to, cause or provide a bona fide
basis for a director or executive officer of Company to seek indemnification
from Company.
2.11 Employee Benefit Plans.
(a) All employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments or other arrangements (whether or not set forth
in a written document and including, without limitation, all "employee benefit
plans" within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) covering any active or former
employee, director or consultant of Company, any subsidiary of Company or any
trade or business (whether or not incorporated) which is a member of a
controlled group or which is under common control with Company within the
meaning of Section 414 of the Code (an "Affiliate"), or with respect to which
Company has or may in the future have liability, are listed in Section 2.11(a)
of the Company Schedule (the "Plans"). Company has provided to Parent: (i)
correct and complete copies of all documents embodying each Plan including
(without limitation) all amendments thereto, all related trust documents, and
all material written agreements and contracts relating to each such Plan; (ii)
the three (3) most recent annual reports (Form Series 5500 and all schedules and
financial statements attached thereto), if any, required under ERISA or the Code
in connection with each Plan; (iii) the most recent summary plan description
together with the summary(ies) of material modifications thereto, if any,
required under ERISA with respect to each Plan; (iv) all IRS determination,
opinion, notification and advisory letters with respect to each applicable plan;
(v) all material correspondence to or from any governmental agency between
January 1, 1998 and the date of this Agreement relating to any Plan; (vi) all
COBRA forms and related notices and (vii) all discrimination tests for each Plan
for the most recent three (3) plan years.
(b) Each Plan has been maintained and administered in all material respects
in compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations (foreign or domestic), including but not
limited to ERISA and the Code, which are applicable to such Plans. No suit,
action or other litigation (excluding claims for benefits incurred in the
ordinary course of Plan activities) has been brought, or to the knowledge of
Company is threatened, against or with respect to any such Plan. There are no
audits, inquiries or proceedings pending or, to the knowledge of Company,
threatened by the Internal Revenue Service (the "IRS") or Department of Labor
(the "DOL") with respect to any Plans. All contributions, reserves or premium
payments required to be made or accrued as of the date hereof to the Plans have
been timely made or accrued. Section 2.11(b) of the Company Schedule includes a
listing of the accrued vacation liability of Company as of December 31, 1999.
Any Plan intended to be qualified under Section 401(a) of the Code and each
trust intended to qualify under Section 501(a) of the Code (i) has either
obtained a favorable determination, notification, advisory and/or opinion
letter, as applicable, as to its qualified status from the IRS or still has a
remaining period of time under applicable Treasury Regulations or IRS
pronouncements in which to apply for such letter and to make any amendments
necessary to obtain a favorable determination, and (ii) incorporates or has been
amended to incorporate all provisions required to comply with the Tax Reform Act
of 1986 and subsequent legislation. Company
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does not have any plan or commitment to establish any new Plan, to modify any
Plan (except to the extent required by law or to conform any such Plan to the
requirements of any applicable law, in each case as previously disclosed to
Parent in writing, or as required by this Agreement), or to enter into any new
Plan. Each Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to Parent,
Company or any of its Affiliates (other than ordinary administration expenses
and expenses for benefits accrued but not yet paid).
(c) Neither Company, any of its subsidiaries, nor any of their Affiliates
has at any time ever maintained, established, sponsored, participated in, or
contributed to any plan subject to Title IV of ERISA or Section 412 of the Code
and at no time has Company contributed to or been requested to contribute to any
"multiemployer plan," as such term is defined in ERISA. Neither Company, any of
its subsidiaries, nor any officer or director of Company or any of its
subsidiaries is subject to any liability or penalty under Section 4975 through
4980B of the Code or Title I of ERISA. No "prohibited transaction," within the
meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not
otherwise exempt under Section 408 of ERISA, has occurred with respect to any
Plan.
(d) Neither Company, any of its subsidiaries, nor any of their Affiliates
has, prior to the Effective Time and in any material respect, violated any of
the health continuation requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, the requirements of the Family Medical
Leave Act of 1993, as amended, or any similar provisions of state law applicable
to Company employees. None of the Plans promises or provides retiree medical or
other retiree welfare benefits to any person except as required by applicable
law, and neither Company nor any of its subsidiaries has represented, promised
or contracted (whether in oral or written form) to provide such retiree benefits
to any employee, former employee, director, consultant or other person, except
to the extent required by statute.
(e) Neither Company nor any of its subsidiaries is bound by or subject to
(and none of its respective assets or properties is bound by or subject to) any
arrangement with any labor union. No employee of Company or any of its
subsidiaries is represented by any labor union or covered by any collective
bargaining agreement and, to the knowledge of Company, no campaign to establish
such representation is in progress. There is no pending or, to the knowledge of
Company, threatened labor dispute involving Company or any of its subsidiaries
and any group of its employees nor has Company or any of its subsidiaries
experienced any labor interruptions over the past three (3) years, and Company
and its subsidiaries consider their relationships with their employees to be
good. Company is in compliance in all material respects with all applicable
material foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours.
(f) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, bonus
or otherwise) becoming due to any stockholder, director or employee of Company
or any of its subsidiaries under any Plan or otherwise, (ii) materially increase
any benefits otherwise payable under any Plan, or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
(g) Each International Employee Plan (as defined below) has been
established, maintained and administered in compliance in all material respects
with its terms and conditions and with the requirements prescribed by any and
all statutory or regulatory laws that are applicable to such International
Employee Plan. Furthermore, no International Employee Plan has unfunded
liabilities that, as of the Effective Time, will not be offset by insurance or
fully accrued. Except as required by law, no condition exists that would prevent
Company or Parent from terminating or amending any
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International Employee Plan at any time for any reason. For purposes of this
Section "International Employee Plan" shall mean each Plan that has been adopted
or maintained by the Company or any of its subsidiaries, whether informally or
formally, for the benefit of current or former employees of the Company or any
of its subsidiaries outside the United States.
(h)(i) There are no controversies pending or, to the knowledge of Company,
threatened, between Company or any of its subsidiaries and any of their
respective employees; (ii) as of the date of this Agreement, neither Company nor
any of its subsidiaries has any knowledge of any strikes, slowdowns, work
stoppages or lockouts, or threats thereof, by or with respect to any employees
of Company or any of its subsidiaries.
2.12 Registration Statement; Proxy Statement. None of the information
supplied or to be supplied by Company for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with the SEC
by Parent in connection with the issuance of the Parent Common Stock in or as a
result of the Merger (the "S-4") will, at the time the S-4 becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading; and (ii) the proxy statement/prospectus to be
filed with the SEC by Company pursuant to Section 5.1(a) hereof (the "Proxy
Statement/ Prospectus") will, at the dates mailed to the stockholders of Company
and Parent, at the time of the Company Stockholders' Meeting (as defined below)
and at the time of the Parent Stockholders' Meeting (as defined below) in
connection with the transactions contemplated hereby, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations promulgated by the
SEC thereunder. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any written information supplied or
to be supplied by Parent or Merger Sub which with Parent's consent is or will be
contained in any of the foregoing documents.
2.13 Restrictions on Business Activities. There is no agreement,
commitment, judgment, injunction, order or decree binding upon Company or its
subsidiaries or to which Company or any of its subsidiaries is a party which has
or could reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of Company or any of its subsidiaries, any
acquisition of property by Company or any of its subsidiaries or the conduct of
business by Company or any of its subsidiaries as currently conducted.
2.14 Title to Property. Neither Company nor any of its subsidiaries owns
any material real property. Company and each of its subsidiaries has good and
valid title to all of their material properties and assets, free and clear of
all liens, charges and encumbrances except liens for taxes not yet due and
payable, liens reflected on the Company's Balance Sheet, and such liens or other
imperfections of title, if any, as do not materially detract from the value of
or materially interfere with the present use of the property affected thereby;
and all leases pursuant to which Company or any of its subsidiaries lease from
others material real or personal property are in good standing, valid and
effective in accordance with their respective terms, and there is not, under any
of such leases, any existing material default or event of default (or any event
which with notice or lapse of time, or both, would constitute a material default
and in respect of which Company or subsidiary has not taken adequate steps to
prevent such default from occurring). All the plants, structures and equipment
of Company and its subsidiaries, except such as may be under construction, are
in good operating condition and repair, in all material respects, normal wear
and tear excepted.
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2.15 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or
"Taxes" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits.
(i) Company and each of its subsidiaries have timely filed all
federal, state, local and foreign returns, estimates, information
statements and reports ("Returns") relating to Taxes required to be filed
by the Company and each of its subsidiaries with any Tax authority, except
such Returns which are not material to the Company. The Company and each of
its subsidiaries have timely paid all Taxes shown to be due on such
Returns. All such Returns were correct and complete in all material
respects and have been completed in accordance with applicable law.
(ii) Company and each of its subsidiaries as of the Effective Time
will have withheld with respect to its employees all federal and state
income taxes, Taxes pursuant to the Federal Insurance Contribution Act
("FICA"), Taxes pursuant to the Federal Unemployment Tax Act ("FUTA") and
other Taxes required to be withheld and have timely paid over to the proper
governmental authorities all amounts required to be withheld and paid over
under all applicable laws.
(iii) Neither Company nor any of its subsidiaries has been delinquent
in the payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against Company or any of its
subsidiaries, nor has Company or any of its subsidiaries executed any
unexpired waiver of any statute of limitations on or extending the period
for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of Company or any of
its subsidiaries by any Tax authority is presently in progress, nor has
Company or any of its subsidiaries been notified of any request for such an
audit or other examination.
(v) No adjustment relating to any Returns filed by Company or any of
its subsidiaries has been proposed in writing formally or informally by any
Tax authority to Company or any of its subsidiaries or any representative
thereof.
(vi) Neither Company nor any of its subsidiaries has any liability for
any unpaid Taxes which has not been accrued for or reserved on the Company
Balance Sheet in accordance with GAAP, whether asserted or unasserted,
contingent or otherwise, other than any liability for unpaid Taxes that may
have accrued since September 30, 1999 in connection with the operation of
the business of the Company and its subsidiaries in the ordinary course.
(vii) There is no contract, agreement, plan or arrangement to which
the Company or any of its subsidiaries is a party as of the date of this
Agreement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Company or any of its
subsidiaries that, individually or collectively, would reasonably be
expected to give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code. There is
no contract, agreement, plan or arrangement to which the Company is a party
or by which it is bound as of the date of this Agreement to compensate any
individual for excise taxes paid pursuant to Section 4999 of the Code.
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(viii) Neither the Company nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
asset (as defined in Section 341(f)(4) of the Code) owned by Company or any
of its subsidiaries.
(ix) There are no liens on the assets of Company relating to or
attributable to Taxes other than liens for Taxes not yet due and payable.
Company has no knowledge of any basis on which it is reasonable to
anticipate the assertion of any claim relating or attributable to Taxes
which, if adversely determined, would result in any material lien on the
assets of Company.
(x) Neither Company nor any of its subsidiaries is party to or has any
obligation under any tax-sharing, tax indemnity or tax allocation agreement
or arrangement. Company has (a) never been a member of an affiliated group
(within the meaning of Code sec. 1504(a)) filing a consolidated federal
income Tax Return (other than a group the common parent of which was
Company) and (b) no liability for the Taxes of any person (other than
Company or any of its Subsidiaries) under Treas. Reg. sec. 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or
successor, by contract, or otherwise.
(xi) None of Company's or its subsidiaries' assets are tax exempt use
property within the meaning of Section 168(h) of the Code.
(xii) Except as may be required as a result of the Merger, Company and
its subsidiaries have not been and will not be required to include any
adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or Section 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions,
events or accounting methods employed prior to the Closing.
(xiii) Part 2.14 of the Company Schedules lists (A) any foreign Tax
holidays, (B) any intercompany transfer pricing agreements, or other
arrangements that have been established by the Company or any of its
subsidiaries with any Tax authority and (C) any expatriate programs or
policies affecting the Company or any of its subsidiaries in each case
under clause '(A)," "(B)" or "(C)" in effect as of the date of this
Agreement.
(xiv) Company is not, and has not been at any time, a "United States
real property holding corporation" within the meaning of Section 897(c)(2)
of the Code.
2.16 Environmental Matters. Company and each of its subsidiaries (i) have
obtained all applicable permits, licenses and other authorizations that are
required to be obtained by Company and its subsidiaries under Environmental Laws
(as defined below); (ii) are in compliance in all material respects with all
terms and conditions of such required permits, licenses and authorizations, and
also is in compliance in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in such laws or contained in any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder; (iii) are not aware of and have not received
notice of any event, condition, circumstance, activity, practice, incident,
action or plan that is reasonably likely to materially interfere with or prevent
continued compliance or that would give rise to any material common law or
statutory liability, or otherwise form the basis of any Environmental Claim (as
defined below) with respect to Company or any of its subsidiaries or any person
or entity whose liability for any Environmental Claim Company has retained or
assumed either contractually or by operation of law; (iv) have not disposed of,
released, discharged or emitted any Hazardous Materials (as defined below) into
the soil or groundwater at any properties owned or leased at any time by Company
or any of its subsidiaries, or at any other property, or exposed any employee or
other individual to any Hazardous Materials or condition in such a manner as
would result in any material liability or result in any material corrective or
remedial action obligation; and (v) have taken all
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material actions necessary under Environmental Laws to register any products or
materials required to be registered by Company and its subsidiaries (or any of
their agents) thereunder. No Hazardous Materials are present in, on or under
(or, to the knowledge of Company, in the vicinity of) any properties owned,
leased or used at any time (including both land and improvements thereon) by
Company or any of its subsidiaries so as to give rise to any material liability
or material corrective or remedial obligation of Company under any Environmental
Laws. For the purposes of this Section 2.16, the terms below shall have the
following definitions:
"ENVIRONMENTAL CLAIM" means any notice, claim, act, cause of action or
investigation by any person alleging potential liability (including
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal
injuries or penalties) arising out of, based on or resulting from (i) the
presence, or release into the environment, of any Hazardous Materials or
(ii) any violation, or alleged violation, of any Environmental Laws.
"ENVIRONMENTAL LAWS" means all federal, state, local and foreign laws
and regulations relating to pollution or the environment (including ambient
air, surface water, ground water, land surface or subsurface strata) or the
protection of human health and worker safety, including, without
limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of Hazardous Materials, or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials.
"HAZARDOUS MATERIALS" means chemicals, pollutants, contaminants,
wastes, toxic substances, radioactive and biological materials,
asbestos-containing materials (ACM), hazardous substances, petroleum and
petroleum products or any fraction thereof, excluding, however, Hazardous
Materials contained in products typically used for office and janitorial
purposes properly and safely maintained in accordance with Environmental
Laws.
2.17 Brokers' and Finders' Fees. Except for fees payable to Bear, Stearns
& Co. Inc. pursuant to an engagement letter dated September 9, 1999, a copy of
which has been provided to Parent, Company has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
2.18 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or
not), invention disclosures, improvements, trade secrets, proprietary
information, know how, technology, technical data and customer lists, and
all documentation relating to any of the foregoing; (iii) all copyrights,
copyrights registrations and applications therefor, and all other rights
corresponding thereto throughout the world; (iv) all industrial designs and
any registrations and applications therefor throughout the world; (v) all
trade names, logos, common law trademarks and service marks, trademark and
service mark registrations and applications therefor throughout the world;
(vi) all databases and data collections and all rights therein throughout
the world; (vii) all moral and economic rights of authors and inventors,
however denominated, throughout the world, and (viii) any similar or
equivalent rights to any of the foregoing anywhere in the world.
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, Company.
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"REGISTERED INTELLECTUAL PROPERTY" means all United States,
international and foreign: (i) patents and patent applications (including
provisional applications); (ii) registered trademarks, applications to
register trademarks, intent-to-use applications, or other registrations or
applications related to trademarks; (iii) registered copyrights and
applications for copyright registration; and (iv) any other Intellectual
Property that is the subject of an application, certificate, filing,
registration or other document issued, filed with, or recorded by any
state, government or other public legal authority.
"COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by, or filed in the name of, the Company or any
of its subsidiaries.
(a) Section 2.18(a) of the Company Schedule is a complete and accurate
list of all Company Registered Intellectual Property in existence as of the
date of this Agreement and specifies, where applicable, the jurisdictions
in which each such item of Company Registered Intellectual Property has
been issued or registered.
(b) No material Company Intellectual Property or product or service of
Company or any of its subsidiaries is subject to any proceeding or
outstanding decree, order, judgment or stipulation restricting in any
manner the use, transfer, or licensing thereof by Company or any of its
subsidiaries, or which may reasonably be expected to affect the validity,
use or enforceability of such Company Intellectual Property.
(c) Each material item of Company Registered Intellectual Property is
valid and subsisting, all necessary registration, maintenance and renewal
fees currently due in connection with such Company Registered Intellectual
Property have been made and all necessary documents, recordations and
certificates in connection with such Company Registered Intellectual
Property have been filed with the relevant patent, copyright, trademark or
other authorities in the United States or foreign jurisdictions, as the
case may be, for the purposes of maintaining such Company Registered
Intellectual Property.
(d) Company owns and has good and exclusive title to, or has a license
(sufficient for the conduct of its business as currently conducted to, each
material item of Company Intellectual Property or other Intellectual
Property used by the Company free and clear of any lien or encumbrance
(excluding licenses and related restrictions); and Company is the exclusive
owner of all trademarks and trade names used in connection with the
operation or conduct of the business of Company and its subsidiaries,
including the sale of any products or the provision of any services by
Company and its subsidiaries.
(e) Company owns exclusively, and has good title to, all copyrighted
works that are Company products or which Company or any of its subsidiaries
otherwise expressly purports to own.
(f) To the extent that any material Intellectual Property has been
developed or created by a third party for Company or any of its
subsidiaries, Company has a written agreement with such third party with
respect thereto and Company either (i) has obtained ownership of, and is
the exclusive owner of, or (ii) has obtained a license (sufficient for the
conduct of its business as currently conducted) to all such third party's
Intellectual Property in such work, material or invention, to the fullest
extent it is legally possible to do so.
(g) Neither Company nor any of its subsidiaries has transferred
ownership of, or granted any exclusive license with respect to, any
Intellectual Property that is material to the business of Company as
currently conducted, to any third party.
(h) Section 2.18(h) of the Company Schedule lists all material
contracts, licenses and agreements to which Company or any of its
subsidiaries is a party as of the date of this
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Agreement (i) with respect to Company Intellectual Property licensed or
transferred to any third party (other than end-user licenses in the
ordinary course); or (ii) pursuant to which a third party has licensed or
transferred any material Intellectual Property to Company or any of its
subsidiaries.
(i) All contracts, licenses and agreements relating to Company
Intellectual Property are in full force and effect. The consummation of the
transactions contemplated by this Agreement will neither violate nor result
in the breach, modification, cancellation, termination or suspension of
such contracts, licenses and agreements. Each of Company and its
subsidiaries is in material compliance with, and is not in material breach
of any term of any such contracts, licenses and agreements and, to the
knowledge of Company, all other parties to such contracts, licenses and
agreements are in compliance with, and are not in material breach of any
term of, such contracts, licenses and agreements.
(j) To the knowledge of Company, the operation of the business of
Company and its subsidiaries as such business currently is conducted,
including Company's and its subsidiaries' design, development, manufacture,
marketing and sale of the products or services of Company and its
subsidiaries (including products currently under development) has not, does
not and will not infringe any patent issued as of the date of this
Agreement or infringe or misappropriate any other Intellectual Property of
any third party or constitute unfair competition or trade practices under
the laws of any jurisdiction.
(k) Neither Company nor any of its subsidiaries has received written
notice from any third party that the operation of the business of Company
or any of its subsidiaries or any act, product or service of Company or any
of its subsidiaries, infringes or misappropriates the Intellectual Property
of any third party or constitutes unfair competition or trade practices
under the laws of any jurisdiction.
(l) To the knowledge of Company, no person has or is infringing or
misappropriating any Company Intellectual Property.
(m) Company and each of its subsidiaries has taken reasonable steps to
protect Company's and its subsidiaries' rights in Company's confidential
information and trade secrets that it wishes to protect or any trade
secrets or confidential information of third parties provided to Company or
any of its subsidiaries, and, without limiting the foregoing, each of
Company and its subsidiaries has and enforces a policy requiring each
employee and contractor to execute a proprietary
information/confidentiality agreement substantially in the form provided to
Parent and all current and former employees and contractors of Company and
any of its subsidiaries have executed such an agreement, except where the
failure to do so is not reasonably expected to be material to Company.
2.19 Year 2000 Compliance. Company's products and internal systems have
been designed to ensure date and time entry recognition, calculations that
accommodate same century and multi-century formulas and date values, leap year
recognition and calculations, and date data interface values that reflect the
century. Company's products and internal systems manage and manipulate data
involving dates and times, including single century formulas and multi-century
formulas, and do not cause an abnormal ending scenario within the application or
generate incorrect values or invalid results involving such dates.
2.20 Agreements, Contracts and Commitments. As of the date of this
Agreement, neither Company nor any of its subsidiaries is a party to or is bound
by:
(a) any employment or consulting agreement, contract or commitment
with any officer or director or higher level employee or member of
Company's Board of Directors, other than those
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that are terminable by Company or any of its subsidiaries on no more than
thirty (30) days' notice without liability or financial obligation to
Company;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(c) any agreement of indemnification or any guaranty other than any
agreement of indemnification entered into in connection with the sale or
license of products in the ordinary course of business;
(d) any agreement, contract or commitment containing any covenant that
materially limits the right of Company or any of its subsidiaries to engage
in any line of business or to compete with any person or granting any
exclusive distribution rights;
(e) any agreement, contract or commitment currently in force relating
to the disposition or acquisition by Company or any of its subsidiaries
after the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Company has any material
ownership interest in any corporation, partnership, joint venture or other
business enterprise other than Company's subsidiaries;
(f) any dealer, distributor, joint marketing or development agreement
currently in force under which Company or any of its subsidiaries have
continuing material obligations to jointly market any product, technology
or service and which may not be canceled without penalty upon notice of
ninety (90) days or less, or any material agreement pursuant to which
Company or any of its subsidiaries have continuing material obligations to
jointly develop any intellectual property that will not be owned, in whole
or in part, by Company or any of its subsidiaries and which may not be
canceled without penalty upon notice of ninety (90) days or less;
(g) any agreement, contract or commitment currently in force to
provide source code to any third party for any product or technology that
is material to Company and its subsidiaries taken as a whole;
(h) any agreement, contract or commitment currently in force to
license any third party to manufacture or reproduce any Company product,
service or technology or any agreement, contract or commitment currently in
force to sell or distribute any Company products, service or technology
except agreements with distributors, resellers or sales representative in
the normal course of business cancelable without penalty upon notice of
ninety (90) days or less and substantially in the form previously provided
to Parent;
(i) any mortgages, indentures, guarantees, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money or extension of credit;
(j) any settlement agreement entered into within two (2) years prior
to the date of this Agreement; or
(k) any other agreement or commitment requiring an expenditure by
Company in excess of $250,000 or more individually or $1,500,000 in the
aggregate.
Neither Company nor any of its subsidiaries, nor to Company's knowledge any
other party to a Company Contract (as defined below), is in breach, violation or
default under, and neither Company nor any of its subsidiaries has received
written notice that it is in breach, violation or default or has breached,
violated or defaulted under, any of the material terms or conditions of any of
the agreements, contracts or commitments to which Company or any of its
subsidiaries is a party or by
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which it is bound that are required to be disclosed in the Company Schedule (any
such agreement, contract or commitment, a "Company Contract") in such a manner
as would permit any other party to cancel or terminate any such Company
Contract, or would permit any other party to seek material damages or other
remedies (for any or all of such breaches, violations or defaults, in the
aggregate).
2.21 Company Rights Agreement. The Company Rights Plan has been amended to
(i) render the Company Rights Plan inapplicable to the Merger and the other
transactions contemplated by this Agreement and the Company Voting/Affiliate
Agreements, (ii) ensure that (x) neither Parent nor Merger Sub nor any of their
affiliates shall be deemed to have become an Acquiring Person (as defined in the
Company Rights Plan) pursuant to the Company Rights Plan solely by virtue of the
execution of the Transaction Documents (as defined in Section 2.25) or the
consummation of the transactions contemplated hereby or thereby and (y) a
Distribution Date (as such term is defined in the Company Rights Plan) or
similar event does not occur by reason of the execution of the Transaction
Documents, the consummation of the Merger, or the consummation of the other
transactions, contemplated hereby and thereby, (iii) provide that the exercise
of rights under the Company Rights Plan shall expire immediately prior to the
Effective Time, and (iv) that such amendment may not be further amended by the
Company without the prior consent of Parent in its sole discretion.
2.22 Insurance. Company maintains insurance policies and fidelity bonds
covering the assets, business, equipment, properties, operations, employees,
officers and directors of Company and its subsidiaries (collectively, the
"Insurance Policies") which are of the type and in amounts customarily carried
by persons conducting businesses similar to those of Company and its
subsidiaries. There is no material claim by Company or any of its subsidiaries
pending under any of the material Insurance Policies as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds.
2.23 Opinion of Financial Advisor. Company has been advised in writing by
Bear, Stearns & Co. Inc., its financial advisor, that in its opinion, as of the
date of this Agreement, the consideration to be received for each share of
Company Common Stock pursuant to the Merger is fair to the stockholders of
Company from a financial point of view and has delivered to Parent a copy of
such opinion.
2.24 Board Approval. The Board of Directors of Company has, as of the date
of this Agreement unanimously (i) approved, subject to stockholder approval,
this Agreement and the transactions contemplated hereby, (ii) determined that
the Merger is in the best interests of the stockholders of Company and is on
terms that are fair to such stockholders and (iii) determined to recommend that
the stockholders of Company adopt this Agreement.
2.25 State Takeover Statutes. The Board of Directors of Company has
approved the Merger, this Agreement and the Company Voting/Affiliate Agreements
(this Agreement and the Company Voting/Affiliate Agreements hereinafter referred
to collectively as the "Transaction Documents"), and such approval is sufficient
to render inapplicable to the Merger, the Transaction Documents and the
transactions contemplated by the Transactions Documents, the provisions of
Section 203 of the Delaware Law to the extent, if any, such section is
applicable to the Merger, the Transaction Documents and the transactions
contemplated by the Transaction Documents. No other state takeover statute or
similar statute or regulation applies to or purports to apply to the Merger, the
Transaction Documents or the transactions contemplated by the Transaction
Documents.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
As of the date hereof and as of the Closing Date, Parent and Merger Sub
represent and warrant to Company, subject to such exceptions as are specifically
disclosed in writing in the disclosure letter supplied by Parent to Company
dated as of the date hereof and certified by a duly authorized officer of Parent
which disclosure shall provide an exception to or otherwise qualify the
representations or warranties of Parent specifically referenced in such
disclosure and such other representations and warranties to the extent such
disclosure reasonably appears to be appropriate to such other representations
and warranties (the "Parent Schedule"), as follows:
3.1 Organization and Qualification; Subsidiaries.
(a) Each of Parent and its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority to own, lease
and operate its assets and properties and to carry on its business as it is now
being conducted. Each of Parent and its subsidiaries is in possession of all
Approvals necessary to own, lease and operate the properties it purports to own,
operate or lease and to carry on its business as it is now being conducted,
except where the failure to have such Approvals would not, individually or in
the aggregate, be material to Parent. Each of Parent and its subsidiaries is
duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing that would not, either individually
or in the aggregate, be material to Parent.
(b) Parent has no subsidiaries except for the corporations identified in
Section 3.1(b) of the Parent Schedule. Neither Parent nor any of its
subsidiaries has agreed nor is obligated to make nor is bound by any written,
oral or other agreement, contract, subcontract, lease, binding understanding,
instrument, note, option, warranty, purchase order, license, sublicense,
insurance policy, benefit plan, commitment or undertaking of any nature, under
which it is or may become obligated to make any investment in or capital
contribution to any other entity. Parent does not directly or indirectly own any
equity or similar interest in or any interest convertible, exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business, association or entity.
3.2 Certificate of Incorporation and Bylaws. Parent has previously
furnished to Company a complete and correct copy of its certificate of
incorporation and Bylaws as amended to date. Such Parent charter documents
("Parent Charter Documents") and equivalent organizational documents of each of
its subsidiaries are in full force and effect. Parent is not in violation of any
of the provisions of the Parent Charter Documents, and no subsidiary of Parent
is in violation of any of its equivalent organizational documents.
3.3 Capitalization.
(a) The authorized capital stock of Parent consists of (i) 50,000,000
shares of Parent Common Stock, par value $.001 per share, and (ii) 20,000,000
shares of Preferred Stock, par value $.001 per share ("Parent Preferred Stock").
At the close of business on January 13, 1999, (i) 26,695,511 shares of Parent
Common Stock were issued and outstanding, (ii) no shares of Parent Common Stock
were held in treasury by Parent or by subsidiaries of Parent, (iii) 3,562,238
shares of Parent Preferred Stock were issued and outstanding, (iv) 541,645
shares of Parent Common Stock were reserved for future issuance pursuant to
Parent's employee stock purchase plan, and (v) 3,962,720 shares of Parent Common
Stock were subject to issuance upon the exercise of outstanding options
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("Parent Options") to purchase Parent Common Stock. All shares of Parent Common
Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall, and the shares of Parent Common Stock to be issued pursuant to the Merger
will be, duly authorized, validly issued, fully paid and nonassessable. All of
the outstanding shares of capital stock (other than directors' qualifying
shares) of each of Parent's subsidiaries is duly authorized, validly issued,
fully paid and nonassessable and all such shares (other than directors'
qualifying shares) are owned by Parent or another subsidiary free and clear of
all security interests, liens, claims, pledges, agreements, limitations in
Parent's voting rights, charges or other encumbrances of any nature whatsoever.
The authorized capital stock of Merger Sub consists of 1,000 shares of Common
Stock, par value $.001 per share, all of which are issued and outstanding as of
the date hereof. All outstanding shares of Parent Common Stock and Parent
Preferred Stock, all outstanding Parent Options, and all outstanding shares of
capital stock of each subsidiary of Parent have been issued and granted in
compliance with (i) all applicable securities laws and other applicable Legal
Requirements, and (ii) all requirements set forth in applicable contracts. There
are no commitments or agreements of any character to which Parent is bound
obligating Parent to accelerate the vesting of any Parent Option as a result of
the Merger.
(b) Except for securities Parent owns free and clear of all liens, pledges,
hypothecations, charges, mortgages, security interests, encumbrances, claims,
infringements, interferences, options, right of first refusals, preemptive
rights, community property interests or restriction of any nature (including any
restriction on the voting of any security, any restriction on the transfer of
any security or other asset, any restriction on the possession, exercise or
transfer of any other attribute of ownership of any asset) directly or
indirectly through one or more subsidiaries, and except for shares of capital
stock or other similar ownership interests of subsidiaries of Parent that are
owned by certain nominee equity holders as required by the applicable law of the
jurisdiction of organization of such subsidiaries (which shares or other
interests do not materially affect Parent's control of such subsidiaries), as of
the date of this Agreement, there are no equity securities, partnership
interests or similar ownership interests of any class of equity security of any
subsidiary of Parent, or any security exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except as set
forth in Section 3.3(a) hereof, as of the date of this Agreement, there are no
subscriptions, options, warrants, equity securities, partnership interests or
similar ownership interests, calls, rights (including preemptive rights),
commitments or agreements of any character to which Parent or any of its
subsidiaries is a party or by which it is bound obligating Parent or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition of, any shares of capital stock, partnership interests
or similar ownership interests of Parent or any of its subsidiaries or
obligating Parent or any of its subsidiaries to grant, extend, accelerate the
vesting of or enter into any such subscription, option, warrant, equity
security, call, right, commitment or agreement. As of the date of this
Agreement, except as contemplated by this Agreement, there are no registration
rights and there is, except for the Parent Voting Agreements, no voting trust,
proxy, rights plan, antitakeover plan or other agreement or understanding to
which Parent or any of its subsidiaries is a party or by which they are bound
with respect to any equity security of any class of Parent or with respect to
any equity security, partnership interest or similar ownership interest of any
class of any of its subsidiaries.
3.4 Authority Relative to this Agreement. Parent has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and, subject to obtaining the approval of the
stockholders of Parent, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by Parent and the consummation by
Parent of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of Parent and Merger
Sub and no other corporate proceedings on the part of
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Parent or Merger Sub are necessary to authorize this Agreement or to consummate
the transactions so contemplated (other than the approval by the stockholders of
Parent of the issuance of shares of Parent Common Stock pursuant to the Merger).
This Agreement has been duly and validly executed and delivered by Parent and
Merger Sub and, assuming the due authorization, execution and delivery by
Company, constitutes the legal and binding obligation of Parent and Merger Sub,
enforceable against them in accordance with its terms except as enforcement
thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium
and similar laws, both state and federal, affecting the enforcement of
creditors' rights or remedies in general as from time to time in effect or (ii)
the exercise by courts of equity powers.
3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Parent and Merger Sub
does not, and the performance of this Agreement by Parent and Merger Sub shall
not, (i) conflict with or violate the certificate of incorporation, Bylaws or
equivalent organizational documents of Parent, Merger Sub or any of their
subsidiaries, (ii) subject to obtaining the approval of Parent's stockholders
and compliance with the requirements set forth in Section 3.5(b) below, conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to Parent or any of its subsidiaries or by which it or their respective
properties are bound or affected, or (iii) result in any material breach of or
constitute a material default (or an event that with notice or lapse of time or
both would become a material default) under, or materially impair Parent's or
any such subsidiary's rights or alter the rights or obligations of any third
party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a material lien or
material encumbrance on any of the properties or assets of Parent or any of its
subsidiaries pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or any of its subsidiaries is a party or by which
Parent or any of its subsidiaries or its or any of their respective properties
are bound or affected, except to the extent such conflict, violation, breach,
default, impairment or other effect could not in the case of clauses (ii) or
(iii) individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Parent.
(b) The execution and delivery of this Agreement by Parent does not, and
the performance of this Agreement by Parent shall not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except (A) for applicable requirements, if any, of the
Securities Act, the Exchange Act, Blue Sky Laws, the pre-merger notification
requirements of foreign Governmental Entities, the rules and regulations of
Nasdaq, and the filing and recordation of the certificate of Merger as required
by Delaware Law and (B) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
be material to the Company or Parent or have a material adverse effect on the
parties hereto, prevent consummation of the Merger or otherwise prevent the
parties hereto from performing their obligations under this Agreement.
3.6 Compliance; Permits.
(a) Neither Parent nor any of its subsidiaries is in conflict with, or in
default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to Parent or any of its subsidiaries or by which its or any of
their respective properties is bound or affected, or (ii) any material note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which Parent or any of its subsidiaries or its or
any of their respective properties is bound or affected, except for any
conflicts, defaults or violations that (individually or in the aggregate) would
not cause Parent to lose any material benefit or incur any material liability.
No investigation or review by any governmental or regulatory body or authority
is pending or, to the knowledge of Parent, threatened against Parent or
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its subsidiaries, nor has any governmental or regulatory body or authority
indicated an intention to conduct the same, other than, in each such case, those
the outcome of which could not, individually or in the aggregate, reasonably be
expected to have the effect of prohibiting or materially impairing any business
practice of Parent or any of its subsidiaries, any acquisition of material
property by Parent or any of its subsidiaries or the conduct of business by
Parent.
(b) Parent and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities which are
material to operation of the business of Parent and its subsidiaries taken as a
whole (collectively, the "Parent Permits"). Parent and its subsidiaries are in
compliance in all material respects with the terms of the Parent Permits.
3.7 SEC Filings.
(a) Parent has made available to Company a correct and complete copy of
each report, schedule, registration statement and definitive proxy statement
filed by Parent with the SEC on or after January 1, 1999 and prior to the date
of this Agreement (the "Parent SEC Reports"), which are all the forms, reports
and documents required to be filed by Parent with the SEC since January 1, 1999.
The Parent SEC Reports (A) were prepared in accordance with the requirements of
the Securities Act or the Exchange Act, as the case may be, and (B) did not at
the time they were filed (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of Parent's
subsidiaries is required to file any reports or other documents with the SEC.
(b) Each set of consolidated financial statements (including, in each case,
any related notes thereto) contained in Parent SEC Reports was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on Form
10-Q under the Exchange Act) and each fairly presented the consolidated
financial position of Parent and its subsidiaries at the respective dates
thereof and the consolidated results of its operations and cash flows for the
periods indicated, except that the unaudited interim financial statements may
not contain certain footnotes and were or are subject to normal adjustments
which were not or are not expected to be material in amount. The balance sheet
of the Parent contained in the Parent SEC Report as of September 30, 1999 is
hereinafter referred to as the "Parent Balance Sheet."
(c) Parent has heretofore furnished to the Company a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Parent with the SEC pursuant to
the Securities Act or the Exchange Act.
3.8 No Undisclosed Liabilities. Neither Parent nor any of its subsidiaries
has any liabilities (absolute, accrued, contingent or otherwise) of a nature
require to be disclosed on a balance sheet or in the related notes to the
consolidated financial statements prepared in accordance with GAAP which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Parent and its subsidiaries taken as a
whole, except (i) liabilities provided for in Parent's balance sheet as of
September 30, 1999 or (ii) liabilities incurred since September 30, 1999 in the
ordinary course of business, none of which is material to the business, results
of operations or financial condition of Parent and its subsidiaries, taken as a
whole.
3.9 Employee Benefit Plans.
(a) Each employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments or other arrangements (whether or not set forth
in a written document and including,
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without limitation, all "employee benefit plans" within the meaning of Section
3(3) of ERISA and covering any active or former employee, director or consultant
of Company, any subsidiary of Company or any trade or business (whether or not
incorporated) which is an "Affiliate" of Parent, or with respect to which
Company has or may in the future have liability. Each "Parent Plan" has been
maintained and administered in all material respects in compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations (foreign or domestic), including but not limited to ERISA
and the Code, which are applicable to such Parent Plans. No suit, action or
other litigation (excluding claims for benefits incurred in the ordinary course
of Parent Plan activities) has been brought, or to the knowledge of Parent is
threatened, against or with respect to any such Parent Plan. There are no
audits, inquiries or proceedings pending or, to the knowledge of Parent,
threatened by IRS or DOL with respect to any Parent Plans. All contributions,
reserves or premium payments required to be made or accrued as of the date
hereof to the Parent Plans have been timely made or accrued. Any Parent Plan
intended to be qualified under Section 401(a) of the Code and each trust
intended to qualify under Section 501(a) of the Code (i) has either obtained a
favorable determination, notification, advisory and/or opinion letter, as
applicable, as to its qualified status from the IRS or still has a remaining
period of time under applicable Treasury Regulations or IRS pronouncements in
which to apply for such letter and to make any amendments necessary to obtain a
favorable determination, and (ii) incorporates or has been amended to
incorporate all provisions required to comply with the Tax Reform Act of 1986
and subsequent legislation. Parent does not have any plan or commitment to
establish any new Parent Plan, to modify any Parent Plan (except to the extent
required by law or to conform any such Plan to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing, or as
required by this Agreement), or to enter into any new Parent Plan.
(b) Neither Parent, any of its subsidiaries, nor any of their Affiliates
has at any time ever maintained, established, sponsored, participated in, or
contributed to any plan subject to Title IV of ERISA or Section 412 of the Code
and at no time has Parent contributed to or been requested to contribute to any
"multiemployer plan," as such term is defined in ERISA. Neither Parent, any of
its subsidiaries, nor any officer or director of Parent or any of its
subsidiaries is subject to any liability or penalty under Section 4975 through
4980B of the Code or Title I of ERISA. No "prohibited transaction," within the
meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not
otherwise exempt under Section 408 of ERISA, has occurred with respect to any
Parent Plan.
(c) Neither Parent, any of its subsidiaries, nor any of their Affiliates
has, prior to the Effective Time and in any material respect, violated any of
the health continuation requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, the requirements of the Family Medical
Leave Act of 1993, as amended, or any similar provisions of state law applicable
to Parent employees. None of the Parent Plans promises or provides retiree
medical or other retiree welfare benefits to any person except as required by
applicable law, and neither Parent nor any of its subsidiaries has represented,
promised or contracted (whether in oral or written form) to provide such retiree
benefits to any employee, former employee, director, consultant or other person,
except to the extent required by statute.
(d) Neither Parent nor any of its subsidiaries is bound by or subject to
(and none of its respective assets or properties is bound by or subject to) any
arrangement with any labor union. No employee of Parent or any of its
subsidiaries is represented by any labor union or covered by any collective
bargaining agreement and, to the knowledge of Parent, no campaign to establish
such representation is in progress. There is no pending or, to the knowledge of
Parent, threatened labor dispute involving Parent or any of its subsidiaries and
any group of its employees nor has Parent or any of its subsidiaries experienced
any labor interruptions over the past three (3) years, and Parent and its
subsidiaries consider their relationships with their employees to be good.
Parent is in compliance in all material respects with all applicable material
foreign, federal, state and local laws,
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rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours.
(e) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, bonus
or otherwise) becoming due to any stockholder, director or employee of Parent or
any of its subsidiaries under any Parent Plan or otherwise, (ii) materially
increase any benefits otherwise payable under any Parent Plan, or (iii) result
in the acceleration of the time of payment or vesting of any such benefits.
(f) Each Parent International Employee Plan (as defined below) has been
established, maintained and administered in compliance in all material respects
with its terms and conditions and with the requirements prescribed by any and
all statutory or regulatory laws that are applicable to such Parent
International Employee Plan. Furthermore, no Parent International Employee Plan
has unfunded liabilities that, as of the Effective Time, will not be offset by
insurance or fully accrued. Except as required by law, no condition exists that
would prevent Parent or Parent from terminating or amending any International
Employee Plan at any time for any reason. For purposes of this Section "Parent
International Employee Plan" shall mean each Parent Plan that has been adopted
or maintained by Parent or any of its subsidiaries, whether informally or
formally, for the benefit of current or former employees of Parent or any of its
subsidiaries outside the United States.
(g)(i) There are no controversies pending or, to the knowledge of Parent,
threatened, between Parent or any of its subsidiaries and any of their
respective employees; (ii) as of the date of this Agreement, neither Parent nor
any of its subsidiaries has any knowledge of any strikes, slowdowns, work
stoppages or lockouts, or threats thereof, by or with respect to any employees
of Parent or any of its subsidiaries.
3.10 Registration Statement; Proxy Statement. None of the information
supplied or to be supplied by Parent for inclusion or incorporation by reference
in (i) the S-4 will, at the time the S-4 becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading; and (ii) the Proxy Statement/Prospectus will, at the dates mailed to
the stockholders of Company and Parent, at the time of the Company Stockholders'
Meeting and at the time of the Parent Stockholders' Meeting in connection with
the transactions contemplated hereby and as of the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations promulgated by the
SEC thereunder. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by Parent or
Merger Sub which is contained in any of the foregoing documents.
3.11 Absence of Certain Changes or Events. Since September 30, 1999, there
has not been: (i) any Material Adverse Effect on Parent, (ii) any declaration,
setting aside or payment of any dividend on, or other distribution (whether in
cash, stock or property) in respect of, any of Parent's or any of its
subsidiaries' capital stock, or any purchase, redemption or other acquisition by
Parent of any of Parent's capital stock or any other securities of Parent or its
subsidiaries or any options, warrants, calls or rights to acquire any such
shares or other securities except for repurchases from employees following their
termination pursuant to the terms of their pre-existing stock option or purchase
agreements, (iii) any split, combination or reclassification of any of Parent's
or any of its subsidiaries' capital stock, (iv) any material change by Parent in
its accounting methods, principles or practices, except as required by
concurrent changes in GAAP, or (v) any revaluation by Parent of
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any of its assets, including, without limitation, writing down the value of
capitalized inventory or writing off notes or accounts receivable other than in
the ordinary course of business.
3.12 Restrictions on Business Activities. There is no agreement,
commitment, judgment, injunction, order or decree binding upon Parent or its
subsidiaries or to which Parent or any of its subsidiaries is a party which has
or could reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of Parent or any of its subsidiaries, any
acquisition of property by Parent or any of its subsidiaries or the conduct of
business by Parent or any of its subsidiaries as currently conducted.
3.13 Taxes.
(a) Tax Returns and Audits.
(i) Parent and each of its subsidiaries have timely filed "Returns"
relating to Taxes required to be filed by the Parent and each of its
subsidiaries with any Tax authority, except such Returns which are not
material to Parent. Parent and each of its subsidiaries have timely paid
all Taxes shown to be due on such Returns. All such Returns were correct
and complete in all material respects and have been completed in accordance
with applicable law.
(ii) Parent and each of its subsidiaries as of the Effective Time will
have withheld with respect to its employees all federal and state income
taxes, Taxes pursuant to FICA, Taxes pursuant to the FUTA and other Taxes
required to be withheld and have timely paid over to the proper
governmental authorities all amounts required to be withheld and paid over
under all applicable laws.
(iii) Neither Parent nor any of its subsidiaries has been delinquent
in the payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against Parent or any of its
subsidiaries, nor has Parent or any of its subsidiaries executed any
unexpired waiver of any statute of limitations on or extending the period
for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of Parent or any of
its subsidiaries by any Tax authority is presently in progress, nor has
Parent or any of its subsidiaries been notified of any request for such an
audit or other examination.
(v) No adjustment relating to any Returns filed by Parent or any of
its subsidiaries has been proposed in writing formally or informally by any
Tax authority to Parent or any of its subsidiaries or any representative
thereof.
(vi) Neither Parent nor any of its subsidiaries has any liability for
any unpaid Taxes which has not been accrued for or reserved on the Parent
Balance Sheet in accordance with GAAP, whether asserted or unasserted,
contingent or otherwise, other than any liability for unpaid Taxes that may
have accrued since September 30, 1999 in connection with the operation of
the business of the Parent and its subsidiaries in the ordinary course.
(vii) There is no contract, agreement, plan or arrangement to which
the Parent or any of its subsidiaries is a party as of the date of this
Agreement, including but not limited to the provisions of this Agreement,
covering any employee or former employee of the Parent or any of its
subsidiaries that, individually or collectively, would reasonably be
expected to give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code. There is
no contract, agreement, plan or arrangement to which the Parent is a party
or by which it is bound as of the date of this Agreement to compensate any
individual for excise taxes paid pursuant to Section 4999 of the Code.
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(viii) Neither the Parent nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
asset (as defined in Section 341(f)(4) of the Code) owned by Parent or any
of its subsidiaries.
(ix) There are no liens on the assets of Parent relating to or
attributable to Taxes other than liens for Taxes not yet due and payable.
Parent has no knowledge of any basis on which it is reasonable to
anticipate the assertion of any claim relating or attributable to Taxes
which, if adversely determined, would result in any material lien on the
assets of Parent.
(x) Neither Parent nor any of its subsidiaries is party to or has any
obligation under any tax-sharing, tax indemnity or tax allocation agreement
or arrangement. Parent has (a) never been a member of an affiliated group
(within the meaning of Code sec.1504(a)) filing a consolidated federal
income Tax Return (other than a group the common parent of which was
Parent) and (b) no liability for the Taxes of any person (other than Parent
or any of its Subsidiaries) under Treas. Reg. sec.1.1502-6 (or any similar
provision of state, local or foreign law), as a transferee or successor, by
contract, or otherwise.
(xi) None of Parent's or its subsidiaries' assets are tax exempt use
property within the meaning of Section 168(h) of the Code.
(xii) Except as may be required as a result of the Merger, Parent and
its subsidiaries have not been and will not be required to include any
adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or Section 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions,
events or accounting methods employed prior to the Closing.
(xiii) Parent is not, and has not been at any time, a "United States
real property holding corporation" within the meaning of Section 897(c)(2)
of the Code.
3.14 Environmental Matters. Parent and each of its subsidiaries (i) have
obtained all applicable permits, licenses and other authorizations that are
required to be obtained by Parent and its subsidiaries under Environmental Laws;
(ii) are in compliance in all material respects with all terms and conditions of
such required permits, licenses and authorizations, and also is in compliance in
all material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in such laws or contained in any regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder; (iii) are not aware of and have not received notice of any
event, condition, circumstance, activity, practice, incident, action or plan
that is reasonably likely to materially interfere with or prevent continued
compliance or that would give rise to any material common law or statutory
liability, or otherwise form the basis of any Environmental Claim with respect
to Parent or any of its subsidiaries or any person or entity whose liability for
any Environmental Claim Parent has retained or assumed either contractually or
by operation of law; (iv) have not disposed of, released, discharged or emitted
any Hazardous Materials into the soil or groundwater at any properties owned or
leased at any time by Parent or any of its subsidiaries, or at any other
property, or exposed any employee or other individual to any Hazardous Materials
or condition in such a manner as would result in any material liability or
result in any material corrective or remedial action obligation; and (v) have
taken all material actions necessary under Environmental Laws to register any
products or materials required to be registered by Parent and its subsidiaries
(or any of their agents) thereunder. No Hazardous Materials are present in, on
or under (or, to the knowledge of Parent, in the vicinity of) any properties
owned, leased or used at any time (including both land and improvements thereon)
by Parent or any of its subsidiaries so as to give rise to any material
liability or material corrective or remedial obligation of Parent under any
Environmental Laws.
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3.15 Title to Property. Neither Parent nor any of its subsidiaries owns
any material real property. Parent and each of its subsidiaries have good and
valid title to all of their material properties and assets, free and clear of
all liens, charges and encumbrances except liens for taxes not yet due and
payable, liens reflected on Parent's balance sheet contained in the Parent SEC
Reports filed with respect to the period ending September 30, 1999, and such
liens or other imperfections of title, if any, as do not materially detract from
the value of or materially interfere with the present use of the property
affected thereby; and all leases pursuant to which Parent or any of its
subsidiaries lease from others material real or personal property are in good
standing, valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing material default or event
of default (or any event which with notice or lapse of time, or both, would
constitute a material default and in respect of which Parent or subsidiary has
not taken adequate steps to prevent such default from occurring). All the
plants, structures and equipment of Parent and its subsidiaries, except such as
may be under construction, are in good operating condition and repair, in all
material respects.
3.16 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"PARENT INTELLECTUAL PROPERTY" means any Intellectual Property that is
owned by, or exclusively licensed to, Parent.
"PARENT REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by, or filed in the name of, Parent or any of
its subsidiaries.
(a) Section 3.16(a) of the Parent Schedule is a complete and accurate
list of all Parent Registered Intellectual Property in existence as of the
date of this Agreement and specifies, where applicable, the jurisdictions
in which each such item of Parent Registered Intellectual Property has been
issued or registered.
(b) No material Parent Intellectual Property or product or service of
Parent or any of its subsidiaries is subject to any proceeding or
outstanding decree, order, judgment, agreement, or stipulation restricting
in any manner the use, transfer, or licensing thereof by Parent, or which
may affect the validity, use or enforceability of such Parent Intellectual
Property.
(c) Each material item of Parent Registered Intellectual Property is
valid and subsisting, all necessary registration, maintenance and renewal
fees currently due in connection with such Registered Intellectual Property
have been made and all necessary documents, recordations and certificates
in connection with such Registered Intellectual Property have been filed
with the relevant patent, copyright, trademark or other authorities in the
United States or foreign jurisdictions, as the case may be, for the
purposes of maintaining such Registered Intellectual Property.
(d) Parent owns exclusively, and has good title to, all copyrighted
works that are Parent products or which Parent or any of its subsidiaries
otherwise expressly purports to own.
(e) Parent owns and has good and exclusive title to, or has license
(sufficient for the conduct of its business as currently conducted and as
proposed to be conducted) to, each material item of Parent Intellectual
Property or Intellectual Property used by Parent free and clear of any Lien
or Encumbrance (excluding licenses and related restrictions); and Parent is
the exclusive owner of all trademarks and trade names used in connection
with the operation or conduct of the business of Parent and its
subsidiaries, including the sale of any products or the provision of any
services by Parent and its subsidiaries.
(f) To the extent that any material Intellectual Property has been
developed or created by a third party for Parent or any of its
subsidiaries, Parent has a written agreement with such third
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party with respect thereto and Parent thereby either (i) has obtained
ownership of, and is the exclusive owner of, or (ii) has obtained a license
(sufficient for the conduct of its business as currently conducted and as
proposed to be conducted) to all such third party's Intellectual Property
in such work, material or invention by operation of law or by valid
assignment, to the fullest extent it is legally possible to do so.
(g) Neither Parent nor any of its subsidiaries has transferred
ownership of, or granted any exclusive license with respect to, any
Intellectual Property that is material to the business of Parent as
currently conducted, to any third party.
(h) Section 3.16(h) of the Parent Schedule lists all material
contracts, licenses and agreements to which Parent or any of its
subsidiaries is a party as of the date of this Agreement (i) with respect
to Parent Intellectual Property licensed or transferred to any third party
(other than end-user licenses in the ordinary course); or (ii) pursuant to
which a third party has licensed or transferred any material Intellectual
Property to Parent or any of its subsidiaries.
(i) All contracts, licenses and agreements relating to Parent
Intellectual Property are in full force and effect. The consummation of the
transactions contemplated by this Agreement will neither violate nor result
in the breach, modification, cancellation, termination or suspension of
such contracts, licenses and agreements. Each of Parent and its
subsidiaries is in material compliance with, and is not in material breach
of any term of any such contracts, licenses and agreements and, to the
knowledge of Parent, all other parties to such contracts, licenses and
agreements are in compliance with, and are not in material breach of any
term of, such contracts, licenses and agreements.
(j) To the knowledge of Parent, the operation of the business of
Parent as such business currently is conducted, including Parent's design,
development, manufacture, marketing and sale of the products or services of
Parent (including products currently under development) has not, does not
and will not infringe or misappropriate the Intellectual Property of any
third party or constitute unfair competition or trade practices under the
laws of any jurisdiction.
(k) Neither Parent nor any of its subsidiaries has received written
notice from any third party that the operation of the business of Parent or
any act, product or service of Parent, infringes or misappropriates the
Intellectual Property of any third party or constitutes unfair competition
or trade practices under the laws of any jurisdiction.
(l) To the knowledge of Parent, no person has infringed or
misappropriated or is infringing or misappropriating any Parent
Intellectual Property.
(m) Parent has taken reasonable steps to protect Parent's rights in
Parent's confidential information and trade secrets that it wishes to
protect or any trade secrets or confidential information of third parties
provided to Parent, and, without limiting the foregoing, Parent has and
enforces a policy requiring each employee and contractor to execute a
proprietary information/confidentiality agreement substantially in the form
provided to the Company and all current and former employees and
contractors of Parent have executed such an agreement, except where the
failure to do so is not reasonably expected to be material to Parent.
3.17 Litigation. There are no claims, suits, actions or proceedings
pending or, to the knowledge of Parent, threatened against, relating to or
affecting Parent or any of its subsidiaries, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected, either
singularly or in the aggregate with all such claims, actions or proceedings, to
be material to Parent. No Governmental Entity has at any time challenged or
questioned in a writing delivered to Parent the legal right of Parent to design,
manufacture, offer or
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sell any of its products or services in the present manner or style thereof. As
of the date hereof, to the knowledge of Parent, no event has occurred, and no
claim, dispute or other condition or circumstance exists, that will, or that
would reasonably be expected to, cause or provide a bona fide basis for a
director or executive officer of Parent to seek indemnification from Parent.
3.18 Brokers' and Finders' Fees. Except for fees payable to Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") pursuant to an engagement
letter dated December 13, 1999, a copy of which has been provided to Company,
Parent has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
3.19 Year 2000 Compliance. Parent's products and internal systems have
been designed to ensure date and time entry recognition, calculations that
accommodate same century and multi-century formulas and date values, leap year
recognition and calculations, and date data interface values that reflect the
century. Parent's products and internal systems manage and manipulate data
involving dates and times, including single century formulas and multi-century
formulas, and do not cause an abnormal ending scenario within the application or
generate incorrect values or invalid results involving such dates.
3.20 Agreements, Contracts and Commitments. As of the date of this
Agreement, neither Parent nor any of its subsidiaries is a party to or is bound
by:
(a) any agreement, contract or commitment containing any covenant that
materially limits the right of Parent or any of its subsidiaries to engage
in any line of business or to compete with any person or granting any
exclusive distribution rights;
(b) any agreement, contract or commitment currently in force relating
to the disposition or acquisition by Parent or any of its subsidiaries
after the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which Parent has any material
ownership interest in any corporation, partnership, joint venture or other
business enterprise other than Parent's subsidiaries;
(c) any dealer, distributor, joint marketing or development agreement
currently in force under which Parent or any of its subsidiaries have
continuing material obligations to jointly market any product, technology
or service and which may not be canceled without penalty upon notice of
ninety (90) days or less, or any material agreement pursuant to which
Parent or any of its subsidiaries have continuing material obligations to
jointly develop any intellectual property that will not be owned, in whole
or in part, by Parent or any of its subsidiaries and which may not be
canceled without penalty upon notice of ninety (90) days or less;
(d) any agreement, contract or commitment currently in force to
license any third party to manufacture or reproduce any Parent product,
service or technology or any agreement, contract or commitment currently in
force to sell or distribute any Parent products, service or technology
except agreements with distributors, resellers or sales representative in
the normal course of business cancelable without penalty upon notice of
ninety (90) days or less and substantially in the form previously provided
to Company;
(e) any agreement, contract or commitment currently in force to
provide source code to any third party for any product or technology that
is material to Parent and its subsidiaries taken as a whole;
(f) any agreement, contract or commitment currently in force to
license any third party to manufacture or reproduce any Parent product,
service or technology or any agreement, contract or commitment currently in
force to sell or distribute any Parent products, service or technology
except agreements with distributors, resellers or sales representative in
the normal course of
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business cancelable without penalty upon notice of ninety (90) days or less
and substantially in the form previously provided to Company;
(g) any settlement agreement entered into within two (2) years prior
to the date of this Agreement; or
(h) any other agreement or commitment requiring an expenditure by
Parent in excess of $250,000 or more individually or $1,500,000 in the
aggregate.
Neither Parent nor any of its subsidiaries, nor to Parent's knowledge any
other party to a material agreement, contract or commitment of Parent, is in
material breach, violation or default under, and neither Parent nor any of its
subsidiaries has received written notice that it is in breach, violation or
default under, any of the material terms or conditions of any material
agreement, contract or commitment of Parent in such a manner as would permit any
other party to cancel or terminate any such material agreement, contract or
commitment of Parent, or would permit any other party to seek material damages
(for any or all of such breaches, violations or defaults, in the aggregate).
3.21 Insurance. Parent maintains Insurance Policies which are of the type
and in amounts customarily carried by persons conducting businesses similar to
those of Parent and its subsidiaries. There is no material claim by Parent or
any of its subsidiaries pending under any of the material Insurance Policies as
to which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds.
3.22 Opinion of Financial Advisor. Parent has been advised in writing by
Merrill Lynch, its financial advisor, that in its opinion, as of the date of
this Agreement, the consideration to be paid by Parent pursuant to the Merger is
fair to Parent from a financial point of view and has delivered to Parent a copy
of such opinion.
3.23 Board Approval. The Board of Directors of Parent has, as of the date
of this Agreement, subject to stockholder approval, unanimously (i) approved,
the issuance of shares of Parent Common Stock in connection with the Merger, and
(ii) approved an amendment to Parent's certificate of incorporation to increase
the authorized number of shares of Parent Common Stock.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Company and each of its
subsidiaries shall, except as contemplated by this Agreement, except in
connection with the discontinuation and/or sale of Company's hardware division
and, except to the extent that Parent shall otherwise consent in writing (which
consent shall not be unreasonably withheld or delayed), carry on its business,
in the usual, regular and ordinary course, in substantially the same manner as
heretofore conducted and in compliance with all applicable laws and regulations,
pay its debts and taxes when due subject to good faith disputes over such debts
or taxes, pay or perform other material obligations when due, subject to good
faith disputes over such obligations, and use its commercially reasonable
efforts consistent with past practices and policies to (i) preserve intact its
present business organization, (ii) keep available the services of its present
officers and employees and (iii) preserve its relationships with customers,
suppliers, distributors, licensors, licensees, and others with which it has
business dealings.
In addition, except as contemplated or permitted by the terms of this
Agreement, except in connection with the discontinuation and/or sale of
Company's hardware division and except as provided in Section 4.1 of the Company
Schedule, without the prior written consent of Parent, (which consent shall not
be unreasonably withheld or delayed) during the period from the date of
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this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Company shall not do any
of the following and shall not permit its subsidiaries to do any of the
following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of
such plans;
(b) Grant any severance or termination pay to any officer or employee
except pursuant to written agreements outstanding, or policies existing, on
the date hereof and as previously disclosed in writing or made available to
Parent, or adopt any new severance plan;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Company Intellectual Property other than
in the ordinary course of business consistent with past practice, or enter
into grants to transfer or license to any person future patent rights other
than in the ordinary course of business consistent with past practices,
provided that in no event shall Company license on an exclusive basis or
sell any material Company Intellectual Property;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock (other than distributions from a subsidiary of
Company to Company) or split, combine or reclassify any capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for any capital stock;
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Company or its subsidiaries, except repurchases
of unvested shares at cost in connection with the termination of the
employment relationship with any employee pursuant to stock option or
purchase agreements in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber or
propose any of the foregoing with respect to, any shares of capital stock
or any securities convertible into shares of capital stock, or
subscriptions, rights, warrants or options to acquire any shares of capital
stock or any securities convertible into shares of capital stock, or enter
into other agreements or commitments of any character obligating it to
issue any such shares or convertible securities, other than (x) the
issuance delivery and/or sale of (i) shares of Company Common Stock
pursuant to the exercise of stock options outstanding as of the date of
this Agreement, (ii) shares of Company Common Stock issuable to
participants in the ESPP consistent with the terms thereof, (y) the
granting of stock options (and the issuance of Common Stock upon exercise
thereof), in the ordinary course of business and consistent with past
practices, in an amount not to exceed options to purchase (and the issuance
of Common Stock upon exercise thereof) 125,000 shares in any three-month
period, and (z) rights pursuant to the Company Rights Plan.
(g) Cause, permit or propose any amendments to the Company Charter
Documents (or similar governing instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any equity interest in or a portion of the assets of, or by
any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or enter into any joint
ventures, strategic partnerships or alliances, except that Company and its
subsidiaries may enter into OEM and joint marketing agreements in the
ordinary course of business consistent with past practices;
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(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets except in the ordinary course of business consistent
with past practice and, except for the sale, lease or disposition of
property or assets which are not material, individually or in the
aggregate, to the business of Company and its subsidiaries;
(j) Incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Company, enter into any "keep well" or other agreement to maintain any
financial statement condition or enter into any arrangement having the
economic effect of any of the foregoing;
(k) Adopt or amend any employee benefit plan or employee stock
purchase or employee stock option plan, or enter into any employment
contract or collective bargaining agreement (other than offer letters and
letter agreements entered into in the ordinary course of business
consistent with past practice with employees who are terminable "at will"),
or pay any special bonus or special remuneration to any director or
employee, increase the salaries or wage rates or fringe benefits (including
rights to severance or indemnification) of its directors, officers,
employees or consultants, except with respect to employees that are not
officers of Company, and consistent with past practices;
(l) Modify or agree to modify the terms of vesting of any outstanding
Company Options or restricted Company Capital Stock;
(m) Make any individual or series of related payments outside of the
ordinary course of business in excess of $100,000;
(n) Except in the ordinary course of business consistent with past
practice, modify, amend or terminate any material contract or material
agreement to which Company or any subsidiary thereof is a party or waive,
delay the exercise of, release or assign any material rights or claims
thereunder;
(o) Except in the ordinary course of business consistent with past
practices, enter into or materially modify any contracts, agreements, or
obligations relating to the distribution, sale, license or marketing by
third parties of Company's products or products licensed by Company;
(p) Except as required by GAAP, revalue any of its assets or, except
as required by GAAP, make any material change in accounting methods,
principles or practices;
(q) Incur or enter into any agreement or commitment requiring
expenditures by Company in excess of $250,000 individually or $1,500,000 in
the aggregate;
(r) Make any tax election that, individually or in the aggregate, is
reasonably likely to adversely affect in any material respect the tax
liability or tax attributes of Company or any of its subsidiaries, or
settle or compromise any material income tax liability;
(s) Engage in any action that could reasonably be expected to cause
the Merger to fail to qualify as a "reorganization" under Section 368(a) of
the Code, whether or not otherwise permitted by the provisions of this
Article IV;
(t) Hire any employee with an annual compensation level in excess of
$150,000 during the period between the date of this Agreement and the
three-month anniversary of such date, or $250,000 after such period;
(u) Engage in any action or enter into any transaction or permit any
action to be taken or transaction to be entered into that could reasonably
be expected to (i) subject to Section 5.5 of this Agreement, delay the
consummation of any of the transactions contemplated by this Agreement or
(ii) increase the possibility that a Governmental Entity will seek to
object to or
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challenge or take any action to interfere in any respect with or delay the
consummation of any of the transactions contemplated by this Agreement; or
(v) Agree in writing or otherwise to take any of the actions described
in Section 4.1 (a) through (u) above.
4.2 Conduct of Business by Parent. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Parent and each of its subsidiaries
shall, except to the extent that Company shall otherwise consent in writing
(which consent will not be unreasonably withheld or delayed), carry on its
business, in the usual, regular and ordinary course, in substantially the same
manner as heretofore conducted and in compliance with all applicable laws and
regulations, pay its debts and taxes when due subject to good faith disputes
over such debts or taxes, pay or perform other material obligations when due
subject to good faith disputes over such obligations, and use its commercially
reasonable efforts consistent with past practices and policies to (i) preserve
intact its present business organization, (ii) keep available the services of
its present officers and employees and (iii) preserver its relationships with
customers, suppliers, distributors, licensors, licensees, and others with which
it has business dealings.
In addition, except as contemplated or permitted by the terms of this
Agreement, without the prior written consent of Company (which consent will not
be unreasonably withheld or delayed), during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Parent shall not do any of the
following and shall not permit its subsidiaries to do any of the following:
(a) Engage in any action or enter into any transaction or permit any
action to be taken or transaction to be entered into that could reasonably
be expected to (i) delay the consummation of any of the transactions
contemplated by this Agreement or (ii) increase the possibility that a
Governmental Entity will seek to object to or challenge or take any action
to interfere in any respect with or delay the consummation of any of the
transactions contemplated by this Agreement;
(b) Cause, permit or propose any amendments to the Parent Charter
Documents (or similar governing instruments of any of its Parent's
subsidiaries);
(c) Engage in any action that could reasonably be expected to cause
the Merger to fail to qualify as a "reorganization" under Section 368(a) of
the Code;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock;
(e) Take any action to acquire or agree to acquire by merging or
consolidating with, or by purchasing any equity interest in or a portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets in a
transaction that would require the approval of the stockholders of Parent.
(f) Agree in writing or otherwise to take any of the actions described
in Section 4.2(a) through (e) above.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings;
Board Recommendations.
(a) As promptly as practicable after the execution of this Agreement,
Company and Parent will prepare and file with the SEC, the Proxy
Statement/Prospectus, and Parent will prepare and file with the SEC the S-4
in which the Proxy Statement/Prospectus will be included as a prospectus.
Each of Company and Parent will respond to any comments of the SEC, will
use its respective commercially reasonable efforts to have the S-4 declared
effective under the Securities Act as promptly as practicable after such
filing, and will cause the Proxy Statement/Prospectus to be mailed to their
respective stockholders at the earliest practicable time after the S-4 is
declared effective by the SEC. As promptly as practicable after the date of
this Agreement, each of Company and Parent will prepare and file any other
filings required to be filed by it under the Exchange Act, the Securities
Act or any other Federal, foreign or Blue Sky or related laws relating to
the Merger and the transactions contemplated by this Agreement (the "Other
Filings"). Each of Company and Parent will notify the other promptly upon
the receipt of any comments from the SEC or its staff or any other
government officials and of any request by the SEC or its staff or any
other government officials for amendments or supplements to the S-4, the
Proxy Statement/Prospectus or any Other Filing or for additional
information and will supply the other with copies of all correspondence
between such party or any of its representatives, on the one hand, and the
SEC or its staff or any other government officials, on the other hand, with
respect to the S-4, the Proxy Statement/Prospectus, the Merger or any Other
Filing. Each of Company and Parent will cause all documents that it is
responsible for filing with the SEC or other regulatory authorities under
this Section 5.1(a) to comply in all material respects with all applicable
requirements of law and the rules and regulations promulgated thereunder.
Whenever any event occurs which is required to be set forth in an amendment
or supplement to the Proxy Statement/Prospectus, the S-4 or any Other
Filing, Company or Parent, as the case may be, will promptly inform the
other of such occurrence and cooperate in filing with the SEC or its staff
or any other government officials, and/or mailing to stockholders of
Company and Parent such amendment or supplement.
(b) Parent and Company will consult with each other and use their
mutual commercially reasonable efforts to hold the Parent Stockholders'
Meeting and Company Stockholders' Meeting on the same day and at the same
time.
5.2 Meeting of Company Stockholders.
(a) Promptly after the date hereof, Company will take all action necessary
in accordance with Delaware Law and the Company Charter Documents to convene a
meeting of Company's stockholders to consider this Agreement and the Merger (the
"Company Stockholders' Meeting") to be held as promptly as practicable after the
declaration of effectiveness of the S-4. Subject to Section 5.2(c), Company will
use its commercially reasonable efforts to solicit from its stockholders proxies
in favor of the adoption of this Agreement and will take all other action
necessary or advisable to secure the vote or consent of its stockholders
required with respect to the Merger by Delaware Law. Notwithstanding anything to
the contrary contained in this Agreement, Company may adjourn or postpone the
Company Stockholders' Meeting to the extent necessary to ensure that any
necessary supplement or amendment to the Prospectus/Proxy Statement is provided
to Company's stockholders in advance of a vote on the Merger and this Agreement
or, if as of the time for which the Company Stockholders' Meeting is originally
scheduled (as set forth in the Prospectus/Proxy Statement) there are
insufficient shares of Company Common Stock represented (either in person or
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by proxy) to constitute a quorum necessary to conduct the business of the
Company Stockholders' Meeting. Company shall ensure that the Company
Stockholders' Meeting is called, noticed, convened, held and conducted, and that
all proxies solicited by the Company in connection with the Company
Stockholders' Meeting are solicited, in compliance with Delaware Law, the
Company Charter Documents, the rules of Nasdaq and all other applicable legal
requirements. Company's obligation to call, give notice of, convene and hold the
Company Stockholders' Meeting in accordance with this Section 5.2(a) shall not
be limited to or otherwise affected by the commencement, disclosure,
announcement or submission to Company of any Acquisition Proposal or by any
withdrawal, amendment or modification of the recommendation of the Board of
Directors of Company with respect to the Merger or this Agreement.
(b) Subject to Section 5.2(c): (i) the Board of Directors of Company shall
unanimously recommend that Company's stockholders adopt this Agreement at the
Company Stockholders' Meeting; (ii) the Prospectus/Proxy Statement shall include
a statement to the effect that the Board of Directors of the Company has
unanimously recommended that Company's stockholders adopt this Agreement at the
Company Stockholders' Meeting; and (iii) neither the Board of Directors of
Company nor any committee thereof shall withdraw, amend or modify, or propose or
resolve to withdraw, amend or modify in a manner adverse to Parent, the
unanimous recommendation of the Board of Directors of Company that Company's
stockholders adopt this Agreement. For purposes of this Agreement, said
recommendation of the Board of Directors shall be deemed to have been modified
in a manner adverse to Parent if said recommendation shall no longer be
unanimous.
(c) Nothing in this Agreement shall prevent the Board of Directors of
Company from withholding, withdrawing, amending or modifying its unanimous
recommendation in favor of the Merger if (i) a Superior Offer (as defined below)
is made to the Company and is not withdrawn, (ii) the Board of Directors of
Company concludes in good faith, after consultation with its outside counsel,
that, in light of such Superior Offer, the withholding, withdrawal, amendment or
modification of such recommendation is required in order for the Board of
Directors of the Company to comply with its fiduciary obligations to the
Company's stockholders under applicable law and (iii) neither the Company nor
any of its representatives shall have violated any of the restrictions set forth
in Section 5.5 or this Section 5.2. Nothing contained in this Agreement shall
limit the Company's obligation to hold and convene the Company Stockholders'
Meeting (regardless of whether the unanimous recommendation of the Board of
Directors of the Company shall have been withdrawn, amended or modified). For
purposes of this Agreement "Superior Offer" shall mean an unsolicited, bona fide
written offer made by a third party to consummate any of the following
transactions: (i) a merger or consolidation involving Company pursuant to which
the stockholders of the Company immediately preceding such transaction hold less
than 50% of the equity interest in the surviving or resulting entity of such
transaction, (ii) a sale or other disposition by Company of assets (excluding
inventory and used equipment sold in the ordinary course of business)
representing in excess of 50% of the fair market value of Company's business
immediately prior to such sale or (iii) the acquisition by any person or group
(including by way of a tender offer or an exchange offer), directly or
indirectly, of ownership of at least 50% of the then outstanding shares of
capital stock of Company, on terms that the Board of Directors of Company
determines, in its reasonable judgment (based on the written advice of a
financial adviser of nationally recognized reputation) to be more favorable to
Company stockholders from a financial point of view than the terms of the
Merger; provided, however, that any such offer shall not be deemed to be a
"Superior Offer" if any financing required to consummate the transaction
contemplated by such offer is not committed or is not likely in the judgment of
the Company's Board of Directors to be obtained by such third party on a timely
basis.
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5.3 Meeting of Parent Stockholders.
(a) Promptly after the date hereof, Parent will take all action necessary
in accordance with Delaware Law and the Parent Charter Documents to convene a
meeting of Parent's stockholders to consider the issuance of shares of Parent
Common Stock pursuant to the Merger and an amendment to Parent's certificate of
incorporation to increase the authorized number of shares of Parent Common Stock
(the "Parents Stockholders' Meeting") to be held as promptly as practicable
after the declaration of effectiveness of the S-4. Parent will use its
commercially reasonable efforts to solicit from its stockholders proxies in
favor of the issuance of shares of Parent Common Stock pursuant to the Merger
and an amendment to Parent's certificate of incorporation to increase the
authorized number of shares of Parent Common Stock and will take all other
action necessary or advisable to secure the vote or consent of its stockholders
required by the rules of Nasdaq or Delaware Law to obtain such approvals.
Notwithstanding anything to the contrary contained in this Agreement, Company
may adjourn or postpone the Parent Stockholders' Meeting to the extent necessary
to ensure that any necessary supplement or amendment to the Prospectus/Proxy
Statement is provided to Parent's stockholders in advance of a vote on the
issuance of the shares of Parent Common Stock pursuant to the Merger or a vote
on the approval of an amendment to Parent's certificate of incorporation to
increase the authorized number of shares of Parent Common Stock or, if as of the
time for which the Parent Stockholders' Meeting is originally scheduled (as set
forth in the Prospectus/Proxy Statement) there are insufficient shares of Parent
Common Stock represented (either in person or by proxy) to constitute a quorum
necessary to conduct the business of the Parent Stockholders' Meeting. Parent
shall ensure that the Parent Stockholders' Meeting is called, noticed, convened,
held and conducted, and that all proxies solicited by the Parent in connection
with the Parent Stockholders' Meeting are solicited, in compliance with Delaware
Law, the Parent Charter Documents, the rules of Nasdaq and all other applicable
legal requirements.
(b) The Board of Directors of Parent shall unanimously recommend that
Parent's stockholders vote in favor of the issuance of the shares of Parent
Common Stock pursuant to the Merger and an amendment to Parent's certificate of
incorporation to increase the authorized number of shares of Parent Common Stock
at the Parent Stockholders' Meeting. The Prospectus/Proxy Statement shall
include a statement to the effect that the Board of Directors of the Parent has
unanimously recommended that Parent's stockholders vote in favor of and adopt
and approve such matters at the Parent Stockholders' Meeting. Neither the Board
of Directors of Parent nor any committee thereof shall withdraw, amend or
modify, or propose or resolve to withdraw, amend or modify in a manner adverse
to Company, the unanimous recommendation of the Board of Directors of Parent
that Parent's stockholders vote in favor of such matters. For purposes of this
Agreement, said recommendation of the Board of Directors shall be deemed to have
been modified in a manner adverse to Company if said recommendation shall no
longer be unanimous.
5.4 Confidentiality; Access to Information.
(a) The parties acknowledge that Company and Parent have previously
executed a Mutual Confidentiality Agreement, dated as of December 12, 1999 (the
"Confidentiality Agreement"), and the Standstill Agreement, which
Confidentiality Agreement and, subject to Sections 2.3(c) and 5.18, Standstill
Agreement, will continue in full force and effect in accordance with its terms.
(b) Company and Parent will each afford to the other and the other's
authorized representatives (including counsel, accountants, financial advisors
and agents) reasonable access during normal business hours to the properties,
books, records and personnel of it and its subsidiaries during the period prior
to the Effective Time to obtain all information concerning the business,
properties, results of operations and personnel of it and its subsidiaries, as
they may reasonably request. No information or knowledge obtained by Parent or
Company in any investigation pursuant to this Section 5.4 will
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affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Merger.
5.5 No Solicitation.
(a) From and after the date of this Agreement until the Effective Time or
termination of this Agreement pursuant to Article VII, the officers, directors
and affiliates of the Company and its subsidiaries will not (and Company shall
not authorize its financial advisor, legal counsel or other advisor to and
Company shall use its reasonable efforts to not allow any of its employees,
stockholders, or agents to) directly or indirectly (i) solicit, initiate,
knowingly encourage or induce the making, submission or announcement of any
Acquisition Proposal (as defined below), (ii) participate in any discussions or
negotiations regarding, or furnish to any person any non-public information with
respect to, or take any other action to facilitate any inquiries or the making
of any proposal that constitutes or may reasonably be expected to lead to, any
Acquisition Proposal, (iii) engage in discussions with any person with respect
to any Acquisition Proposal, except as to the existence of these provisions,
(iv) subject to Section 5.2(c), approve, endorse or recommend any Acquisition
Proposal or (v) enter into any letter of intent or similar document or any
contract, agreement or commitment contemplating or otherwise relating to any
Acquisition Transaction (as defined below); provided, however, that between the
date hereof and the date on which this Agreement is approved by the required
Company Stockholder Vote, nothing in this Section 5.5(a) or elsewhere in this
Agreement shall prohibit Company or any of its subsidiaries or any of their
respective officers, directors, affiliates, employees, financial advisors,
lawyers or other advisers or representatives from furnishing nonpublic
information regarding Company and its subsidiaries to, entering into a
confidentiality agreement with or entering into discussions or negotiations
with, any person or group in response to a Superior Offer submitted by such
person or group (and not withdrawn) if (1) neither Company nor any
representative of Company and its subsidiaries shall have violated any of the
restrictions set forth in this Section 5.5, (2) the Board of Directors of
Company concludes in good faith, after consultation with its outside legal
counsel, that such action is required in order for the Board of Directors of
Company to comply with its fiduciary obligations to Company's stockholders under
applicable law, (3) (x) at least five days prior to furnishing any such
nonpublic information to, or entering into discussions or negotiations with,
such person or group, Company gives Parent written notice of the identity of
such person or group and of Company's intention to furnish nonpublic information
to, or enter into discussions or negotiations with, such person or group and (y)
the Company receives from such person or group an executed confidentiality
agreement containing customary limitations on the use and disclosure of all
nonpublic written and oral information furnished to such person or group by or
on behalf of the Company and a standstill agreement with such party that has
provisions consistent with standstill provisions contained in the standstill
agreement entered between Company and Parent in December 1999, and (4)
contemporaneously with furnishing any such nonpublic information to such person
or group, Company furnishes such nonpublic information to Parent (to the extent
such nonpublic information has not been previously furnished by the Company to
Parent). Company and its subsidiaries will immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal. Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding two sentences by any officer or director of Company or any of its
subsidiaries or any investment banker, attorney or other advisor or
representative of Company or any of its subsidiaries shall be deemed to be a
breach of this Section 5.5 by Company. In addition to the foregoing, Company
shall (i) provide Parent with at least forty-eight (48) hours prior notice (or
such lesser prior notice as provided to the members of Company's Board of
Directors but in no event less than eight hours) of any meeting of Company's
Board of Directors at which Company's Board of Directors is reasonably expected
to consider a Superior Offer and (ii) provide Parent with at least five (5)
business days prior written notice of a
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meeting of Company's Board of Directors at which Company's Board of Directors is
reasonably expected to recommend a Superior Offer to its stockholders and
together with such notice a copy of the definitive documentation relating to
such Superior Offer.
For purposes of this Agreement, "Acquisition Proposal" shall mean any offer
or proposal (other than an offer or proposal by Parent or any of its affiliates)
providing for any Acquisition Transaction. For purposes of this Agreement,
"Acquisition Transaction" shall mean any transaction or series of related
transactions involving: (A) any purchase from Company or acquisition by any
person or "group" (as defined under Section 13(d) of the Exchange Act and the
rules and regulations thereunder) of more than a 10% interest in the total
outstanding voting securities of Company or any of its subsidiaries or any
tender offer or exchange offer that if consummated would result in any person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) beneficially owning 10% or more of the total outstanding
voting securities of Company or any of its subsidiaries, or any merger,
consolidation, business combination or similar transaction involving Company
that if consummated would result in any person or "group" (as defined under
Section 13(d) of the Exchange Act and the rules and regulations thereunder) not
presently owning 10% or more of the total outstanding voting securities of
Company or any of its subsidiaries thereby owning 10% or more of the total
outstanding voting securities of Company or any of its subsidiaries; (B) any
sale, lease (other than in the ordinary course of business), exchange, transfer,
license (other than in the ordinary course of business), acquisition or
disposition of more than 10% of the assets of Company; or (C) any liquidation or
dissolution of Company.
(b) In addition to the obligations of Company set forth in paragraph (a) of
this Section 5.5, Company as promptly as practicable shall advise Parent orally
and in writing of any request for non-public information which Company
reasonably believes would lead to an Acquisition Proposal or to any Acquisition
Transaction, or any inquiry with respect to or which Company reasonably should
believe would lead to any Acquisition Proposal, the material terms and
conditions of such request, Acquisition Proposal or inquiry, and the identity of
the person or group making any such request, Acquisition Proposal or inquiry.
Company will keep Parent informed as promptly as practicable in all material
respects of the status and details (including material amendments or proposed
material amendments) of any such request, Acquisition Proposal or inquiry.
(c) Nothing contained in this Section 5.5 or elsewhere in this Agreement
shall prohibit Company or its Board of Directors from complying with Rule 14d-9
or Rule 14e-2 under the Exchange Act or from furnishing a copy or excerpts of
this Agreement to any person that makes an Acquisition Proposal or that makes an
inquiry that could lead to an Acquisition Proposal.
5.6 Public Disclosure. Parent and Company will consult with each other,
and to the extent practicable, agree, before issuing any press release or
otherwise making any public statement with respect to the Merger, this Agreement
or an Acquisition Proposal and will not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law or any listing agreement with a national securities exchange or Nasdaq. The
parties have agreed to the text of the joint press release announcing the
signing of this Agreement.
5.7 Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including using reasonable efforts to accomplish the following: (i)
the taking of all reasonable acts necessary to cause the conditions precedent
set forth in Article VI to be satisfied, (ii) the obtaining of all necessary
actions
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or nonactions, waivers, consents, approvals, orders and authorizations from
Governmental Entities and the making of all necessary registrations,
declarations and filings (including registrations, declarations and filings with
Governmental Entities, if any) and the taking of all reasonable steps as may be
necessary to avoid any suit, claim, action, investigation or proceeding by any
Governmental Entity, (iii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iv) the defending of any suits, claims, actions,
investigations or proceedings, whether judicial or administrative, challenging
this Agreement or the consummation of the transactions contemplated hereby,
including seeking to have any stay or temporary restraining order entered by any
court or other Governmental Entity vacated or reversed and (v) the execution or
delivery of any additional instruments necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement. In
connection with and without limiting the foregoing, Company and its Board of
Directors shall, if any state takeover statute or similar statute or regulation
is or becomes applicable to the Merger, this Agreement or any of the
transactions contemplated by this Agreement, use all reasonable efforts to
ensure that the Merger and the other transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger, this Agreement and the transactions contemplated hereby.
(b) Without limiting the generality of the foregoing, until June 30, 2000,
Parent and Company agree (i) subject to clause (iv) below, to use reasonable
efforts to resolve as promptly as possible any objections asserted by any
Governmental Entity with respect to the Merger and to obtain as promptly as
possible any waivers, consents, approvals, authorizations or clearances as may
be required under any Legal Requirement or by any Governmental Entity in
connection with the Merger; (ii) that in the event a suit, claim, action,
investigation or proceeding, whether judicial or administrative, is commenced or
threatened by any Governmental Entity in connection with the Merger, Parent and
Company shall use best efforts to resist such suit, claim, action, investigation
or proceeding; (iii) that in the event any injunction, temporary restraining
order or other order is issued which has the effect of preventing or delaying
the consummation of the Merger, Parent and Company shall use best efforts to
have such injunction, temporary restraining order or other order vacated and
reversed as promptly as possible; and (iv) to consider the disposition (and any
other action in connection therewith as may be reasonably required) of certain
product lines or assets of Parent or Company, or the license (and any other
action in connection therewith as may be reasonably required) of certain product
lines or assets of Parent or Company, and agree to take such action unless in
the mutual determination of the Boards of Directors of Parent and Company such
disposition or license is not in the best interest of the Parent stockholders or
Company stockholders as the case may be, that may be appropriate in order to
resolve the objections, obtain the waivers, consents, approvals, authorizations
or clearances, settle the suits, claims, actions, investigations or proceedings
or have vacated and reversed the injunctions, temporary restraining orders or
other orders referred to in this sentence.
(c) Company shall give prompt notice to Parent of any representation or
warranty made by it contained in this Agreement becoming untrue or inaccurate,
or any failure of Company to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement, in each case, such that the conditions set forth in Section
6.3(a) or 6.3(b) would not be satisfied; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
(d) Parent shall give prompt notice to Company of any representation or
warranty made by it or Merger Sub contained in this Agreement becoming untrue or
inaccurate, or any failure of Parent to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement, in each case, such that the conditions set forth in
Section 6.2(a) or 6.2(b) would not be satisfied; provided, however, that no such
notification shall
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affect the representations, warranties, covenants or agreements of the parties
or the conditions to the obligations of the parties under this Agreement.
5.8 Third Party Consents. As soon as practicable following the date
hereof, Parent and Company will each use its commercially reasonable efforts to
obtain any consents, waivers and approvals under any of its or its subsidiaries'
respective agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby.
5.9 Stock Options and Employee Benefits.
(a) At the Effective Time, each outstanding option to purchase shares of
Company Common Stock (each, a "Company Stock Option") under the Company Option
Plans, whether or not vested, shall by virtue of the Merger be assumed by
Parent. Each Company Stock Option so assumed by Parent under this Agreement will
continue to have, and be subject to, the same terms and conditions of such
options immediately prior to the Effective Time (including, without limitation,
any repurchase rights or vesting provisions), except that (i) each Company Stock
Option will be exercisable (or will become exercisable in accordance with its
terms) for that number of whole shares of Parent Common Stock equal to the
product of the number of shares of Company Common Stock that were issuable upon
exercise of such Company Stock Option immediately prior to the Effective Time
multiplied by the Option Exchange Ratio, rounded down to the nearest whole
number of shares of Parent Common Stock and (ii) the per share exercise price
for the shares of Parent Common Stock issuable upon exercise of such assumed
Company Stock Option will be equal to the quotient determined by dividing the
exercise price per share of Company Common Stock at which such Company Stock
Option was exercisable immediately prior to the Effective Time by the Option
Exchange Ratio, rounded up to the nearest whole cent.
(b) Prior to the Effective Time, outstanding purchase rights under
Company's ESPP shall be exercised in accordance with the terms of the ESPP as
described in [Company's Prospectus Supplement] and each share of Company Common
Stock purchased pursuant to such exercise shall by virtue of the Merger, and
without any action on the part of the holder thereof, be converted into the
right to receive the Per Share Merger Consideration without issuance of
certificates representing issued and outstanding shares of Company Common Stock
to ESPP participants. The Company agrees that it shall terminate the ESPP
immediately following the aforesaid purchase of shares of Company Common Stock
thereunder.
(c) Company agrees to terminate its 401(k) plan immediately prior to
Closing, unless Parent, in its sole and absolute discretion, agrees to sponsor
and maintain such plan by providing Company with notice of such election at
least ten (10) days prior to the Effective Time.
(d) Company and its affiliates, as applicable, each agrees to terminate any
and all group severance, separation or salary continuation plans, programs or
arrangements that are covered under ERISA immediately prior to Closing. Parent
shall receive from Company evidence that Company's and each affiliate's (as
applicable) plan(s) has been terminated pursuant to resolution of each such
entity's Board of Directors (the form and substance of which resolutions shall
be subject to review and approval of Parent), effective as of the day
immediately preceding the Closing Date.
5.10 Form S-8. Parent agrees to file, if available for use by Parent, a
registration statement on Form S-8 for the shares of Parent Common Stock
issuable with respect to assumed Company Stock Options as soon as is reasonably
practicable (and in any event within thirty days) after the Effective Time.
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5.11 Indemnification.
(a) From and after the Effective Time, (i) the Surviving Corporation will
fulfill and honor in all respects the obligations of Company pursuant to any
indemnification agreements between Company and its directors and officers in
effect immediately prior to the Effective Time (the "Indemnified Parties") and
any indemnification provisions under the Company Charter Documents as in effect
on the date hereof, and (ii) Parent shall indemnify and hold harmless each of
the Indemnified Parties against and from any costs, expenses (including
reasonable attorneys' fees), settlement payments, claims, demands, judgments,
fines penalties, losses, damages or liabilities incurred in connection with any
claim, suit, action or proceeding that arises from or relates to the Merger or
any of the other transactions contemplated by this Agreement.
(b) For a period of six years after the Effective Time, Parent will cause
the Surviving Corporation to maintain in effect, to the extent available,
directors and officers liability insurance covering those persons who are
currently covered by the Company's directors and officers liability insurance
policy on terms comparable to those applicable under the policy of directors'
and officers' insurance currently maintained by Company; provided, however, that
in no event will Parent or the Surviving Corporation be required to expend in
excess of 150% of the annual premium currently paid by Company for such coverage
(it being understood that if the annual premiums of such insurance coverage
exceed such amount, Parent shall be obligated to cause the Surviving Corporation
to obtain a policy with the greatest coverage available for a cost not exceeding
such amount).
5.12 Nasdaq Listing. Parent agrees to use commercially reasonable efforts
to authorize for listing on Nasdaq the shares of Parent Common Stock issuable,
and those required to be reserved for issuance, in connection with the Merger,
upon official notice of issuance.
5.13 Amendment of Parent's Certificate of Incorporation. Assuming the
Parent stockholders approve the amendment to Parent's certificate of
incorporation contemplated by Section 6.1(b), Parent shall file promptly the
amended certificate of incorporation with the Delaware Secretary of State.
5.14 Company Affiliate Agreement. Set forth in Section 5.14 of the Company
Schedule is a list of those persons who may be deemed to be, in Company's
reasonable judgment, affiliates of Company within the meaning of Rule 145
promulgated under the Securities Act (each, a "Company Affiliate"). Company will
provide Parent with such information and documents as Parent reasonably requests
for purposes of reviewing such list. Company will use its commercially
reasonable efforts to deliver or cause to be delivered to Parent, as promptly as
practicable on or following the date hereof, from each Company Affiliate an
executed affiliate agreement in substantially the form of the Company
Voting/Affiliate Agreement attached hereto as Exhibit A, each of which will be
in full force and effect as of the Effective Time. Parent will be entitled to
place appropriate legends on the certificates evidencing any Parent Common Stock
to be received by a Company Affiliate pursuant to the terms of this Agreement,
and to issue appropriate stop transfer instructions to the transfer agent for
the Parent Common Stock, consistent with the terms of the Company
Voting/Affiliate Agreement.
5.15 Parent Board of Directors. Parent and Company shall take such action
necessary so as to cause up to two persons selected by Company, subject to the
reasonable approval of Parent, to be elected to the Board of Directors of Parent
effective as of immediately following the Closing.
5.16 No Rights Plan Amendment. Except as expressly required by Section
6.3(f), prior to the Closing, Company and its Board of Directors shall not amend
or modify or take any other action with regard to the Company Rights Plan in any
manner or take another action so as to (i) render the Company Rights Plan
inapplicable to any transaction(s) other than the Merger and other transactions
contemplated by the Transaction Documents, or (ii) permit any person or group
who would otherwise be an Acquiring Person (as defined in the Company Rights
Plan) not to be an Acquiring Person, or
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(iii) provide that a Distribution Date (as such term is defined in the Company
Rights Plan) or similar event does not occur by reason of the execution of any
agreement or transaction other than this Agreement and the Merger and the
agreements and transactions contemplated hereby and thereby, or (iv) except as
specifically contemplated by this Agreement, otherwise affect the rights of
holders of Rights.
5.17 FIRPTA Compliance. On or prior to the Closing Date, Company shall
deliver to Parent a properly executed statement, in a form reasonably acceptable
to Parent, that the Company Common Stock is not a "U.S. Real Property Interest"
as defined in and in accordance with the requirements of Treasury Regulation
Section 1.897-2(h)(2), for purposes of satisfying Parent's obligations under
Treasury Regulation Section 1.1445-2(c)(3).
5.18 Standstill Agreement. Parent and Company agree that effective as of
the Closing, the Standstill Agreement shall terminate and be of no further force
and effect.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) Company Stockholder Approval. This Agreement shall have been
adopted, by the requisite vote under applicable law, by the stockholders of
Company.
(b) Parent Stockholder Approval.
(i) The issuance of the shares of Parent Common Stock pursuant to
the Merger shall have been approved by the requisite vote of the
stockholders of Parent under applicable Nasdaq rules and regulations;
and
(ii) An amendment to Parent's certificate of incorporation to
increase the authorized number of shares of Parent Common Stock shall
have been approved by the requisite vote of the stockholders of Parent
under Delaware law and the Parent Charter Documents.
(c) Registration Statement Effective; Proxy Statement. The SEC shall
have declared the S-4 effective under the Securities Act. No stop order
suspending the effectiveness of the S-4 or any part thereof shall have been
issued by the SEC and no proceeding for that purpose, and no similar
proceeding in respect of the Proxy Statement/Prospectus, shall have been
initiated or threatened in writing by the SEC.
(d) No Order; Foreign Antitrust Approvals. No Governmental Entity
shall have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is in effect and which
has the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger. All material foreign antitrust approvals
required to be obtained prior to the Merger in connection with the
transactions contemplated hereby shall have been obtained.
(e) Tax Opinions. Parent and Company shall each have received written
opinions from their respective tax counsel (Wilson Sonsini Goodrich &
Rosati, Professional Corporation, and Cooley Godward LLP, respectively), in
form and substance reasonably satisfactory to them, to the effect that the
Merger should constitute a reorganization within the meaning of Section
368(a) of the Code and such opinions shall not have been withdrawn;
provided, however, that if the counsel to either Parent or Company does not
render such opinion or renders but withdraws such opinion, this condition
shall nonetheless be deemed to be satisfied with respect to
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such party if counsel to the other party renders such opinion to such party
and does not withdraw such opinion. The parties to this Agreement agree to
make such reasonable representations as requested by such counsel for the
purpose of rendering such opinions.
(f) Nasdaq Listing. The shares of Parent Common Stock issuable to the
stockholders of Company pursuant to this Agreement shall have been
authorized for listing on Nasdaq upon official notice of issuance.
(g) Amendment of Parent's Certificate of Incorporation. An amendment
to Parent's certificate of incorporation to increase the authorized number
of shares of Parent Common Stock shall have been duly filed with the
Delaware Secretary of State.
6.2 Additional Conditions to Obligations of Company. The obligation of
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by Company:
(a) Representations and Warranties. Each representation and warranty
of Parent and Merger Sub contained in this Agreement (i) shall have been
true and correct as of the date of this Agreement and (ii) shall be true
and correct on and as of the Closing Date with the same force and effect as
if made on the Closing Date, except in the case of clauses (i) and (ii) of
this sentence, (A) in each case, or in the aggregate, as does not
constitute a Material Adverse Effect on Parent or Merger Sub; provided,
however, such Material Adverse Effect qualification shall be inapplicable
with respect to the representations and warranties contained in Sections
3.22 and 3.23, (B) for those representations and warranties which address
matters only as of a particular date (which representations shall have been
true and correct (subject to the qualifications as set forth in the
preceding clause A) as of such particular date) (it being understood that,
for purposes of determining the accuracy of such representations and
warranties, (i) all "Material Adverse Effect" qualifications and other
qualifications based on the word "material" or similar phrases contained in
such representations and warranties shall be disregarded and (ii) any
update of or modification to the Parent Schedule made or purported to have
been made after the date of this Agreement shall be disregarded). Company
shall have received a certificate with respect to the foregoing signed on
behalf of Parent by an authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Closing Date, and Company shall have received a
certificate to such effect signed on behalf of Parent by an authorized
officer of Parent.
(c) Material Adverse Effect. No Material Adverse Effect with respect
to Parent shall have occurred since the date of this Agreement.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) Representations and Warranties. Each representation and warranty
of Company contained in this Agreement (i) shall have been true and correct
as of the date of this Agreement and (ii) shall be true and correct on and
as of the Closing Date with the same force and effect as if made on and as
of the Closing Date, except in the case of clauses (i) and (ii) of this
sentence, (A) in each case, or in the aggregate, as does not constitute a
Material Adverse Effect on Company provided, however, such Material Adverse
Effect qualifier shall be inapplicable with respect to representations and
warranties contained in Section 2.23 and 2.24, (B) for those
representations and warranties which address matters only as of a
particular date
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(which representations shall have been true and correct (subject to the
qualifications set forth in preceding clause (A)) as of such particular
date) (it being understood that, for purposes of determining the accuracy
of such representations and warranties, (i) all "Material Adverse Effect"
qualifications and other qualifications based on the word "material" or
similar phrases contained in such representations and warranties shall be
disregarded and (ii) any update of or modification to the Company Schedule
made or purported to have been made after the date of this Agreement shall
be disregarded). Parent shall have received a certificate with respect to
the foregoing signed on behalf of Company by an authorized officer of
Company.
(b) Agreements and Covenants. Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of Company by an authorized officer of Company.
(c) Material Adverse Effect. No Material Adverse Effect with respect
to Company and its subsidiaries shall have occurred since the date of this
Agreement.
(d) Affiliate Agreements. Each of the Company Affiliates shall have
entered into a Company Voting/Affiliate Agreement and each of such
agreements will be in full force and effect as of the Effective Time.
(e) Consents. Company shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby in connection with the agreements, contracts, licenses
or leases set forth on Schedule 6.3(e).
(f) Company Rights Plans. All actions necessary to extinguish and
cancel all outstanding Rights under the Company Rights Plan at the
Effective Time and to render such rights inapplicable to the Merger shall
have been taken.
(g) Cash Balance. At the Closing, Company has cash and cash
equivalents which are readily marketable of at least $48 million.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approval of the
stockholders of Company:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and Company;
(b) by either Company or Parent if the Merger shall not have been
consummated before 5:00 p.m., Pacific time, on June 30, 2000; provided,
however, that the right to terminate this Agreement under this Section
7.1(b) shall not be available to any party whose action or failure to act
has been a principal cause of or resulted in the failure of the Merger to
occur on or before such date and such action or failure to act constitutes
a breach of this Agreement;
(c) by either Company or Parent if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree, ruling or other action is
final and nonappealable;
(d) by either Company or Parent if (i) the Parent Stockholders'
Meeting (and any adjournment or postponement thereof) shall have been held
and completed and Parent's stockholders shall have taken a final vote on
the issuance of shares of Parent Common Stock
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pursuant to the Merger and on the amendment to Parent's certificate of
incorporation contemplated by Section 6.1(b) and (ii) the required approval
of the stockholders of Parent contemplated by this Agreement shall not have
been obtained at the Parent Stockholders' Meeting or at any such
adjournment or postponement thereof; provided, however, that the right to
terminate this Agreement under this Section 7.1(d) shall not be available
to Parent where the failure to obtain Parent stockholder approval shall
have been caused by the action or failure to act of Parent and such action
or failure to act constitutes a breach by Parent of this Agreement;
(e) by either Company or Parent if (i) the Company Stockholders'
Meeting (and any adjournment or postponement thereof) shall have been held
and completed and Company's stockholders shall have taken a final vote on
the proposal to adopt this Agreement and (ii) the required approval of the
stockholders of Company contemplated by this Agreement shall not have been
obtained at the Company Stockholders' Meeting or at any such adjournment or
postponement thereof; provided, however, that the right to terminate this
Agreement under this Section 7.1(e) shall not be available to Company where
the failure to obtain Company stockholder approval shall have been caused
by the action or failure to act of Company and such action or failure to
act constitutes a breach by Company of this Agreement;
(f) by Parent if a Triggering Event (as defined below) shall have
occurred;
(g) by Parent, upon a material breach of the covenants set forth in
Section 5.5 of this Agreement;
(h) by Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or
if any representation or warranty of Parent shall have become untrue, in
either case such that the conditions set forth in Section 6.2(a) or Section
6.2(b) would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue, provided,
that if such inaccuracy in Parent's representations and warranties or
breach by Parent is curable by Parent through the exercise of its
commercially reasonable efforts, then Company may not terminate this
Agreement under this Section 7.1(g) for thirty (30) days after delivery of
written notice from Company to Parent of such breach, provided Parent
continues to exercise commercially reasonable efforts to cure such breach
(it being understood that Company may not terminate this Agreement pursuant
to this paragraph (h) if it shall have materially breached this Agreement
or if such breach by Parent is cured during such thirty (30) day period)
(it being understood that the cure period set forth in the immediately
preceding proviso shall not be available to Parent for purposes of curing a
breach of Parent's obligation to consummate and effect the Merger in the
time period set forth in Section 1.2 upon the satisfaction or waiver of the
conditions to the Closing set forth in Article VI hereof); or
(i) by Parent, upon a breach of any representation, warranty, covenant
or agreement on the part of Company set forth in this Agreement, or if any
representation or warranty of Company shall have become untrue, in either
case such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that if such
inaccuracy in Company's representations and warranties or breach by Company
is curable by Company through the exercise of its commercially reasonable
efforts, then Parent may not terminate this Agreement under this Section
7.1(h) for thirty (30) days after delivery of written notice from Parent to
Company of such breach, provided Company continues to exercise commercially
reasonable efforts to cure such breach (it being understood that Parent may
not terminate this Agreement pursuant to this paragraph (i) if it shall
have materially breached this Agreement or if such breach by Company is
cured during such thirty (30) day period) (it being understood that the
cure period set forth in the immediately preceding proviso shall not be
available to
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Company for purposes of curing a breach of Company's obligation to
consummate and effect the Merger in the time period set forth in Section
1.2 upon the satisfaction or waiver of the conditions to the Closing set
forth in Article VI hereof).
For the purposes of this Agreement, a "Triggering Event" shall be deemed to
have occurred if: (i) the Board of Directors of Company or any committee thereof
shall for any reason have withdrawn or shall have amended or modified in a
manner adverse to Parent its unanimous recommendation in favor of, the adoption
of this Agreement; (ii) the Company shall have failed to include in the
Prospectus/Proxy Statement the unanimous recommendation of the Board of
Directors of the Company in favor of the adoption of this Agreement; (iii) the
Board of Directors of Company fails to reaffirm its unanimous recommendation in
favor of the adoption of this Agreement within ten (10) days after Parent
requests in writing that such recommendation be reaffirmed; (iv) the Board of
Directors of Company or any committee thereof shall have approved or recommended
any Acquisition Proposal; (v) Company shall have entered into a binding letter
of intent or similar document or agreement, contract or commitment accepting any
Acquisition Proposal; or (vi) a tender or exchange offer relating to securities
of Company shall have been commenced by a Person unaffiliated with Parent and
Company shall not have sent to its security holders pursuant to Rule 14e-2
promulgated under the Securities Act, within ten (10) business days after such
tender or exchange offer is first published sent or given, a statement
disclosing that Company recommends rejection of such tender or exchange offer.
7.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other party hereto.
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except (i) as set forth
in Section 5.5, this Section 7.2, Section 7.3 and Article 8 (General
Provisions), each of which shall survive the termination of this Agreement, and
(ii) nothing herein shall relieve any party from liability for any intentional
or willful breach of this Agreement. No termination of this Agreement shall
affect the obligations of the parties contained in the Confidentiality
Agreement, or, subject to Section 2.3(c) of this Agreement, Section 2 of the
Standstill Agreement, all of which obligations shall survive termination of this
Agreement in accordance with their terms.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses whether or not the
Merger is consummated; provided, however, that Parent and Company shall share
equally all fees and expenses, other than attorneys' and accountants fees and
expenses, incurred in relation to the printing and filing (with the SEC) of the
Prospectus/Proxy Statement (including any preliminary materials related thereto)
and the Registration Statement (including financial statements and exhibits) and
any amendments or supplements thereto. Notwithstanding the foregoing, (i) if
this Agreement is terminated pursuant to Section 7.1(e), Company shall within
two (2) days after such termination reimburse Parent in immediately available
funds for its out-of-pocket fees and expenses incurred in connection with this
Agreement and the transactions contemplated hereby, and (ii) if this Agreement
is terminated pursuant to Section 7.1(d), Parent shall within two (2) days after
such termination reimburse Company in immediately available funds for its
out-of-pocket fees and expenses incurred in connection with this Agreement and
the transactions contemplated hereby.
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(b) Company Payments.
(i) Company shall pay to Parent in immediately available funds, within
one (1) business day after demand by Parent, an amount equal to $4,000,000
(the "Termination Fee") if this Agreement is terminated by Parent pursuant
to Section 7.1(f) or 7.1(g).
(ii) Company shall pay to Parent in immediately available funds,
within one (1) business day after demand by Parent, an amount equal to the
Termination Fee, if this Agreement is terminated by Parent or Company, as
applicable, pursuant to Sections 7.1(b) or (e) and either of the following
shall occur:
(a) if following the date hereof and prior to the termination of
this Agreement, a third party has publicly announced an Acquisition
Proposal, and within fifteen (15) months following the termination of
this Agreement a Company Acquisition (as defined below) is consummated;
or
(b) if following the date hereof and prior to the termination of
this Agreement, a third party has publicly announced an Acquisition
Proposal, and within fifteen (15) months following the termination of
this Agreement the Company enters into a definitive acquisition
agreement or a binding letter of intent providing for a Company
Acquisition.
(iii) Company acknowledges that the agreements contained in this
Section 7.3(b) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Parent would not enter
into this Agreement; accordingly, if Company fails to pay in a timely
manner the amounts due pursuant to this Section 7.3(b) and, in order to
obtain such payment, Parent commences a lawsuit that results in a judgment
against Company for the amounts set forth in this Section 7.3(b), Company
shall pay to Parent its reasonable costs and expenses (including reasonable
attorneys' fees and expenses) in connection with such lawsuit, together
with interest on the amounts set forth in this Section 7.3(b) at the prime
rate of The Chase Manhattan Bank in effect on the date such payment was
required to be made. Payment of the fees described in this Section 7.3(b)
shall not be in lieu of damages incurred in the event of breach of this
Agreement. For the purposes of this Agreement, "Company Acquisition" shall
mean any of the following transactions (other than the transactions
contemplated by this Agreement): (i) a merger, consolidation, business
combination, recapitalization or similar transaction involving Company
pursuant to which the stockholders of Company immediately preceding such
transaction hold less than 50% of the aggregate equity interests in the
surviving or resulting entity of or parent company involved in such
transaction, (ii) a sale or other disposition by the Company of assets
representing in excess of 50% of the aggregate fair market value of the
Company's business immediately prior to such sale or (iii) the acquisition
by any person or group (including by way of a tender offer or an exchange
offer or issuance by the Company), directly or indirectly, of beneficial
ownership or a right to acquire beneficial ownership of shares representing
in excess of 50% of the voting power of the then outstanding shares of
capital stock of the Company.
(c) Parent Payments.
(i) Parent shall pay to Company in immediately available funds, within
one (1) business day after demand by Company, an amount equal to
$4,000,000, if the Merger is not consummated as a result of any action
taken by any Governmental Entity under any antitrust laws or regulations
relating thereto.
(ii) Parent acknowledges that the agreements contained in this Section
7.3(c) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Company would not enter into
this Agreement; accordingly, if Parent fails to pay in
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a timely manner the amounts due pursuant to this Section 7.3(c) and, in
order to obtain such payment, Company commences a lawsuit that results in a
judgment against Parent for the amounts set for in this Section 7.3(c),
Parent shall pay Company its reasonable costs and expenses (including
reasonable attorneys' fees and expenses) in connection with such lawsuit,
together with interest on the amounts set forth in this Section 7.3(c) at
the prime rate of The Chase Manhattan Bank in effect on the date such
payment was required to be made. Payment of the fees described in this
Section 7.3(c) shall not be in lieu of damages incurred in the event of
breach of this Agreement.
7.4 Amendment. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Parent and Company.
7.5 Extension; Waiver. At any time prior to the Effective Time, any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations,
warranties and pre-closing covenants of Company, Parent and Merger Sub contained
in this Agreement or in any certificate or instrument delivered pursuant hereto
shall terminate at the Effective Time, and only the covenants that by their
terms survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given on the day of delivery if delivered personally
or on the second business day after delivery if delivered by commercial delivery
service, or sent via telecopy (receipt confirmed), to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
ScanSoft, Inc.
9 Centennial Drive
Peabody, MA 01960
Attention: President and Chief Executive Officer
Telephone No.: (978) 977-2000
Telecopy No.: (978) 977-2436
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with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Katharine A. Martin, Esq.
Daniel R. Mitz, Esq.
Telephone No.:(650) 493-9300
Telecopy No.:(650) 493-6811
(b) if to Company, to:
Caere Corporation
100 Cooper Court
Los Gatos, CA 95030
Attention: President and Chief Executive Officer
Telephone No.: (408) 395-7000
Telecopy No.: (408) 395-5263
with a copy to:
Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attention: Lee F. Benton, Esq.
Keith A. Flaum, Esq.
Telephone No.: (650) 843-5000
Telecopy No.: (650) 850-0663
8.3 Interpretation; Knowledge.
(a) When a reference is made in this Agreement to Exhibits, such reference
shall be to an Exhibit to this Agreement unless otherwise indicated. When a
reference is made in this Agreement to Sections, such reference shall be to a
Section of this Agreement. Unless otherwise indicated the words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect subsidiaries of such entity.
Reference to the subsidiaries of an entity shall be deemed to include all direct
and indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "knowledge" means with respect
to a party hereto, with respect to any matter in question, that any of the
officers of such party, has actual knowledge of such matter.
(c) For purposes of this Agreement, the term "Material Adverse Effect" when
used in connection with an entity means any change, event, violation,
inaccuracy, circumstance or effect that is materially adverse to the business,
assets (including intangible assets), capitalization, financial condition, or
results of operations of such entity and its subsidiaries taken as a whole;
provided that, in no event shall any of the following constitute a Material
Adverse Effect or be taken into account in determining whether a Material
Adverse Effect has occurred: (i) a change in the trading prices of either of
Parent's or Company's equity securities between the date hereof and the
Effective Time, in
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and of itself; (ii) a failure of Parent or Company to meet analyst's
expectations between the date hereof and the Effective Time; (iii) changes,
events, violations, inaccuracies, circumstances, conditions or effects generally
affecting the industry in which either Parent or Company operate or arising from
changes in general business or economic conditions in the United States or in
any jurisdiction in which Parent or Company transacts business; (iv) changes,
events, violations, inaccuracies, circumstances, conditions or effects directly
attributable to (a) subject to the satisfaction of Section 6.3(g), out-of-pocket
fees and expenses (including without limitation legal, accounting,
investigatory, investment banking, and other fees and expenses) incurred in
connection with the transactions contemplated by this Agreement, or (b) the
payment by Parent or Company of all amounts due to any officers or employees of
Company under employment contracts, non-competition agreements, employee benefit
plans or severance arrangements approved by Parent or in existence on the date
hereof and set forth on the Company Disclosure Schedule; (v) changes, events,
violations, inaccuracies, circumstances, conditions or effects resulting from
any change in law or generally accepted accounting principles, which affect
generally entities such as Parent and Company; (vi) changes, events, violations,
inaccuracies, circumstances, conditions or effects (including, without
limitation, delays in customer orders, a reduction in sales, a disruption in
supplier, distributor or similar relationships or a loss of employees) directly
caused by the announcement or pendency of this Agreement or of any of the
transactions contemplated by this Agreement; and (vii) changes, events,
violations, inaccuracies, circumstances, conditions or effects resulting from
compliance by Parent or Company with the terms of, or the taking of any action
contemplated or permitted by, this Agreement.
(d) For purposes of this Agreement, the term "person" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Schedule
and the Parent Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement and, subject to Section 2.3(c) of this Agreement, the
Standstill Agreement shall continue in full force and effect until the Closing
and shall survive any termination of this Agreement; and (b) are not intended to
confer upon any other person any rights or remedies hereunder, except as
specifically provided in Section 5.11.
8.6 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a
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party of any one remedy will not preclude the exercise of any other remedy. The
parties hereto agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity. In
any action at law or suit in equity to enforce this Agreement or the rights of
any of the parties hereunder, the prevailing party in such action or suit shall
be entitled to receive a reasonable sum for its attorneys' fees and all other
reasonable costs and expenses incurred in such action or suit.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.11 Time Is of the Essence. Time is of the essence with respect to this
Agreement.
8.12 WAIVER OF JURY TRIAL. EACH OF PARENT, MERGER SUB AND COMPANY HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, MERGER SUB OR COMPANY IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
SCANSOFT, INC.
By: /s/ MIKE TIVNAN
------------------------------------
Name: Mike Tivnan
Title: President and Chief Executive
Officer
SCORPION ACQUISITIONS CORPORATION
By: /s/ MIKE TIVNAN
------------------------------------
Name: Mike Tivnan
Title: President and Chief Executive
Officer
CAERE CORPORATION
By: /s/ ROBERT TERESI
------------------------------------
Name: Robert Teresi
Title: President and Chief Executive
Officer
***REORGANIZATION AGREEMENT***
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ANNEX B
FORM OF
COMPANY VOTING/AFFILIATE AGREEMENT
This Company Voting/Affiliate Agreement ("Agreement") is made and entered
into as of January 15, 2000, between ScanSoft, Inc., a Delaware corporation
("Parent"), and the undersigned stockholder ("Stockholder") of Caere
Corporation, a Delaware corporation (the "Company").
RECITALS
A. Concurrently with the execution of this Agreement, Parent, the Company
and Scorpion Acquisitions Corporation, a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), are entering into an Agreement and Plan of
Reorganization (the "Merger Agreement") which provides for the merger (the
"Merger") of Merger Sub and the Company. Pursuant to the Merger, all of the
issued and outstanding shares of capital stock of the Company owned by
Stockholder will be converted at the Effective Time (as defined in the Merger
Agreement) into shares of Common Stock of Parent and the right to receive cash
on the basis described in the Merger Agreement.
B. Stockholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of the number
of outstanding shares of capital stock of the Company indicated on Annex I to
this Agreement.
C. Stockholder has been advised that Stockholder may be deemed to be an
"affiliate" of the Company, as the term "affiliate" is used for purposes of
Paragraphs "(c)" and "(d)" of Rule 145 of the Rules and Regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the "Commission");
and
D. As a material inducement to enter into the Merger Agreement, Parent
desires the Stockholder to agree, and in consideration of good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, the
Stockholder is willing to agree, to vote the Shares and New Shares (as defined
below) so as to facilitate consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties agree as
follows:
1. Agreement to Vote Shares; Additional Purchases; Transfers and
Encumbrance.
1.1 Agreement to Vote Shares. During the term of this Agreement, at every
meeting of the stockholders of the Company called with respect to any of the
following, and at every adjournment thereof, and on every action or approval by
written consent of the stockholders of the Company with respect to any of the
following, Stockholder shall cause the Shares and any New Shares (as defined
below) to be voted:
(i) in favor of approval of the Merger and the adoption and approval
of the Merger Agreement including all actions contemplated thereby; and
(ii) against approval of any proposal made in opposition to, or in
competition with, consummation of the Merger and the Merger Agreement.
1.2 Definition. For purposes of this Agreement, "Shares" shall mean all
issued and outstanding shares of capital stock of the Company for which
Stockholder is the beneficial owner or over which Stockholder has voting
control, including any securities convertible into, or exercisable or
exchangeable for shares of the Company's capital stock, all as set forth on
Annex I attached hereto.
1.3 Additional Purchases. Stockholder agrees that any shares of capital
stock of the Company that Stockholder purchases or with respect to which
Stockholder otherwise acquires beneficial
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ownership or voting control after the execution of this Agreement and prior to
the date of termination of this Agreement ("New Shares") shall be subject to the
terms and conditions of this Agreement to the same extent as if they constituted
Shares.
1.4 Transfer and Encumbrance. Without the prior written consent of Parent,
Stockholder agrees not to transfer, sell, exchange, pledge, gift, or otherwise
dispose of or encumber (collectively, "Transfer") any of the Shares or any New
Shares or to discuss, negotiate, or make any offer or agreement relating
thereto. Stockholder acknowledges that the intent of the foregoing sentence is
to ensure that Parent retains the right under the Proxy (as defined in Section 2
hereof) to vote the Shares and any New Shares in accordance with the terms of
the Proxy.
2. Irrevocable Proxy. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to Parent a proxy in the form attached hereto as
Exhibit A (the "Proxy") with respect to the Shares and New Shares, which,
subject to Section 7 hereof, shall be irrevocable to the fullest extent
permitted by applicable law.
3. Representations and Warranties of the Stockholder.
(i) Stockholder is the beneficial owner of the Shares free and clear
of any liens, claims, options, charges or other encumbrances.
(ii) Stockholder does not beneficially own any securities of the
Company other than the shares of Common Stock of the Company and options
and warrants to purchase shares of Common Stock of the Company indicated on
Annex I to this Agreement.
(iii) Stockholder (A) has full authority to vote and direct the voting
of the Shares; (B) does not beneficially own any securities of the Company
other than the Shares indicated on the final page of this Agreement; and
(C) has full power and authority to make, enter into and carry out the
terms of this Agreement and the Proxy.
(iv) Stockholder acknowledges and understands that the
representations, warranties and covenants by Stockholder set forth herein
shall be relied upon by Parent, the Company and their respective
affiliates, and counsel, and that substantial losses and damages may be
incurred by these persons if Stockholder's representations, warranties or
covenants are breached. Stockholder has carefully read this Agreement and
the Merger Agreement and has discussed the requirements of this Agreement
with Stockholder's professional advisors, who are qualified to advise
Stockholder with regard to such matters.
4. Compliance with Rule 145 and the Securities Act.
4.1 Stockholder has been advised that (i) the issuance of shares of Parent
Common Stock in connection with the Merger is expected to be effected pursuant
to a registration statement on Form S-4 promulgated under the Securities Act of
1933, as amended (the "Securities Act"), and the resale of such shares by
Stockholder shall be subject to the terms of this Agreement, and (ii)
Stockholder may be deemed to be an affiliate of the Company. Stockholder
accordingly agrees not to sell, transfer or otherwise dispose of any Parent
Common Stock issued to Stockholder in the Merger unless (i) such sale, transfer
or other disposition is made in conformity with the requirements of Rule 145(d)
promulgated under the Securities Act ("Rule 145"), (ii) such sale, transfer or
other disposition is made pursuant to an effective registration statement under
the Securities Act or an appropriate exemption from registration, (iii)
Stockholder delivers to Parent a written opinion of counsel, reasonably
acceptable to Parent in form and substance, that such sale, transfer or other
disposition is otherwise exempt from registration under the Securities Act or
(iv) an authorized representative of the Commission shall have rendered written
advice ("No-Action Correspondence") to Stockholder to the effect that the
Commission would take no action, or that the staff of the
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Commission would not recommend that the Commission take any action, with respect
to the proposed sale, transfer or other disposition if consummated.
4.2 Parent shall give stop transfer instructions to its transfer agent
with respect to any Parent Common Stock received by Stockholder pursuant to the
Merger and there shall be placed on the certificates representing such Common
Stock, or any substitutions therefor, issued prior to the termination of the
restrictions described in Section 4.1 a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145 APPLIES AND MAY ONLY BE TRANSFERRED (A) IN CONFORMITY WITH
RULE 145(D), (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, (C) IN ACCORDANCE WITH A WRITTEN
OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER IN FORM AND
SUBSTANCE, THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR (D) AS IS OTHERWISE PERMITTED UNDER
THAT CERTAIN COMPANY VOTING/AFFILIATE AGREEMENT DATED AS OF JANUARY ,
2000, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE ISSUER."
The legend set forth above shall be removed (by delivery of a substitute
certificate without such legend) and Parent shall instruct its transfer agent to
remove such legend, if Stockholder delivers to Parent (i) satisfactory written
evidence that the shares have been sold in compliance with Rule 145 (in which
case, the substitute certificate shall be issued in the name of the transferee),
(ii) a copy of the No-Action Correspondence, or (iii) an opinion of counsel, in
form and substance reasonably satisfactory to Parent, to the effect that public
sale of the shares by the holder thereof is no longer subject to Rule 145.
5. Additional Documents; Stockholder Agreement. Stockholder hereby
covenants and agrees to execute and deliver any additional documents necessary
or desirable, in the reasonable opinion of Parent, to carry out the intent of
this Agreement.
6. Parent Information. From and after the Effective Time, and as long as is
necessary in order to permit Stockholder to sell Parent Common Stock held by
Stockholder pursuant to Rule 145, Parent shall file on a timely basis all
reports required to be filed by it pursuant to the Exchange Act, and shall
otherwise make available adequate information regarding Parent in such manner as
may be required to satisfy the requirements of Rule 144(c) under the Rules and
Regulations.
7. Termination. This Agreement and the Proxy shall terminate and shall have
no further force or effect as of the earlier to occur of (i) such date and time
as the Merger shall become effective in accordance with the terms and provisions
of the Merger Agreement or (ii) such date and time as the Merger Agreement shall
have been terminated in accordance with its terms.
8. Miscellaneous.
8.1 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
8.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns and any person or
entity to which legal or beneficial ownership of such Shares or New Shares shall
pass whether by operation of law or otherwise, but, except as otherwise
specifically
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provided herein, neither this Agreement nor any of the rights, interests or
obligations of the parties hereto may be assigned by either of the parties
without prior written consent of the other.
8.3 Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
8.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Parent will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Parent upon any such violation, Parent
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Parent at law
or in equity.
8.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person or sent by overnight courier by a reputable carrier (prepaid) to the
respective parties as follows:
If to Parent:
ScanSoft, Inc. 9 Centennial Drive Peabody, MA 01960 Attn: President
and Chief Executive Officer
With a copy to:
Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto,
California 94304-1050 Attention: Katharine A. Martin, Esq. Daniel R.
Mitz, Esq
If to the Stockholder:
To the address for notice set forth on the signature page hereof.
With a copy to:
Cooley Godward LLP 5 Palo Alto Square 3000 El Camino Real Palo Alto,
California 94306 Attention: Keith Flaum, Esq.
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
8.6 Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of Delaware (without
regard to the principles of conflict of laws thereof).
8.7 Further Assurances. Stockholder shall execute and/or cause to be
delivered to Parent such instruments and other documents and shall take such
other actions as Parent may reasonably request to effectuate the intent and
purposes of this Agreement.
8.8 Third Party Reliance. Counsel to Parent and the Company shall be
entitled to rely upon this Agreement.
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8.9 Survival. The representations, warranties, covenants contained in
Section 4 of this Agreement shall survive the Merger.
8.10 Entire Agreement. This Agreement contains the entire understanding of
the parties in respect of the subject matter hereof, and supersedes all prior
negotiations and understandings between the parties with respect to such subject
matter.
8.11 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
8.12 Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Company Voting/Affiliate
Agreement to be duly executed on the date and year first above written.
PARENT
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
STOCKHOLDER:
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
Stockholder's Address for Notice:
--------------------------------------
--------------------------------------
--------------------------------------
[SIGNATURE PAGE TO COMPANY VOTING/AFFILIATE AGREEMENT]
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ANNEX I
Stockholder beneficially owns and has voting control over the following
capital stock of the Company:
COMMON STOCK
1. __________ shares of Common Stock of the Company.
OPTIONS, WARRANTS AND OTHER CONVERTIBLE SECURITIES
1. __________ shares of Stock issuable upon exercise of Stock
Options.
2. __________ shares of Stock issuable upon exercise of
Warrants.
3. __________ shares of Stock issuable upon exercise or
conversion of other outstanding securities of the Company.
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EXHIBIT A
IRREVOCABLE PROXY
The undersigned Stockholder of Caere Corporation, a Delaware corporation
(the "Company"), hereby irrevocably appoints the directors on the Board of
Directors of ScanSoft, Inc., a Delaware corporation ("Parent"), and each of
them, as the sole and exclusive attorneys and proxies of the undersigned, with
full power of substitution and resubstitution, to the full extent of the
undersigned's rights with respect to the voting of the Shares and New Shares (as
each such term is defined in the Company Voting/Affiliate Agreement of even date
between Parent and the Stockholder (the "Voting Agreement")) on the matters
described below (and on no other matter), until such time as the Voting
Agreement shall be terminated in accordance with its terms. Upon the execution
hereof, all prior proxies given by the undersigned with respect to the Shares
and any and all other shares or securities issued or issuable in respect thereof
on or after the date hereof are hereby revoked and no subsequent proxies will be
given.
This proxy is irrevocable (to the fullest extent permitted by law and
subject to the termination of the Proxy as set forth in Section 7 of the Voting
Agreement), is granted pursuant to the Voting Agreement, is granted in
consideration of Parent entering into the Merger Agreement (as defined in the
Voting Agreement) and is coupled with an interest. The attorneys and proxies
named above will be empowered at any time prior to the termination of this proxy
pursuant to Section 7 of the Voting Agreement to exercise all voting rights
(including, without limitation, the power to execute and deliver written
consents with respect to the Shares and the New Shares) of the undersigned at
every annual, special or adjourned meeting of the Company's stockholders, and in
every written consent in lieu of such a meeting, or otherwise, to vote the
Shares and the New Shares:
(i) in favor of approval of the Merger (as defined in the Voting
Agreement) and the adoption and approval of the Merger Agreement including
all actions contemplated thereby; and
(ii) against approval of any proposal made in opposition to, or in
competition with, consummation of the Merger and the Merger Agreement
(collectively, the matters identified in clauses "(i)" and "(ii)" hereof
are referred to herein as the "Specified Matters").
The attorneys and proxies named above may only exercise this proxy to vote
the Shares and any New Shares subject hereto at any time prior to the
termination of this proxy pursuant to Section 7 of the Voting Agreement, at
every annual, special or adjourned meeting of the stockholders of the Company
and in every written consent in lieu of such meeting. The undersigned
Stockholder may vote the Shares and New Shares on all matters other than the
Specified Matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable and coupled with an interest.
Dated: January 15, 2000
Signature of Stockholder:
Print Name of Stockholder:
***PROXY***
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ANNEX C
PARENT VOTING AGREEMENT
This Parent Voting Agreement ("Agreement") is made and entered into as of
January 15, 2000, between Caere Corporation, a Delaware corporation (the
"Company"), and the undersigned stockholder ("Stockholder") of ScanSoft, Inc., a
Delaware corporation ("Parent").
RECITALS
A. Concurrently with the execution of this Agreement, Parent, the Company
and Scorpion Acquisitions Corporation, a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), are entering into an Agreement and Plan of
Reorganization attached hereto and made a part hereof (the "Merger Agreement")
which provides for the merger (the "Merger") of Merger Sub and the Company.
Pursuant to the Merger, all of the issued and outstanding shares of capital
stock of the Company will be converted at the Effective Time (as defined in the
Merger Agreement) into shares of Common Stock of Parent and the right to receive
cash on the basis described in the Merger Agreement.
B. Stockholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of the number of outstanding shares
of capital stock of the Company indicated on Annex I to this Agreement.
C. As a material inducement to enter into the Merger Agreement, Parent and
the Company desire the Stockholder to agree, and in consideration of good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the Stockholder is willing to agree, to vote the Shares and New
Shares (as defined below) so as to facilitate consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties agree as
follows:
1. Agreement to Vote Shares; Additional Purchases; Transfers and
Encumbrance.
1.1 Agreement to Vote Shares. During the term of this Agreement, at every
meeting of the stockholders of Parent called with respect to any of the
following, and at every adjournment thereof, and on every action or approval by
written consent of the stockholders of Parent with respect to any of the
following, Stockholder shall cause the Shares and any New Shares (as defined
below) to be voted in favor of the issuance of shares of Parent Common Stock
pursuant to the Merger, and an amendment to Parent's certificate of
incorporation to increase the authorized number of shares of Parent Common Stock
by an amount sufficient to permit Parent to effect the lawful and valid issuance
to the stockholders of the Company of that number of shares of Parent Common
Stock to be issued to the stockholders of the Company pursuant to the Merger
Agreement.
1.2 Definition. For purposes of this Agreement, "Shares" shall mean all
issued and outstanding shares of capital stock of Parent for which Stockholder
is the beneficial owner or over which Stockholder has voting control, including
any securities convertible into, or exercisable or exchangeable for shares of
Parent's capital stock, all as set forth on Annex I attached hereto.
1.3 Additional Purchases. Stockholder agrees that any shares of capital
stock of Parent that Stockholder purchases or with respect to which Stockholder
otherwise acquires beneficial ownership or voting control after the execution of
this Agreement and prior to the date of termination of this Agreement ("New
Shares") shall be subject to the terms and conditions of this Agreement to the
same extent as if they constituted Shares.
1.4 Transfer and Encumbrance. Without the prior written consent of the
Company, Stockholder agrees not to transfer, sell, exchange, pledge, gift, or
otherwise dispose of or encumber (collectively, "Transfer") any of the Shares or
any New Shares or to make any offer or agreement
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relating thereto. Stockholder acknowledges that the intent of the foregoing
sentence is to ensure that the Company retains the right under the Proxy (as
defined in Section 2 hereof) to vote the Shares and any New Shares in accordance
with the terms of the Proxy.
2. Irrevocable Proxy. Concurrently with the execution of this Agreement,
Stockholder agrees to deliver to the Company a proxy in the form attached hereto
as Exhibit A (the "Proxy") with respect to the Shares and New Shares, which,
subject to Section 6 hereof, shall be irrevocable to the fullest extent
permitted by applicable law.
3. Representations and Warranties of the Stockholder.
(i) Stockholder is the beneficial owner of the Shares free and clear
of any liens, claims, options, charges or other encumbrances.
(ii) Stockholder does not beneficially own any securities of Parent
other than the shares of Common Stock of Parent and options and warrants to
purchase shares of Common Stock of Parent indicated on Annex I to this
Agreement.
(iii) Except as set forth in the Voting Agreement dated as of March 2,
1999, by and among Parent, Xerox Corporation, and certain of the
stockholders of Parent, Stockholder (A) has full authority to vote and
direct the voting of the Shares; (B) does not beneficially own any
securities of Parent other than the Shares indicated on the final page of
this Agreement; and (C) has full power and authority to make, enter into
and carry out the terms of this Agreement and the Proxy.
4. Additional Documents; Stockholder Agreement. Stockholder hereby
covenants and agrees to execute and deliver any additional documents necessary
or desirable, in the reasonable opinion of the Company, to carry out the intent
of this Agreement.
5. Consent and Waiver. During the term of this Agreement, Stockholder shall
give any consents or waivers that are reasonably required for the consummation
of the Merger pursuant to the merger agreement under the terms of any agreements
to which Stockholder is a party or pursuant to any rights Stockholder may have.
6. Termination. This Agreement and the Proxy shall terminate and shall have
no further force or effect as of the earlier to occur of (i) such date and time
as the Merger shall become effective in accordance with the terms and provisions
of the Merger Agreement, (ii) such date and time as the Merger Agreement shall
have been terminated in accordance with its terms, or (iii) the amendment,
extension or waiver of any of the material provisions of the Merger Agreement
unless Stockholder has given its prior written consent to same.
7. Miscellaneous.
7.1 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
7.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns and any person or
entity to which legal or beneficial ownership of such Shares or New Shares shall
pass whether by operation of law or otherwise, but, except as otherwise
specifically provided herein, neither this Agreement nor any of the rights,
interests or obligations of the parties hereto may be assigned by either of the
parties without prior written consent of the other.
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7.3 Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
7.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that the Company will be irreparably harmed and that there will be
no adequate remedy at law for a violation of any of the covenants or agreements
of Stockholder set forth herein. Therefore, it is agreed that, in addition to
any other remedies that may be available to the Company upon any such violation,
the Company shall have the right to enforce such covenants and agreements by
specific performance, injunctive relief or by any other means available to the
Company at law or in equity.
7.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered in
person or sent by overnight courier by a reputable carrier (prepaid) to the
respective parties as follows:
If to the Company:
Caere Corporation
100 Cooper Court
Los Gatos, CA 95030
Attn: President and Chief Executive Officer
With a copy to:
Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Attention: Keith Flaum, Esq.
If to the Stockholder:
To the address for notice set forth on the signature page hereof.
With a copy to:
Xerox Corporation
P.O. Box 1600
800 Long Ridge Road
Stamford, Connecticut 06904
Attention: Senior Vice President and General Counsel
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
7.6 Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of Delaware (without
regard to any principles of conflict of laws thereof which would require a
different choice of law).
7.7 Entire Agreement. This Agreement contains the entire understanding of
the parties in respect of the subject matter hereof, and supersedes all prior
negotiations and understandings between the parties with respect to such subject
matter.
7.8 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
7.9 Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Parent Voting Agreement to
be duly executed on the date and year first above written.
COMPANY
By: /s/ ROBERT TERESI
------------------------------------
Name: Robert Teresi
Title: President and Chief Executive
Officer
STOCKHOLDER:
XEROX IMAGING SYSTEMS, INC.
By: /s/ PAUL RICCI
------------------------------------
Name: Paul Ricci
Title:
Stockholder's Address for Notice:
P. O. Box 1600
800 Long Ridge Road
Stamford, Connecticut 06904
[SIGNATURE PAGE TO PARENT VOTING AGREEMENT]
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ANNEX I
Stockholder beneficially owns and has voting control over the following
capital stock of Parent:
COMMON STOCK
1. 11,853,602 shares of Common Stock of Parent.
OPTIONS, WARRANTS AND OTHER CONVERTIBLE SECURITIES
1. 0 shares of capital stock issuable upon exercise of Stock Options.
2. 316,630 shares of Common Stock issuable upon exercise of Warrants (as of
January 14, 2000).
3. 3,562,238 shares of Series B Preferred Stock issuable upon exercise or
conversion of other outstanding securities of Parent.
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EXHIBIT A
IRREVOCABLE PROXY
The undersigned Stockholder of ScanSoft, Inc., a Delaware corporation (the
"Parent"), hereby irrevocably appoints the directors on the Board of Directors
of Caere Corporation, a Delaware corporation (the "Company"), and each of them,
as the sole and exclusive attorneys and proxies of the undersigned, with full
power of substitution and resubstitution, to the full extent of the
undersigned's rights with respect to the voting of the Shares and New Shares (as
each such term is defined in the Parent Voting Agreement of even date between
Parent and the Stockholder (the "Voting Agreement")) on the matters described
below (and on no other matter), until such time as the Voting Agreement shall be
terminated in accordance with its terms. Upon the execution hereof, all prior
proxies given by the undersigned with respect to the Shares and any and all
other shares or securities issued or issuable in respect thereof on or after the
date hereof are hereby revoked and no subsequent proxies will be given.
This proxy is irrevocable (to the fullest extent permitted by law and
subject to the termination of the Proxy as set forth in Section 6 of the Voting
Agreement), is granted pursuant to the Voting Agreement, is granted in
consideration of the Company entering into the Merger Agreement (as defined in
the Voting Agreement) and is coupled with an interest. The attorneys and proxies
named above will be empowered at any time prior to the termination of this proxy
pursuant to Section 6 of the Voting Agreement to exercise all voting rights
(including, without limitation, the power to execute and deliver written
consents with respect to the Shares and the New Shares) of the undersigned at
every annual, special or adjourned meeting of Parent's stockholders, and in
every written consent in lieu of such a meeting, or otherwise, to vote the
Shares and the New Shares in favor of the issuance of shares of Parent Common
Stock pursuant to the Merger (as defined in the Voting Agreement), and an
amendment to Parent's certificate of incorporation to increase the authorized
number of shares of Parent Common Stock by an amount sufficient to permit Parent
to effect the lawful and valid issuance to the stockholders of the Company of
the number of shares of Parent Common Stock to be issued to the stockholders of
the Company pursuant to the Merger Agreement (collectively, the "Specified
Matters").
The attorneys and proxies named above may only exercise this proxy to vote
the Shares and any New Shares subject hereto at any time prior to the
termination of this proxy pursuant to Section 6 of the Voting Agreement, at
every annual, special or adjourned meeting of the stockholders of Parent and in
every written consent in lieu of such meeting. The undersigned Stockholder may
vote the Shares and New Shares on all matters other than the Specified Matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable and coupled with an interest.
Dated: January 15, 2000
Signature of Stockholder:
/s/ Paul Ricci, for Xerox Imaging
Systems, Inc.
--------------------------------------
Print Name of Stockholder:
Xerox Imaging Systems, Inc.
--------------------------------------
***PROXY***
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ANNEX D
NON-COMPETITION AND CONSULTING AGREEMENT
This Non-Competition and Consulting Agreement is made by and between
ScanSoft, Inc., a Delaware corporation ("ScanSoft"), and you, Robert Teresi
("Teresi"), effective (the "Effective Date") as of the closing (the "Closing")
of the Agreement and Plan of Merger (the "Merger Agreement") among ScanSoft,
ScanSoft Acquisition Corp., a Delaware corporation ("Acquisition Corp."), and
Caere corporation, a Delaware corporation ("Caere").
WHEREAS Teresi is the President and Chief Executive Officer and a
substantial stockholder of Caere;
WHEREAS pursuant to the Merger Agreement, Caere will merge with and into
Acquisition Corp. and Acquisition Corp. will survive the merger as a wholly
owned subsidiary of ScanSoft;
WHEREAS to preserve the value of Caere's business, Scansoft has required
Teresi to agree to enter into a non-competition agreement and to provide
consulting services to ensure an orderly transition of the businesses of Caere
and its subsidiaries following the merger;
NOW, THEREFORE, in consideration of the Merger Agreement and other promises
contained herein, the parties agree as follows:
1. Position, Duties and Term of Consulting. You will serve as a consultant
to ScanSoft for the three month period beginning on the Effective Date and, at
ScanSoft's option, for up to an additional consecutive three month period
thereafter (the "Consulting Term"). You will render such business and
professional services in the performance of your duties as may be reasonably
requested by ScanSoft to ensure an orderly transition and integration of the
business following the Merger; provided, however, ScanSoft shall not request you
to perform more than 35 hours of service in any single month.
2. Compensation.
(a) For each hour of consulting services that you render to ScanSoft after
the merger, you will be paid a consulting fee of $156. In addition, subject to
Section 2(b) and 2(c) below, within five (5) business days following the second
anniversary of the Closing, ScanSoft shall calculate and pay a cash bonus (the
"Cash Bonus") to you equal in amount to the product of (x) the difference
between $13.50 and the average of the closing prices for ScanSoft's Common Stock
on the Nasdaq Stock Market as reported in the Wall Street Journal during the
five business day period ending on the second anniversary of the Closing and (y)
486,548.
(b) If during the two year period ending on the second anniversary of the
Closing the closing prices for ScanSoft's Common Stock for three consecutive
trading days during any Permitted Window exceeds $13.50, then ScanSoft shall not
be obligated to pay the Cash Bonus with respect to the number of shares that you
owned and sold or could have sold under federal securities laws and ScanSoft's
federal securities law compliance program within the Permitted Window (i.e., the
486,548 figure in Section 2(a) will be reduced by the number of shares that you
owned and sold or could have sold during the Permitted Window). Permitted Window
shall mean any trading day during which Teresi is not precluded from engaging in
transactions in ScanSoft's securities by ScanSoft's federal securities law
compliance program, as such program may be amended from time to time. This
Section 2(b) shall not apply until you have received ScanSoft common stock in
exchange for your Caere common stock or stock options.
(c) Notwithstanding Section 2(a), if Teresi violates Section 3 below or
Section 4.2 of Teresi's Executive Compensation and Benefits Continuation
Agreement dated December 28, 1994 between
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Teresi and Caere (the "Employment Agreement"), Company shall have no obligation
to make any payment of the Cash Bonus hereunder.
(d) The exercise period for all stock options that you have at the time of
the Effective Date shall be extended to the second anniversary of the Closing
provided that any incentive stock options that are not exercised within three
months of the termination of your employment with Caere shall be converted into
nonstatutory stock options that may be exercised up to the second anniversary of
the Closing.
3. Non-Competition and Non-Solicitation.
(a) You agree that during the period beginning on the Effective Date and
ending two years thereafter, you, directly or indirectly, whether as employee,
owner, sole proprietor, partner, director, member, consultant, agent, founder,
co-venturer or otherwise, will: (i) not engage, participate or invest in any
business activity anywhere in the Restricted Territory which produces, sells or
distributes products that compete with Caere's current product line which
includes Caere's OmniPage optical character recognition software, Omniform form
processing software, Pagekeeper desktop management software, and Image AXS
(collectively referred to as "Businesses") except that it will not be a
violation of this Section 3(a)(i) for you to own as a passive investment not
more than one percent of any class of publicly traded securities of any entity;
(ii) not recruit or otherwise solicit, induce or influence any person to leave
employment with the Businesses; and (iii) not directly or indirectly solicit
business from any of Caere's customers and users on behalf of any business that
directly competes with the Businesses.
(b) For all purposes hereof, the term "Restricted Territory" shall mean
each and every country, province, state, city or other political subdivision of
North America, Asia and Europe in which ScanSoft or Caere or any of their
subsidiaries is currently engaged in business or otherwise distributes, licenses
or sells their products.
(c) The covenants contained in Section 3(a) hereof shall be construed as a
series of separate covenants, one for each country, province, state, city or
other political subdivision of the Restricted Territory. Except for geographic
coverage, each such separate covenant shall be deemed identical in terms to the
covenant contained in Section 3(a) hereof. If, in any judicial proceeding, a
court refuses to enforce any of such separate covenants (or any part thereof),
then such unenforceable covenant (or such part) shall be eliminated from this
Agreement to the extent necessary to permit the remaining separate covenants (or
portions thereof) to be enforced. In the event that the provisions of this
Section 3 are deemed to exceed the time, geographic or scope limitations
permitted by applicable law, then such provisions shall be reformed to the
maximum time, geographic or scope limitations, as the case may be, permitted by
applicable laws.
(d) Teresi acknowledges that (i) the goodwill associated with the existing
business, customers and assets of Caere and its subsidiaries are an integral
component of the value of Caere to ScanSoft and is reflected in the portion of
the Per Share Merger Consideration (as that term is defined in the Merger
Agreement) payable to Teresi as a stockholder, and (ii) Teresi's agreement as
set forth herein is necessary to preserve the value of Caere for ScanSoft
following the merger. Teresi also acknowledges that the limitations of time,
geography and scope of activity agreed to in this Agreement are reasonable
because, among other things, (A) Caere and ScanSoft are engaged in a highly
competitive industry, (B) Teresi has unique access to, and will continue to have
access to, the trade secrets and know-how of Caere and its subsidiaries,
including, without limitation, the plans and strategy (and, in particular, the
competitive strategy) of Caere, (C) Teresi is receiving significant
consideration in connection with the merger, and (D) Teresi will be able to
obtain suitable and satisfactory employment without violation of this Agreement.
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4. Non-Disparagement. You agree to refrain from making any negative
comments concerning Caere's or ScanSoft's business, products or services,
officers, employees and directors and to refrain from any, defamation, libel or
slander of Caere or ScanSoft and their respective officers, directors,
employees, investors, shareholders, administrators, affiliates, divisions,
subsidiaries, predecessor and successor corporations, and assigns or tortious
interference with the contracts and relationships of ScanSoft or Caere and their
respective officers, directors, employees, investors, shareholders,
administrators, affiliates, divisions, subsidiaries, predecessor and successor
corporations, and assigns.
5. Assignment. This Agreement will be binding upon and inure to the benefit
of (a) your estate, executors and legal representatives upon your death and (b)
any successor of ScanSoft. Any such successor of ScanSoft will be deemed
substituted for ScanSoft under the terms of this Agreement for all purposes. For
this purpose, "successor" means any person, firm, corporation or other business
entity which at any time, whether by purchase, merger or otherwise, directly or
indirectly acquires all or substantially all of the assets or business of
ScanSoft. None of your rights to receive any form of compensation payable
pursuant to this Agreement may be assigned or transferred except by will or the
laws of descent and distribution. Any other attempted assignment, transfer,
conveyance or other disposition of your right to compensation or other benefits
will be null and void.
6. Notices. All notices, requests, demands and other communications called
for hereunder shall be in writing and will be deemed given (i) on the date of
delivery if delivered personally, (ii) one (1) day after being sent by a well
established commercial overnight service, or (iii) four (4) days after being
mailed by registered or certified mail, return receipt requested, prepaid and
addressed to the parties or their successors at the following addresses, or at
such other addresses as the parties may later designate in writing:
If to ScanSoft:
ScanSoft, Inc.
9 Centennia Drive
Peabody, MA 01969
Attn: Tom D'Errico
If to you:
at the last residential address known by ScanSoft.
7. Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement will continue in full force and effect without said
provision.
8. Confidentiality. During the Consulting Term and thereafter, you agree to
use your best efforts to maintain in confidence any Caere confidential,
proprietary information, technical data, trade secrets or know-how, including,
but not limited to, research, product plans, products, services, customer lists
and customers (including, but not limited to, customers of Caere on whom you
called or with whom you became acquainted during the term of your employment),
markets, software, developments, inventions, processes, formulas, technology,
designs, drawings, engineering, hardware configuration information, marketing,
finances or other business information disclosed to you in confidence by Caere
either directly or indirectly in writing or orally (hereinafter collectively
referred to as "Employment Information"); provided, however, that you will not
be precluded from contacting customers for any businesses that do not compete
with the Businesses which are publicly known. Except as provided in this Section
8, you agree to take every reasonable precaution to prevent disclosure of any
Employment Information to third parties, and agree that there will be no
publicity, directly or indirectly, concerning any Employment Information. You
agree to take every precaution to
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<PAGE> 178
disclose Employment Information only to those attorneys, accountants,
governmental entities and family members who have a reasonable need to know of
such Employment Information.
9. Entire Agreement. This Agreement represents the entire agreement and
understanding between ScanSoft and you concerning the matters contained herein,
and supersedes and replaces any and all prior agreements and understandings
concerning your consulting relationship with ScanSoft. Notwithstanding the
preceding sentence, this Agreement shall have no effect on the Merger Agreement
or any exhibit thereto, the Employment Agreement or Caere's existing employee
and officer benefit plans and programs (including but not limited to Caere's
stock option plans, severance benefit plans and Severance Policy for Executive
Officers in Case of Involuntary Termination).
10. Cooperation With Company. During and after the Consultancy Term, you
will cooperate fully with ScanSoft, including, but not limited to, responding to
requests of ScanSoft's Chairman of the Board, Chief Executive Officer, or Chief
Financial Officer, in connection with any and all existing or future litigation,
arbitrations, mediations or investigations brought by or against ScanSoft or any
of its affiliates, agents, officers, directors or employees, whether
administrative, civil or criminal in nature, in which ScanSoft reasonably deems
your cooperation necessary or desirable. You agree to provide advice, assistance
and information, including offering and explaining evidence, providing sworn
statements, participating in discovery and trial preparation and testimony as
may reasonably be deemed necessary or desirable by ScanSoft relating to its
position in any such legal proceedings. You also agree to promptly send ScanSoft
copies of all correspondence (for example, but not limited to, subpoenas)
received by you in connection with any such legal proceedings, unless you are
expressly prohibited by law from so doing. You will act in good faith to furnish
the information and cooperation required by this Section 10 and ScanSoft will
act in good faith so that the requirement to furnish such information and
cooperation does not create an undue hardship for you. ScanSoft will pay you for
your services required under this Section 9 at the hourly consulting fee rate
set forth in Section 2(a) and will reimburse you for reasonable out-of-pocket
expenses incurred by you as a result of your cooperation, within 10 days of the
presentation of appropriate documentation thereof, in accordance with ScanSoft's
standard reimbursement policies and procedures.
11. No Oral Modification, Cancellation or Discharge. This Agreement may be
changed or terminated only in writing.
12. Withholding. ScanSoft is authorized to withhold, or cause to be
withheld, from any payment or benefit under this Agreement the full amount of
any applicable withholding taxes.
13. Governing Law. This Agreement will be governed by the laws of the State
of California (with the exception of its conflict of laws provisions).
14. Acknowledgment. You acknowledge that you (a) have read this Agreement,
(b) have been represented in the preparation, negotiation, and execution of this
Agreement by legal counsel of your own choice or that you voluntarily have
declined to counsel, (c) understand the terms and consequences of this
Agreement, and (d) are fully aware of the legal and binding effect of this
Agreement.
REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.
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<PAGE> 179
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:
<TABLE>
<S> <C>
ROBERT TERESI
/s/ ROBERT TERESI Date: January 15, 2000
- --------------------------------------------------------
Robert Teresi
SCANSOFT, INC.
/s/ MIKE TIVNAN Date: January 15, 2000
- --------------------------------------------------------
Mike Tivnan
President and Chief Executive Officer
</TABLE>
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<PAGE> 180
ANNEX E
BEAR, STEARNS & CO. INC.
245 PARK AVENUE
NEW YORK, NEW YORK 10167
TEL: (212) 272-2000
ATLANTA - BOSTON
CHICAGO - DALLAS - LOS ANGELES
NEW YORK - SAN FRANCISCO
SAO PAULO - LONDON - PARIS - GENEVA
BEIJING - HONG KONG - SHANGHAI - TOKYO
January 15, 2000
The Board of Directors
Caere Corporation
100 Cooper Court
Los Gatos, CA 95032
Gentlemen:
We understand that Caere Corporation ("Caere"), ScanSoft, Inc. ("ScanSoft")
and ScanSoft Acquisition Corporation propose to enter into an Agreement and Plan
of Reorganization dated January 15, 2000 (the "Agreement") pursuant to which
each outstanding share of common stock of Caere will be exchanged for (i) $4.00
in cash and (ii) $7.75 in ScanSoft common stock (subject to a collar) as more
fully set forth in the Agreement (such cash and common stock is referred to
herein as the "Per Share Consideration") by means of a merger with ScanSoft
Acquisition Corporation (the "Merger"). The Agreement also provides for the
conversion of each outstanding option to acquire Caere common stock into an
option to purchase ScanSoft common stock with adjustments made to reflect the
Per Share Consideration as more fully set forth in the Agreement (such series of
transactions herein collectively referred to as the "Transaction").
You have asked us to render our opinion as to whether the Per Share
Consideration is fair, from a financial point of view, to the shareholders of
Caere.
In the course of performing our review and analyses for rendering this
opinion, we have:
- reviewed a draft of the Agreement;
- reviewed Caere's Annual Report to Shareholders on Form 10-K for the
fiscal year ended December 31, 1998 and its Quarterly Report on Form 10-Q
for the period ended September 30, 1999;
- reviewed certain operating and financial information, including
projections and cost savings and other potential synergies provided to us
by Caere's management relating to Caere's businesses and prospects;
- met with certain members of Caere's senior management to discuss Caere's
businesses, operations, historical and projected financial results and
future prospects;
- reviewed ScanSoft's Annual Report to Shareholders on Form 10-K for the
fiscal year ended January 3, 1999 and its Quarterly Report on Form 10-Q
for the period ended September 30, 1999;
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<PAGE> 181
- reviewed certain operating and financial information, including
projections and cost savings and other potential synergies, provided to
us by ScanSoft's management relating to ScanSoft's businesses and
prospects;
- met with certain members of ScanSoft's senior management to discuss
ScanSoft's businesses, operations, historical and projected financial
results and future prospects;
- reviewed the historical prices, valuation parameters and trading volume
of the common shares of Caere and ScanSoft;
- reviewed publicly available financial data, stock market performance data
and valuation parameters of companies which we deemed generally
comparable to Caere and ScanSoft;
- reviewed the terms of recent acquisitions of companies which we deemed
generally comparable to Caere and the Transaction;
- performed discounted cash flow analyses based on the projections for
Caere and ScanSoft furnished to us;
- reviewed the pro forma financial results, financial condition and
capitalization of ScanSoft giving effect to the Transaction; and
- conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
We have relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information, including,
without limitation, the projections and cost savings and other potential
synergies provided to us by Caere and ScanSoft. With respect to Caere's and
ScanSoft's projected financial results and the potential synergies that could be
achieved upon consummation of the Transaction, we have assumed that they have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the senior managements of Caere and ScanSoft as to
the expected future performance of Caere and ScanSoft, respectively. We have not
assumed any responsibility for the independent verification of any such
information or of the projections provided to us, and we have further relied
upon the assurances of the senior management of Caere and ScanSoft that they are
unaware of any facts that would make the information, including the projections,
provided to us incomplete or misleading.
In arriving at our opinion, we have not performed or obtained any
independent appraisal of the assets or liabilities of Caere, nor have we been
furnished with any such appraisals. During the course of our engagement, we were
asked by the Board of Directors to solicit indications of interest from various
third parties regarding a transaction with Caere, and we have considered the
results of such solicitation in rendering our opinion. We have assumed that the
Transaction will be consummated without any regulatory limitations,
restrictions, conditions, amendments or modifications that, collectively, would
have a material effect on Caere or ScanSoft. Our opinion is necessarily based on
economic, market and other conditions, and the information made available to us,
as of the date hereof.
We do not express any opinion as to the price or range of prices at which
the shares of common stock of Caere and ScanSoft may trade subsequent to the
announcement of the Merger or as to the price or range of prices at which the
shares of common stock of ScanSoft may trade subsequent to the consummation of
the Merger.
We have acted as a financial advisor to Caere in connection with the
Transaction and will receive a fee for such services. In the ordinary course of
business, Bear Stearns may actively trade the equity securities of Caere and/or
ScanSoft for our own account and for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
E-2
<PAGE> 182
It is understood that this letter is intended for the benefit and use of
the Board of Directors of Caere and does not constitute a recommendation to the
Board of Directors of Caere or any holders of Caere common stock as to how to
vote their shares in connection with the Merger. This opinion does not address
Caere's underlying business decision to pursue the Transaction. This letter is
not to be used for any other purpose, or reproduced, disseminated, quoted to or
referred to at any time, in whole or in part, without our prior written consent;
provided, however, that this letter may be included in its entirety in any joint
proxy statement to be distributed to the holders of Caere common stock in
connection with the Transaction.
Based on and subject to the foregoing, it is our opinion that, as of the
date hereof, the Per Share Consideration is fair, from a financial point of
view, to the shareholders of Caere.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ EDWARD RIMLAND
------------------------------------
Edward Rimland
Senior Managing Director
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<PAGE> 183
ANNEX F
Investment Banking
Corporate and Institutional
Client Group
[MERRILL LYNCH LOGO] World Financial Center
North Tower
New York, New York 10281-1320
212 449 1000
January 15, 2000
Board of Directors
ScanSoft, Inc.
9 Centennial Drive
Peabody, MA 01960
Members of the Board of Directors:
ScanSoft, Inc. (the "Acquiror") and Caere Corporation (the "Company")
propose to enter into an Agreement and Plan of Reorganization (the "Agreement")
pursuant to which the Company will be merged (the "Merger") with a newly formed,
wholly owned subsidiary of the Acquiror. Pursuant to the Merger, each
outstanding share of the Company's common stock, par value $.001 per share (the
"Company Shares"), will be converted into the right to receive (i) such number
of shares (rounded to five decimal points) of the Acquiror's common stock, par
value $.001 per share (the "Acquiror Shares"), as shall be equal to $7.75
divided by the Average Trading Price (as defined below), and (ii) $4.00 in cash
(the "Cash Consideration"). The Agreement also provides that if the Average
Trading Price is less than $4.50 per share, the Average Trading Price will be
deemed to be $4.50 per share, and if the Average Trading Price is greater than
$8.50 per share, the Average Trading Price will be deemed to be $8.50 per share.
For purposes of our opinion, the term "Average Trading Price" means the average
closing sale price of one share of Acquiror Shares as reported on the Nasdaq
National Market System for the ten consecutive trading days ending on the
trading day immediately preceding the closing date of the Merger, and the term
"Consideration" means the aggregate amount of cash and Acquiror Shares to be
paid by the Acquiror pursuant to the Merger.
You have asked us whether, in our opinion, the Consideration to be paid by
the Acquiror pursuant to the Merger is fair from a financial point of view to
the Acquiror.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to the Company and the Acquiror that we deemed to be
relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and
prospects of the Company and the Acquiror, as well as the amount and
timing of the cost savings and related expenses and synergies expected
to result from the Merger (the "Expected Synergies") furnished to us
by the Acquiror;
(3) Conducted discussions with members of senior management and
representatives of the Company and the Acquiror concerning the matters
described in clauses 1 and 2 above, as well as their respective
businesses and prospects before and after giving effect to the Merger
and the Expected Synergies;
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<PAGE> 184
(4) Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions that we deemed to be relevant;
(5) Participated in certain discussions and negotiations among
representatives of the Company and the Acquiror and their financial
and legal advisors;
(6) Reviewed the potential pro forma impact of the Merger;
(7) Reviewed a draft dated January 14, 2000 of the Agreement; and
(8) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or the Acquiror or been furnished with any such
evaluation or appraisal. In addition, we have not assumed any obligation to
conduct any physical inspection of the properties or facilities of the Company
or the Acquiror. With respect to the financial forecast information and the
Expected Synergies furnished to or discussed with us by the Company or the
Acquiror, we have assumed that they have been reasonably prepared and reflect
the best currently available estimates and judgment of the Company's or the
Acquiror's management as to the expected future financial performance of the
Company or the Acquiror, as the case may be, and the Expected Synergies. We have
further assumed that the Merger will qualify as a tax-free reorganization for
U.S. federal income tax purposes. We have also assumed that the final form of
the Agreement will be substantially similar to the last draft reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger.
In connection with the preparation of this opinion, we have not been
authorized by the Acquiror or the Board of Directors to solicit, nor have we
solicited, third party indications of interest for the acquisition of all or any
part of the Acquiror.
We are acting as financial advisor to the Acquiror in connection with the
Merger and will receive a fee from the Acquiror for our services, a significant
portion of which is contingent upon the consummation of the Merger. In addition,
the Acquiror has agreed to indemnify us for certain liabilities arising out of
our engagement. We have, in the past, provided financial advisory services to
the Acquiror and certain of its affiliates and may continue to do so and have
received, and may receive, fees for the rendering of such services. In addition,
in the ordinary course of our business, we may actively trade the Company
Shares, as well as the Acquiror Shares, for our own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities.
This opinion is for the use and benefit of the Board of Directors of the
Acquiror. Our opinion does not address the merits of the underlying decision by
the Acquiror to engage in the Merger and does not constitute a recommendation to
any shareholder of the Acquiror as to how such shareholder should vote on the
proposed issuance of Acquiror Shares in connection with the Merger or any matter
related thereto.
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We are not expressing any opinion herein as to the prices at which the
Acquiror Shares will trade following the announcement or consummation of the
Merger.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Consideration to be paid by the Acquiror pursuant to
the Merger is fair from a financial point of view to the Acquiror.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
F-3
<PAGE> 186
ANNEX G
APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec.228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251 (other than a merger effected pursuant to
sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263 or
sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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<PAGE> 187
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided,
G-2
<PAGE> 188
however, that if such second notice is sent more than 20 days following the
sending of the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent
of the corporation that is required to give either notice that such notice
has been given shall, in the absence of fraud, be prima facie evidence of
the facts stated therein. For purposes of determining the stockholders
entitled to receive either notice, each constituent corporation may fix, in
advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after
the effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
G-3
<PAGE> 189
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
G-4
<PAGE> 190
ANNEX H
AMENDMENT TO SCANSOFT CERTIFICATE OF INCORPORATION
------------------------
CERTIFICATE OF AMENDMENT OF THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF SCANSOFT, INC.
The undersigned certifies that:
1. He is the Chief Executive Officer of ScanSoft, Inc., a Delaware
corporation.
2. The first paragraph of Article IV of the Amended and Restated
Certificate of Incorporation of this corporation is amended to read as
follows:
"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."
3. The foregoing amendment of the Amended and Restated Certificate of
Incorporation has been duly approved by the board of directors.
4. The foregoing amendment of the Amended and Restated Certificate of
Incorporation has been duly approved by the required vote of stockholders
in accordance with the Certificate of Incorporation and the provisions of
Section 242 of the Delaware General Corporation Law.
I hereby further declare under penalty of perjury under the laws of the
State of Delaware that the facts set forth in this certificate of amendment are
true and correct of my own knowledge and that this certificate is my act and
deed.
Dated: , 2000
------------------------------------------
Michael Tivnan,
President and Chief Executive Officer
H-1
<PAGE> 191
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") permits
ScanSoft's board of directors to indemnify any person against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with any
threatened, pending or completed action, suit or proceeding in which such person
is made a party by reason of his or her being or having been a director,
officer, employee or agent of ScanSoft, in terms sufficiently broad to permit
such indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act"). The statute provides that indemnification pursuant to
its provisions is not exclusive of other rights of indemnification to which a
person may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
Article XI of ScanSoft's Amended and Restated Certificate of Incorporation
provides that the company is authorized to indemnify its directors, officers,
employees and other agents to the fullest extent permitted by law through bylaw
provisions, agreements, vote of stockholders or disinterested directors or
otherwise, in excess of the indemnification and advancement otherwise provided
by Section 145 of the DGCL, subject only to limits created by Delaware law
(statutory or non-statutory) with respect to actions for breach of duty to
ScanSoft, its stockholders and others.
As permitted by sections 102 and 145 of the DGCL, ScanSoft's Certificate of
Incorporation eliminates a director's personal liability for monetary damages to
ScanSoft and its stockholders arising from a breach of a director's fiduciary
duty, except for (i) liability under section 174 of the DGCL (ii) for any breach
of the director's duty of loyalty to ScanSoft or its stockholders, (iii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, or (iv) for any transaction from which the director
derived an improper personal benefit.
Section 6 of Article VII of ScanSoft's Bylaws provides that the Company
shall indemnify any director to the fullest extent permitted by law who is made,
or threatened to be made, a party to an action, suit or proceeding by reason of
having served as a director or an officer of the Company or a predecessor
corporation, or at the Company's request, the director or officer of another
corporation. In addition, the Company is required to advance the expenses
incurred by a director of the Company in defending an action, suit or proceeding
by reason of the fact that he was a director of the Company, or at the Company's
request, the director or officer of another corporation upon receipt of an
undertaking by such director to repay such amount if it shall ultimately be
determined that such director is not entitled to be indemnified by law;
provided, however, that the Company is not required to advance such expenses if
the director is a party to an action, suit or proceeding brought by the Company
and approved by a majority of the Board of Directors which alleges willful
misappropriation of corporate assets, disclosure of confidential information in
violation of such director's fiduciary or contractual duty to the Company or any
other willful and deliberate breach in bad faith of such director's duty to the
Company. The Bylaws also give the Board of Directors the authority to indemnify
any officer or employee of the Company.
The Company enters into indemnification agreements with its executive
officers and directors providing for indemnification to the fullest extent
permitted by Delaware law.
In addition, ScanSoft maintains officers' and directors' insurance covering
certain liabilities that may be incurred by officers and directors in the
performance of their duties.
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<PAGE> 192
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
See Exhibit Index for the list of exhibits following the Signature Page of
this Form S-4, which is incorporated herein by reference.
(b) Financial Statement Schedules
None.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities and Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus: (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first-class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE> 193
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Peabody, State of
Massachusetts on February 9, 2000.
SCANSOFT, INC.
By: /s/ MICHAEL K. TIVNAN
------------------------------------
Michael K. Tivnan
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael K. Tivnan and John J. Rogers, Jr.
and each of them, jointly and severally, as his attorneys-in-fact, each with
full power of substitution for him in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this registration
statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each said attorneys-in-fact or his substitute
or substitutes may do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MICHAEL K. TIVNAN President, Chief Executive February 9, 2000
------------------------------------------ Officer and Director
Michael K. Tivnan (principal executive officer)
/s/ JOHN J. ROGERS, JR. Chief Financial Officer February 9, 2000
- --------------------------------------------- (principal financial officer and
John J. Rogers, Jr. principal accounting officer)
/s/ PAUL RICCI Chairman of the Board February 9, 2000
------------------------------------------
Paul Ricci
/s/ J. LARRY SMART Director February 9, 2000
------------------------------------------
J. Larry Smart
/s/ MARK MYERS Director February 9, 2000
------------------------------------------
Mark Myers
/s/ KATHARINE A. MARTIN Secretary and Director February 9, 2000
- ---------------------------------------------
Katharine A. Martin
</TABLE>
II-3
<PAGE> 194
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
<C> <S>
2.1(1) Agreement and Plan of Merger dated December 2, 1998 between
ScanSoft, Inc. and Visioneer, Inc.
2.2* Agreement and Plan of Reorganization dated January 15, 2000
between the Registrant, Scorpion Acquisitions Corporation
and Caere Corporation
3.1(2) Bylaws of the Registrant
3.2(3) Amended and Restated Certificate of Incorporation of the
Registrant
3.3 Certificate of Correction to the Amended and Restated
Certificate of Incorporation of the Registrant
4.1(3) Specimen Common Stock Certificate
4.2(4) Preferred Shares Rights Agreement, dated as of October 23,
1996 between the Registrant and U.S. Stock Transfer
Corporation
4.3 Amendment No. 2 to Preferred Shares Rights Agreement, dated
as of January 27, 2000 between the Registrant and U.S. Stock
Transfer Corporation
4.5(5) Voting Agreement dated March 2, 1999 between Xerox, Xerox
Imaging Systems, Inc., the Registrant and several holders
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
8.1 Opinion of Wilson Sonsini Goodrich & Rosati, P.C. as to tax
matters
8.2 Opinion of Cooley Godward LLP as to tax matters
10.1(2) Form of Indemnification Agreement
10.2(2) 1993 Incentive Stock Option Plan and form of Option
Agreement
10.3(2) 1995 Employee Stock Purchase Plan and form of Subscription
Agreement
10.4(2) 1995 Directors' Option Plan and form of Option Agreement
10.5(6) 1997 Employee Stock Option Plan
10.6(6) Director 1997 Compensation Plan
10.7(2) LZW Paper Input System Patent License Agreement dated
October 20, 1995 between the Registrant and Unisys
Corporation
10.8(2) Patent License agreement dated November 13, 1995 between the
Registrant and Wang Laboratories, Inc.
10.9(2) Building Lease dated May 21, 1996 between the Registrant and
John Arrillaga, Trustee, or his Successor Trustee, UTA dated
7/20/77 (Arrillaga Family Trust) as amended, and Richard T.
Peery, Trustee, or his Successor Trustee, UTA dated 7/20/77
(Richard T. Peery, Separate Property Trust), as amended
10.10(2) Software License Agreement dated August 14, 1996 between the
Registrant and Hewlett-Packard Company
10.11(5) Software Distribution Agreement dated April 26, 1995 between
Xerox Imaging Systems, Inc. and Tech Data Corporation
10.12(5) Assignment, Assumption, Renewal and Modification Agreement
dated June 18, 1997 between Xerox Imaging Systems, Inc., the
Registrant and Tech Data Product Management, Inc.
10.13(5) Distribution Agreement dated September 22, 1993 between
Ingram Micro, Inc. and Xerox Imaging Systems, Inc., as
amended
10.14(5) Gold Disk Bundling Agreement: Pagis SE & Pagis Pro, dated
June 29, 1998 between Xerox Corporation, through its
Channels Group and the Registrant
10.15(5) Gold Disk Bundling Agreement dated March 25, 1998 between
Xerox Corporation, Office Document Products Group and the
Registrant
23.1 Consent of PricewaterhouseCoopers LLP
</TABLE>
<PAGE> 195
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
<C> <S>
23.2 Consent of KPMG LLP
23.3 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1)
23.4 Consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated
23.5 Consent of Bear, Stearns & Co. Inc. (included in Annex E to
prospectus/proxy statement)
24.1 Power of Attorney (see signature page)
99.1 Form of proxy for holders of the Registrant's Common Stock
99.2 Form of proxy for holders of Caere Corporation's Common
Stock
</TABLE>
- -------------------------
* Incorporated by reference from Annex A to the Proxy Statement/Prospectus.
(1) Incorporated by reference from the Registrant's registration statement on
Form S-4 (No. 333-70603) filed with the Commission on January 14, 1999.
(2) Incorporated by reference from the Registrant's registration statement on
Form S-1 (No. 33-98356) filed with the Commission on October 19, 1995.
(3) Incorporated by reference from the Registrant's registration statement on
Form S-8 (No. 333-74343) filed with the Commission on March 12, 1999.
(4) Incorporated by reference from the Registrant's current report on Form 8-K
dated October 30, 1996.
(5) Incorporated by reference from the Registrant's annual report on Form 10-K
for the fiscal year ended January 3, 1999.
(6) Incorporated by reference from the Registrant's quarterly report on Form
10-Q for the fiscal quarter ended March 31, 1997.
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF CORRECTION
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SCANSOFT, INC.
ORIGINALLY FILED ON MARCH 2, 1999
Michael K. Tivnan and Katharine A. Martin certify that:
1. They are the President and the Secretary, respectively, of Scansoft,
Inc., a corporation organized under the laws of the State of Delaware (the
"corporation").
2. An Amended and Restated Certificate of Incorporation of the
corporation was filed with the Secretary of State of the State of Delaware on
March 2, 1999 (the "Restated Certificate").
3. The Restated Certificate as filed, due to an administrative error,
omits certain provisions, which need to be included as follows:
ARTICLE IV of the Restated Certificate should correctly read as
follows:
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 Ninety Million (90,000,000) shares. the number of shares
of Common Stock authorized to be issued is Seventy Million (70,000,000), per
value $.001 per share, and the number of shares of Preferred Stock authorized to
be issued is twenty Million (20,000,000), par value $.001 per share.
(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 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
<PAGE> 2
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
-2-
<PAGE> 3
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.
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
-3-
<PAGE> 4
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 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.
-4-
<PAGE> 5
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
-5-
<PAGE> 6
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.
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
-6-
<PAGE> 7
each such holder if all shares of Series B Preferred Stock were converted to
Common Stock at the then effective conversion rate.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or
winding up of this corporation, either voluntary or involuntary, the holders of
Series B Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets of this corporation to the holders of
Common Stock by reason of their ownership thereof, an amount per share equal to
(i) $1.30 for each outstanding share of Series B Preferred Stock (the "Original
Series B Issue Price") plus an amount equal to all declared but unpaid dividends
on each such share. If upon the occurrence of such event, the assets and funds
thus distributed among the holders of the Series B Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of this corporation
legally available for distribution shall be distributed ratably among the
holders of the Series B Preferred Stock in proportion to the product of the
liquidation preference of each such share and the number of such shares owned by
each such holder.
(b) After the distribution described in Section
(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.
-7-
<PAGE> 8
(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 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.
-8-
<PAGE> 9
(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
-9-
<PAGE> 10
upon conversion of the Series B Preferred Stock) shall be applicable after that
event as nearly equivalent as may be practicable.
(f) No Impairment. This corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion rights of the holders of the Series B Preferred Stock against
impairment.
(g) Fractional Shares and Certificate as to
Adjustments.
(i) No fractional shares shall be issued
upon conversion of any share or shares of Series B Preferred Stock. All shares
of Common Stock (including fractions thereof) issuable upon such conversion
shall be aggregated for purposes of determining whether the conversion would
result in the issuance of any fractional share. If, after the aforementioned
aggregation, the conversion would result in the issuance of a fraction of a
share of Common Stock, the corporation shall, in lieu of issuing any fractional
share, pay the holder otherwise entitled to such fraction a sum in cash equal to
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.
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<PAGE> 11
(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:
(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
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<PAGE> 12
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.
(3) COMMON STOCK. This corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least sixty-six and two-thirds percent (66-2/3%) the then outstanding shares of
Common Stock, voting together as a separate class:
(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;
-12-
<PAGE> 13
(E) redeem, purchase or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any share or shares of Common Stock
or Preferred Stock, provided, however, that this restriction shall not apply to
the repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for this corporation or any
subsidiary pursuant to agreements under which this corporation has the option to
repurchase such shares at cost or at cost upon the occurrence of certain events,
such as the termination of employment;
(F) declare or pay any dividends on its Common or Preferred
Stock; or
(G) amend the corporation's Bylaws.
4. This Certificate of Correction does not alter the wording of any
resolution or written consent adopted by the Board of Directors of the
corporation or the corporation's stockholders.
5. 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.
-13-
<PAGE> 14
IN WITNESS WHEREOF, the undersigned have executed this certificate on February
7, 2000.
/s/ MICHAEL K. TIVNAN
----------------------------------------
Michael K. Tivnan, President
/s/ KATHARINE A. MARTIN
----------------------------------------
Katharine A. Martin, Secretary
<PAGE> 1
EXHIBIT 4.3
Amendment No. 2 to
PREFERRED SHARES RIGHTS AGREEMENT
dated as of October 23, 1996, as amended
This Amendment No. 2 (this "Amendment") to PREFERRED SHARES RIGHTS
AGREEMENT dated as of October 23, 1996, as amended (the "Rights Agreement") is
executed by ScanSoft, Inc. (the "Company") and U.S. Stock Transfer Corporation
("Rights Agent") and is effective as of the 27th day of January 2000.
The parties hereto agree as follows:
1. Definitions. Unless specifically designated otherwise, capitalized
terms used herein shall have the same meanings given them in the Rights
Agreement.
2. Amendment. Section 1(a) of the Rights Agreement shall be amended and
restated in its entirety to read as follows:
"(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be
the Beneficial Owner of 20% or more of the Common Shares then
outstanding, but shall not include the Company, any Subsidiary of the
Company or any employee benefit plan of the Company or of any
Subsidiary of the Company, or any entity holding Common Shares for or
pursuant to the terms of any such plan. Notwithstanding the foregoing,
no Person shall be deemed to be an Acquiring Person either (i) as the
result of an acquisition of Common Shares by the Company which, by
reducing the number of shares outstanding, increases the proportionate
number of shares beneficially owned by such Person to 20% or more of
the Common Shares of the Company then outstanding; provided, however,
that if a Person shall become the Beneficial Owner of 20% or more of
the Common Shares of the Company then outstanding by reason of share
purchases by the Company and shall, after such share purchases by the
Company, become the Beneficial Owner of any additional Common Shares
of the Company, then such Person shall be deemed to be an Acquiring
Person, or (ii) if within eight days after such Person would otherwise
become an Acquiring Person (but for the operation of this clause
(ii)), such Person notifies the Board of Directors that such Person
did so inadvertently and within two days after such notification, such
Person is the Beneficial Owner of less than 20% of the outstanding
Common Shares. Notwithstanding the foregoing, neither Caere
Corporation nor any of its Affiliates nor any Affiliates of the
Company set forth on
-1-
<PAGE> 2
Schedule 1 hereto (collectively, the "Approved Persons") shall be
considered an "Acquiring Person" in the event such Approved Person
became or shall become the Beneficial Owner of Common Stock of the
Company pursuant to and not in contravention of (i) that certain
Agreement and Plan of Merger between ScanSoft, Inc. and Visioneer,
Inc. dated as of December 2, 1998 or (ii) that certain Agreement and
Plan of Reorganization dated as of January 15, 2000 by and among
ScanSoft, Inc., Scorpion Acquisitions Corporation and Caere
Corporation (together, the "Merger Agreements").
Section 1(h) of the Rights Agreement shall be amended and restated in its
entirety to read as follows:
"(h) "Distribution Date" shall mean the earlier of (i) the Close
of Business on the tenth day (or such later date as may be determined
by action of a majority of Continuing Directors then in office) after
the Shares Acquisition Date (or, if the tenth day after the Shares
Acquisition Date occurs before the Record Date, the Close of Business
on the Record Date) or (ii) the Close of Business on the tenth day (or
such later date as may be determined by action of a majority of
Continuing Directors then in office) after the date that a tender or
exchange offer by any Person (other than the Company, any Subsidiary
of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company, or any Person or entity organized,
appointed or established by the Company for or pursuant to the terms
of any such plan) is first published or sent or given within the
meaning of Rule 14d-2(a) of the General Rules and Regulations under
the Exchange Act, if, assuming the successful consummation thereof,
such Person would be the Beneficial Owner of 20% or more of the shares
of Common Stock then outstanding. Notwithstanding the foregoing, no
Distribution Date shall occur in the event that any Approved Person
became or shall become the Beneficial Owner of Common Stock of the
Company pursuant to and not in contravention of the Merger Agreements.
Section 1(u) of the Rights Agreement shall be amended and restated in its
entirety to read as follows:
"(u) "Shares Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition, shall
include, without limitation, a report filed pursuant to Section 13(d)
under the Exchange Act) by the Company or an Acquiring Person that an
Acquiring Person has become such;
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<PAGE> 3
provided that, if such Person is determined not to have become an
Acquiring Person pursuant to Section l(a)(ii) hereof, then no Shares
Acquisition Date shall be deemed to have occurred. Notwithstanding the
foregoing, no Shares Acquisition Date shall occur in the event that
any Approved Person became or shall become the Beneficial Owner of
Common Stock of the Company pursuant to and not in contravention of
the Merger Agreements.
3. Effect of Amendment. Except as specifically set forth herein, the
terms and conditions contained in the Rights Agreement shall continue in full
force and effect.
4. Miscellaneous.
4.1 Governing Law. This Amendment shall be governed by and construed
under the laws of the State of Delaware in the United States of America as
applied to agreements among Delaware residents entered into and to be performed
entirely within such state.
4.2 Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.4 Severability. If one or more provisions of this Amendment are
held to be unenforceable under applicable law, portions of such provisions, or
such provisions in their entirety, to the extent necessary, shall be severed
from this Amendment, and the balance of this Amendment shall be enforceable in
accordance with its terms.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
ScanSoft, Inc.
By: /s/ MICHAEL K. TINNAN
-------------------------------------
Name: Michael K. Tinnan
-----------------------------------
Title: President & CEO
----------------------------------
U.S. Stock Transfer Corporation
By: /s/ William Garza
-------------------------------------
Name: William Garza
-----------------------------------
Title: Assistant Vice President
----------------------------------
-4-
<PAGE> 5
Schedule 1
Xerox Corporation and its affiliates
Caere Corporation and its affiliates
-5-
<PAGE> 1
EXHIBIT 5.1
[WILSON SONSINI GOODRICH & ROSATI LETTERHEAD]
February 9, 2000
ScanSoft, Inc.
9 Centennial Drive
Peabody, MA 01960
RE: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have examined the registration statement on Form S-4 to be filed by you
with the Securities and Exchange Commission on or about February 9, 2000 (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of 19,272,887 shares of your Common Stock
(the "Shares"). As your counsel in connection with this transaction, we have
examined the proceedings taken and are familiar with the issuance of the Shares
pursuant to the merger set forth and described in the Registration Statement.
It is our opinion that, when issued in the manner described in the
Registration Statement, the Shares will be legally and validly issued, fully
paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name whenever appearing in the
Registration Statement and any amendments thereto.
Very truly yours,
/s/ WILSON SONSINI GOODRICH & ROSATI
Wilson Sonsini Goodrich & Rosati
Professional Corporation
<PAGE> 1
EXHIBIT 8.1
___________, 2000
ScanSoft, Inc.
9 Centennial Drive
Peabody, MA 01960
Re: Merger Pursuant to Agreement and Plan of Reorganization by and Among
ScanSoft, Inc., Scorpion Acquisition Corporation, and Caere Corporation
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of a
registration statement (the "Registration Statement") on Form S-4, which
includes the Joint Proxy Statement and Prospectus relating to the Agreement and
Plan of Reorganization dated as of January 15, 2000 (the "Merger Agreement"), by
and among ScanSoft, Inc., a Delaware corporation ("Parent"), Scorpion
Acquisitions Corporation, a Delaware corporation and wholly-owned subsidiary of
Parent ("Merger Sub"), and Caere Corporation, a Delaware corporation
("Company"). Pursuant to the Merger Agreement, Company will merge with and into
Merger Sub (the "Merger"). Except as otherwise provided, capitalized terms not
defined herein have the meanings set forth in the Merger Agreement and the
exhibits thereto or in the letters delivered to us by Parent, Merger Sub and
Company containing certain representations relevant to this opinion (the
"Representation Letters"). All Section references, unless otherwise indicated,
are to the United States Internal Revenue Code of 1986, as amended (the "Code").
In our capacity as counsel to Parent in the Merger, and for purposes of
rendering this opinion, we have examined and relied upon the Registration
Statement, the Merger Agreement and the exhibits thereto, the Representation
Letters, and such other documents as we considered relevant to our analysis. In
our examination of documents, we have assumed the authenticity of original
documents, the accuracy of copies, the genuineness of signatures, and the legal
capacity of signatories.
We have assumed that all parties to the Merger Agreement and to any other
documents examined by us have acted, and will act, in accordance with the terms
of such Merger Agreement and documents and that the Merger will be consummated
at the Effective Time pursuant to the terms and conditions set forth in the
Merger Agreement without the waiver or modification of any such terms and
conditions. Furthermore, we have assumed that all representations contained in
the Merger Agreement, as well as those representations contained in the
Representation Letters, are, and at the Effective Time will be, true and
complete in all material respects, and that any representation made in any of
the documents referred to herein "to the best of the knowledge and belief" (or
<PAGE> 2
ScanSoft, Inc.
____________, 2000
Page 2
similar qualification) of any person or party is correct without such
qualification. We have also assumed that as to all matters for which a person or
entity has represented that such person or entity is not a party to, does not
have, or is not aware of, any plan, intention, understanding, or agreement,
there is no such plan, intention, understanding, or agreement. We have not
attempted to verify independently such representations, but in the course of our
representation, nothing has come to our attention that would cause us to
question the accuracy thereof.
The conclusions expressed herein represent our judgment as to the proper
treatment of certain aspects of the Merger under the income tax laws of the
United States based upon the Code, Treasury Regulations, case law, and rulings
and other pronouncements of the Internal Revenue Service (the "IRS") as in
effect on the date of this opinion. No assurances can be given that such laws
will not be amended or otherwise changed prior to the Effective Time, or at any
other time, or that such changes will not affect the conclusions expressed
herein. Nevertheless, we undertake no responsibility to advise you or your
shareholders of any developments after the Effective Time in the application or
interpretation of the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
IRS or any court. Thus, no assurances can be given that a position taken in
reliance on our opinion will not be challenged by the IRS or rejected by a
court.
This opinion addresses only the specific United States federal income tax
consequence of the Merger set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use, or
other tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger). We express
no opinion regarding the tax consequences of the Merger to shareholders of
Parent that are subject to special tax rules (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
persons, stockholders who own their stock as part of a hedge, appreciated
financial position, straddle or conversion transaction, stockholders who do not
own their stock as a capital asset and stockholders who have acquired their
stock upon the exercise of employee options or otherwise as compensation), and
we express no opinion regarding the tax consequences of the Merger arising in
connection with the ownership of options or warrants for Company stock.
On the basis of, and subject to, the foregoing, and in reliance upon the
representations and assumptions described above, we are of the opinion that the
Merger should constitute a reorganization within the meaning of Section 368(a).
In addition to your request for our opinion on this specific matter of
federal income tax law, you have asked us to review the discussion of federal
income tax matters contained in the S-4. We have reviewed the discussion
entitled "Certain Federal Income Tax Considerations" contained in the S-4
<PAGE> 3
ScanSoft, Inc.
____________, 2000
Page 3
and believe that, insofar as it relates to statements of law and legal
conclusions, is correct in all material respects.
No opinion is expressed as to any federal income tax consequence of the
Merger except as specifically set forth herein, and this opinion may not be
relied upon except with respect to the consequence specifically discussed
herein. No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreement or to any transaction whatsoever (including
the Merger) if all the transactions described in the Merger Agreement are not
consummated in accordance with the terms thereof. In the event that any one of
the statements, representations, warranties, or assumptions upon which we have
relied to issue this opinion is incorrect, our opinion might be adversely
affected and may not be relied upon.
This opinion is intended solely for the purpose of inclusion as an exhibit
to the Registration Statement. It may not be relied upon for any other purpose
or by any other person or entity, other than you and your shareholders, and may
not be made available to any other person or entity without our prior written
consent. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, however, we do not hereby admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
Exhibit 8.2
[COOLEY GODWARD LLP LETTERHEAD]
_____________, 2000
Caere Corporation
100 Cooper Court
Los Gatos, CA 95032
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of a
registration statement (the "Registration Statement") on Form S-4, which
includes the Joint Proxy Statement and Prospectus relating to the Agreement and
Plan of Reorganization dated as of January 15, 2000 (the "Reorganization
Agreement") by and among Scansoft, Inc., a Delaware corporation ("Parent"),
Scorpion Acquisitions Corporation, a Delaware corporation and wholly owned
subsidiary of Parent ("Merger Sub"), and Caere Corporation, a Delaware
corporation (the "Company").
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
We have acted as counsel to the Company in connection with the Merger. As such,
and for the purpose of rendering this opinion, we have examined, and are relying
upon (without any independent investigation or review thereof) the truth and
accuracy, at all relevant times, of the statements, covenants, representations
and warranties contained in the following documents (including all exhibits and
schedules attached thereto):
(a) the Reorganization Agreement;
(b) the Registration Statement;
(c) those certain tax representation letters delivered to us by Parent,
Merger Sub and the Company containing certain representations of Parent, Merger
Sub and the Company (the "Tax Representation Letters"); and
(d) such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and the Company and related to
the consummation of the
<PAGE> 2
Page 2
Merger and the other transactions contemplated by the Reorganization Agreement
as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
(a) Original documents submitted to us (including signatures thereto) are
authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the Effective
Time) duly and validly executed and delivered where due execution and delivery
are a prerequisite to the effectiveness thereof;
(b) All representations, warranties and statements made or agreed to by
Parent, Merger Sub and the Company, their managements, employees, officers,
directors and shareholders in connection with the Merger, including, but not
limited to, those set forth in the Reorganization Agreement (including the
exhibits thereto) and the Tax Representation Letters are true and accurate at
all relevant times;
(c) All covenants contained the Tax Representation Letters are performed
without waiver or breach of any material provision thereof;
(d) The Merger will be consummated in accordance with the terms of the
Reorganization Agreement without any waiver, breach, or amendment of any
covenant, condition or other provision thereof;
(e) The Merger will be reported by Parent and the Company on their
respective federal income tax returns in a manner consistent with the opinion
set forth below;
(f) Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification; and
(g) The opinion dated February __, 2000 rendered by Wilson, Sonsini,
Goodrich & Rosati, P.C. to Parent pursuant to Section 6.1(e) of the
Reorganization Agreement has been delivered and has not been withdrawn.
Based on our examination of the foregoing items and subject to the limitations,
qualifications, assumptions and caveats set forth herein, we are of the opinion
that, for federal income tax purposes, the Merger should be a reorganization
within the meaning of Section 368(a) of the Code.
In addition to your request for our opinion on this specific matter of federal
income tax law, you have asked us to review the discussion of federal income tax
matters contained in the S-4. We
<PAGE> 3
Page 3
have reviewed the discussion entitled "Certain Federal Income Tax
Considerations" contained in the S-4 and believe that, insofar as it relates to
statements of law and legal conclusions, is correct in all material respects.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as specifically
set forth herein, and this opinion may not be relied upon except with respect to
the consequences specifically discussed herein. No opinion is expressed as to
the federal income tax treatment that may be relevant to a particular investor
in light of personal circumstances or to certain types of investors subject to
special treatment under the federal income tax laws (for example, life insurance
companies, dealers in securities, taxpayers subject to the alternative minimum
tax, banks, tax-exempt organizations, non-United States persons, and
shareholders who acquired their shares of Company capital stock pursuant to the
exercise of options or otherwise as compensation or who hold their Company
capital stock as part of a straddle or risk reduction transaction).
No opinion is expressed as to any transaction other than the Merger as described
in the Reorganization Agreement, or as to any transaction whatsoever, including
the Merger, if all of the transactions described in the Reorganization Agreement
are not consummated in accordance with the terms of the Reorganization Agreement
and without waiver of any material provision thereof. To the extent that any of
the representations, warranties, statements and assumptions material to our
opinion and upon which we have relied are not accurate and complete in all
material respects at all relevant times, our opinion would be adversely affected
and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
any court of law, tribunal, administrative agency or other governmental body.
The conclusions are based on the Code, existing judicial decisions,
administrative regulations and published rulings. No assurance can be given that
future legislative, judicial or administrative changes or interpretations would
not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this opinion, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion is intended solely for the purpose of inclusion as an exhibit to
the Registration Statement. It may not be relied upon or utilized for any other
purpose or by any person other than you and your shareholders and may not be
made available to any other person without our
<PAGE> 4
Page 4
prior written consent. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement.
Sincerely,
Cooley Godward LLP
Webb B. Morrow III
WBM:sb
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of ScanSoft, Inc. of our report dated January 27, 1999,
except for Note 3, which is as of March 2, 1999, relating to the financial
statements, which appears on page 33 of ScanSoft's Annual Report on Form 10-K
for the year ended January 3, 1999. We also consent to the incorporation by
reference of our report dated January 27, 1999 relating to the financial
statement schedule, which appears on page 50 of such Annual Report on Form 10-K.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 8, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Caere Corporation:
We consent to the incorporation by reference in the joint proxy/registration
statement on Form S-4 of Caere Corporation and ScanSoft, Inc. of our report
dated January 22, 1999, with respect to the consolidated balance sheets of Caere
Corporation and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1998, which report
appears in the December 31, 1998 annual report on Form 10-K of Caere Corporation
and to the reference to our firm under the heading "Experts" in the joint
proxy/registration statement on Form S-4.
/s/ KPMG LLP
Mountain View, California
February 8, 2000
<PAGE> 1
EXHIBIT 23.4
CONSENT OF
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
We hereby consent to the use of our opinion letter dated January 15, 2000
to the Board of Directors of ScanSoft, Inc. included as Annex F to the
Prospectus/Proxy Statement which forms a part of the Registration Statement on
Form S-4 relating to the proposed merger of Caere Corporation with a
wholly-owned subsidiary of ScanSoft, Inc., and to the references to such opinion
in such Prospectus/Proxy Statement under the caption "APPROVAL OF THE MERGER AND
RELATED TRANSACTIONS--Opinion of ScanSoft's Financial Advisor." In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder, nor do we thereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By /s/ JOHN C. GRIFFITH
-----------------------------
Name: John C. Griffith
Title: Vice President, Investment Banking
New York, New York
February 9, 2000
<PAGE> 1
PROXY SCANSOFT, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 13, 2000
The undersigned hereby appoints Michael K. Tivnan and John J. Rogers, Jr., and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of ScanSoft, Inc. (the "Company") which
the undersigned may be entitled to vote at the Special Meeting of Stockholders
of the Company to be held at the offices of Wilson Sonsini Goodrich & Rosati,
650 Page Mill Road, Palo Alto, California, on Monday, March 13, 2000, at 8:00
a.m., local time and at any and all postponements, continuations and
adjournments thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as to
any and all other matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1 AND 2 AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF
SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE
THEREWITH.
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
Continued And To Be Signed On Reverse Side
<PAGE> 2
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2
1. To approve the issuance of shares of Company Common Stock in the merger of
Caere Corporation with and into Scorpion Acquisitions Corporation, a
wholly-owned subsidiary of the Company, as contemplated by an Agreement and
Plan of Reorganization dated as of January 15, 2000, among the Company, Caere
Corporation and Scorpion Acquisitions Corporation. In the merger, for each
share of outstanding Caere Common Stock, ScanSoft will issue $4.00 cash and a
number of shares of ScanSoft Common Stock equal to $7.75, divided by the
average closing sale price of a share of ScanSoft Common Stock for the ten
trading days ending on the day preceding the consummation of the merger.
However, if the average closing sale price is greater than $8.50, then it
will be deemed to be $8.50, and if the average closing sale price is less
than $4.50, then it will be deemed to be $4.50. FOR [ ] AGAINST [
] ABSTAIN [ ]
2. To approve the amendment of the certificate of incorporation of the Company
to (i) increase the number of shares of ScanSoft capital stock authorized for
issuance thereunder by 90,000,000 shares to an aggregate of 180,000,000
shares, (ii) increase the number of shares of ScanSoft Common Stock
authorized for issuance thereunder by 70,000,000 shares to an aggregate of
140,000,000 shares, and (iii) increase the number of shares of ScanSoft
Preferred Stock authorized for issuance thereunder by 20,000,000 shares to an
aggregate of 40,000,000 shares. FOR [ ] AGAINST [ ] ABSTAIN [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please vote, date, and promptly return this proxy in the enclosed return
envelope, which is postage prepaid if mailed in the United States.
Please sign exactly as your name appears herein. If the stock is registered
in the names of two or more persons, each should sign. Executors,
administrators, trustees, guardians, and attorneys-in-fact should add their
titles. If signer is a corporation, please give full corporate name and have
a duly authorized officer sign, stating title. If signer is a partnership,
please sign in partnership name by authorized person.
Signature: Date: Signature: Date:
<PAGE> 1
PROXY CAERE CORPORATION
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 13, 2000
The undersigned hereby appoints Robert G. Teresi and Blanche M. Sutter, and each
of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of Caere Corporation (the "Company")
which the undersigned may be entitled to vote at the Special Meeting of
Stockholders of the Company to be held at the offices of Cooley Godward LLP,
Five Palo Alto Square, 3000 El Camino Real, Palo Alto, California, on Monday,
March 13, 2000, at 8:00 a.m., local time and at any and all postponements,
continuations and adjournments thereof, with all powers that the undersigned
would possess if personally present, upon and in respect of the following
matters and in accordance with the following instructions, with discretionary
authority as to any and all other matters that may properly come before the
meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
PROPOSAL 1 AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC
INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE> 2
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 1
FOR [ ] AGAINST [ ] ABSTAIN [ ]
1. To adopt the Agreement and Plan of Reorganization dated as of January 15,
2000, among ScanSoft, Inc., Caere Corporation and Scorpion Acquisitions
Corporation, and to approve the merger of Caere with and into Scorpion
Acquisitions Corporation as contemplated thereby.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please vote, date, and
promptly return this proxy
in the enclosed return
envelope, which is postage
prepaid if mailed in the
United States.
Please sign exactly as
your name appears herein.
If the stock is registered
in the names of two or
more persons, each should
sign. Executors,
administrators, trustees,
guardians, and
attorneys-in-fact should
add their titles. If
signer is a corporation,
please give full corporate
name and have a duly
authorized officer sign,
stating title. If signer
is a partnership, please
sign in partnership name
by authorized person.
Signature: Date: Signature: Date:
