<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-12
SCANSOFT, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
_________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
_________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_________________________________________________________________________
5) Total fee paid:
_________________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
_________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
_________________________________________________________________________
(3) Filing Party:
_________________________________________________________________________
(4) Date Filed:
_________________________________________________________________________
<PAGE>
SCANSOFT, INC.
9 Centennial Drive
Peabody, MA 01960
(978) 977-2000
----------------
Notice of Annual Meeting of Stockholders
----------------
TO THE STOCKHOLDERS OF SCANSOFT, INC.:
The Annual Meeting of Stockholders of ScanSoft, Inc. (the "Company") will be
held at the Company's headquarters, 9 Centennial Drive, Peabody, Massachusetts,
on May 4, 2000 at 10:00 a.m. for the purpose of considering and acting upon the
following proposals:
(1) To elect a Board of eight (8) directors to hold office until the next
annual meeting of stockholders or until their respective successors
have been elected and qualified;
(2) To approve the Company's Amended and Restated Certificate of
Incorporation;
(3) To approve the Company's 2000 Stock Option Plan;
(4) To ratify the appointment of PricewaterhouseCoopers LLP as the
independent public accountants for the period ending December 31, 2000;
and
(5) To transact such other business as may properly come before the meeting
or any postponement or adjournment thereof.
The Board of Directors has fixed the close of business on March 10, 2000 as
the record date for determination of stockholders entitled to notice of and to
vote at the Annual Meeting and at any postponements or adjournments thereof. A
list of stockholders entitled to vote will be available at 9 Centennial Drive,
Peabody, Massachusetts 01960 for ten days prior to the Annual Meeting.
The Company's 1999 Annual Report to Stockholders accompanies this Notice of
Annual Meeting of Stockholders and Proxy Statement.
By Order of the Board of Directors
Katharine A. Martin
Secretary
Peabody, Massachusetts
April 4, 2000
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.
<PAGE>
SCANSOFT, INC.
9 Centennial Drive
Peabody, MA 01960
(978) 977-2000
----------------
PROXY STATEMENT
----------------
ANNUAL MEETING OF STOCKHOLDERS
May 4, 2000
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of ScanSoft, Inc. (the "Company") of proxies for use at the
Annual Meeting of Stockholders of the Company to be held on May 4, 2000 at
10:00 a.m. at 9 Centennial Drive, Peabody, Massachusetts. This proxy statement
and the accompanying form of proxy are being mailed to stockholders on or about
April 4, 2000.
VOTING RIGHTS
Each share of Common Stock entitles its holder to one vote on matters to be
acted upon at the meeting, including the election of directors. Votes cast in
person or by proxy at the Annual Meeting will be tabulated by U.S. Stock
Transfer Corporation, the Inspector of Elections. Any proxy that is returned
using the form of proxy enclosed and which is not marked as to a particular
item will be voted FOR the election of the director nominees, FOR approval of
the Amended and Restated Certificate of Incorporation, FOR approval of the
Company's 2000 Stock Option Plan, FOR ratification of the appointment of
PricewaterhouseCoopers LLP as the designated independent public accountants
and, as the proxy holders deem advisable in their sole discretion, on other
matters that may come before the meeting, as the case may be with respect to
the item not marked. A stockholder may indicate on the enclosed Proxy or its
substitute that it is abstaining from voting on a particular matter (an
"abstention"). A broker may indicate on the enclosed Proxy or its substitute
that it does not have discretionary authority as to certain shares to vote on a
particular matter (a "broker non-vote"). Abstentions and broker non-votes are
each tabulated separately.
The Inspector of Elections will determine whether or not a quorum is present
at the Annual Meeting. In general, Delaware law provides that a majority of the
shares entitled to vote present in person or represented by proxy constitutes a
quorum. Abstentions and broker non-votes of shares that are entitled to vote
are treated as shares that are present in person or represented by proxy for
purposes of determining the presence of a quorum. Except for the approval of
the Amended and Restated Certificate of Incorporation, the affirmative vote of
the majority of shares entitled to vote and present in person or represented by
proxy at a duly held meeting at which a quorum is present is required under
Delaware law for approval of proposals presented to stockholders. The
affirmative vote of the majority of the shares outstanding is required to
approve the Amended and Restated Certificate of Incorporation.
In determining whether a proposal has been approved, abstentions of shares
that are entitled to vote are treated as present in person or represented by
proxy, but not as voting for such proposal, and hence have the same effect as
votes against such proposal, while broker non-votes of shares that are entitled
to vote are not treated as present in person or represented by proxy, and hence
have no effect on the vote for such proposal.
RECORD DATE AND SHARE OWNERSHIP
Stockholders of record of the Company as of the close of business on March
10, 2000 have the right to receive notice of and to vote at the Annual Meeting.
On March 10, 2000, the Company had issued and outstanding 26,725,883 shares of
Common Stock.
1
<PAGE>
PROXIES
Proxies for use at the Annual Meeting are being solicited by the Board of
Directors of the Company from its stockholders.
Any person giving a proxy in the form accompanying this Proxy Statement has
the power to revoke it at any time before its exercise by (i) filing with the
Secretary of the Company a signed written statement revoking his or her proxy
or (ii) submitting an executed proxy bearing a date later than that of the
proxy being revoked. A proxy may also be revoked by attendance at the Annual
Meeting and the election to vote in person. Attendance at the Annual Meeting
will not by itself constitute the revocation of a proxy.
2
<PAGE>
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
At the Annual Meeting, a Board of eight (8) directors will be elected.
Except as set forth below, unless otherwise instructed, the proxy holders will
vote the proxies received by them for Management's nominees named below. The
nominees are presently directors of the Company. Messrs. Frankenberg and Teresi
became directors of the Company effective at the close of the Company's recent
acquisition of Caere Corporation. Messrs. Harding and Marquardt each resigned
from the Board in August 1999 and October 1999, respectively. In the event that
any Management nominee shall become unavailable, the proxy holders will vote in
their discretion for a substitute nominee. The term of office of each person
elected as a director will continue until the next Annual Meeting of
Stockholders or until a successor has been elected and qualified.
THE NAME, AGE AND PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS OF THE
DIRECTORS NOMINATED BY MANAGEMENT ARE:
<TABLE>
<CAPTION>
Name Age Principal Occupations for Past Five Years
---- --- -----------------------------------------
<C> <C> <S>
Michael K. Tivnan.. 47 . Served as the President and Chief Executive Officer
of the Company since March 2, 1999.
. From February 1998 until March 2, 1999, Mr. Tivnan
served as the President of ScanSoft, Inc., which
was then operating as an indirect wholly owned
subsidiary of Xerox.
. From November 1993 until February 1998, Mr. Tivnan
served as General Manager and Vice President of
ScanSoft.
. From January 1991 until November 1993, Mr. Tivnan
served as Chief Financial Officer of ScanSoft.
Paul A. Ricci...... 43 . Served as the Chairman of the Board of Directors
since March 2, 1999.
. Mr. Ricci joined Xerox in 1992 and is currently the
Vice President, Corporate Business Development, a
position he has held since January 1998.
. Prior to assuming his current position, Mr. Ricci
has held several positions within Xerox, including
serving as President, Software Solutions Division
and as President of the Desktop Document Systems
Division.
. Mr. Ricci has served as Chairman of the Board of
Directors of ScanSoft since June 1997.
J. Larry Smart..... 52 . Served as a director of the Company since February
1997.
. Mr. Smart is currently the President and Chief
Executive Officer of EchoBahn.com, a developer of
Smartweb tool for consumers.
. From April 1997 until March 2, 1999, Mr. Smart
served as President and Chief Executive Officer of
Visioneer, Inc. Mr. Smart served as Chairman of the
Board of Directors of Visioneer, Inc. from February
1997 until April 1997.
. From April 1996 to March 1997, Mr. Smart was
Chairman, President and Chief Executive Officer of
StreamLogic Corporation, a network storage company.
. From July 1995 to March 1996, Mr. Smart was
President and CEO of Micropolis Corporation, a disk
drive design and manufacturing company.
. From March 1994 to February 1995, Mr. Smart was
President and Chief Executive Officer of Maxtor
Corporation, a disk drive development and
manufacturing company.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Name Age Principal Occupations for Past Five Years
---- --- -----------------------------------------
<C> <C> <S>
. Mr. Smart currently serves as Chairman of the
Board of Southwall Technologies Inc., a thin
film technology company, and is a director of
Savoir Technology Group, Inc., a distributor of
electronic components and systems.
Mark B. Myers.......... 60 . Served as a director of the Company since March
2, 1999.
. Since February 1992, Dr. Myers has served as
Senior Vice President, Xerox Research and
Technology, responsible for worldwide research
and technology.
Katharine A. Martin.... 37 . Served as a director of the Company since
December 17, 1999.
. Since March 2, 1999, Ms. Martin has served as
the Company's Corporate Secretary.
. Since September 1999, Ms. Martin has served as a
Member of Wilson Sonsini, Goodrich & Rosati, a
Professional Corporation, and primary outside
corporate and securities counsel to the Company.
. From January 1995 to September 1999, Ms. Martin
served as a Partner of Pillsbury Madison &
Sutro LLP and from September 1987 to December
1994 as an associate of Pillsbury Madison &
Sutro LLP.
Robert G. Teresi....... 58 . Served as a director of the Company since March
13, 2000.
. Mr. Teresi served as the Chairman of the Board,
Chief Executive Officer and President of Caere
Corporation from May 1985 until March 2000.
Robert J. Frankenberg.. 52 . Served as a director of the Company since March
13, 2000.
. Since May 1997, Mr. Frankenberg has served as
the President and Chief Executive Officer of
Encanto Networks, Inc., a developer of hardware
and software designed to enable creation of
businesses on the Internet.
. From April 1994 to August 1996, he was Chairman,
President and Chief Executive Officer of
Novell, Inc., a producer of network software.
. From April 1991 to April 1994, he was Vice
President and General Manager of the Personal
Information Products Group at Hewlett-Packard
Company, a leading manufacturer of computing,
communications and measurement products and
services.
. He is a director of Electroglas, Inc., National
Semiconductor, Daw Technologies, Inc. and
Secure Computing Corporation.
Anne M. Mulcahy........ 47 . Served as a director of the Company since March
13, 2000.
. Since 1999, she has served as Executive Vice
President; President, General Market Operations
of Xerox Corporation and since 1992 she has
served in other capacities for Xerox.
</TABLE>
Required Vote
The eight (8) nominees receiving the highest number of affirmative votes of
the shares of the Company's Common Stock present at the Annual Meeting in
person or by proxy and entitled to vote shall be elected as directors. Unless
marked to the contrary, proxies received will be voted "FOR" management's
nominees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" MANAGEMENT'S
NOMINEES.
4
<PAGE>
Board of Directors Meetings and Committees
The Board of Directors held a total of seven meetings during the fiscal year
ended December 31, 1999. Each director attended at least 75% of the aggregate
number of meetings of (i) the Board of Directors and (ii) the committees of the
Board of Directors on which he served. The Board of Directors has an Audit
Committee and a Compensation Committee. It does not have a nominating committee
or a committee performing the functions of a nominating committee.
The Audit Committee of the Board of Directors, which currently consists of
directors Paul A. Ricci and J. Larry Smart , held four meetings during 1999.
The Audit Committee, which meets periodically with management and our
independent public accountants, recommends engagement of our independent public
accountants and is primarily responsible for approving the service performed by
our independent public accountants and reviewing and evaluating our accounting
principles and the adequacy of our internal auditing procedures and controls.
The Compensation Committee of the Board of Directors, which currently
consists of directors Paul A. Ricci and Katharine A. Martin, held one meeting
during 1999. The Compensation Committee, in conjunction with the Board of
Directors, establishes salaries, incentives and other forms of compensation for
directors, officers and other employees, administers the various incentive
compensation and benefit plans (including our stock purchase and stock option
plans) and recommends policies relating to such plans.
Compensation of Directors
Nonemployee directors of the Company are automatically granted options to
purchase shares of the Company's Common Stock pursuant to the terms of the
Company's 1995 Directors' Stock Option Plan (the "Directors' Option Plan").
Under the Directors' Option Plan, each nonemployee director will be granted an
option to purchase 20,000 shares of Common Stock on the date on which he or she
first becomes a nonemployee director (the "First Option"). Thereafter, on
January 1 of each year each nonemployee director shall be automatically granted
an additional option to purchase 5,000 shares of Common Stock (a "Subsequent
Option") if, on such date, he or she shall have served on the Company's Board
of Directors for at least six (6) months. The First Option shall become
exercisable in installments as to twenty-five percent (25%) of the total number
of shares subject to the First Option on each anniversary of the date of grant
of the First Option, and each Subsequent Option shall become exercisable in
full on the first anniversary of the date of grant of that Subsequent Option.
Options granted under the Directors' Option Plan have an exercise price equal
to the fair market value of the Company's Common Stock on the date of grant,
and a term of ten (10) years. Pursuant to the Directors' Option Plan, on
January 1, 1999, each nonemployee director was granted an option to purchase
5,000 shares of Common Stock. The terms of such options, including vesting
terms, are substantially similar to the terms of the First Option.
Change in Control and Employment Agreements
In April 1999, ScanSoft's Board of Directors approved acceleration of
vesting of options for all officers and directors of the Company in the event
of a change in control. A change in control includes a merger or consolidation
of the Company not approved by the Board of Directors, certain changes in the
Board of Director composition, and certain changes in the ownership of the
Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules of the Securities and Exchange Commission (the
"Commission") thereunder require the Company's executive officers, directors
and certain stockholders to file reports of ownership and changes in ownership
of the Common Stock with the Commission. Based upon a review of such reports,
the Company believes that all reports required by section 16(a) of the Exchange
Act to be filed by its executive officers and directors during the last fiscal
year were filed on time.
5
<PAGE>
Related Party Transactions
We are a party to multiple non-exclusive agreements with Xerox Corporation
in which we agreed to license Xerox the royalty-bearing right to copy and
distribute certain versions of Pagis, TextBridge and PaperPort software
programs with Xerox's multi-function peripherals. In addition, we are a party
to a license agreement with Xerox that includes limited licenses and the
assignment of certain patents and trademarks. During 1999, Xerox paid us
approximately $4.5 million under these agreements.
On September 13, 1999, we purchased 600,000 shares of Series A Preferred
Stock, par value $0.10 per share, at a cost of $0.25 per share for a total
investment of $150,000 in BookmarkCentral.com (which was recently renamed
EchoBahn.com, Inc.). J. Larry Smart, one of our directors, is a founder and the
current President and Chief Executive Officer of EchoBahn.
Voting Agreement
Xerox, Xerox Imaging Systems, Inc., the Company and several holders of the
Company Common Stock entered into a Voting Agreement effective at the close of
the merger with ScanSoft, pursuant to which they agreed to vote to elect
certain nominees to the Board of Directors, including up to two persons
designated by Xerox (the "Voting Agreement"). This Agreement was amended
effective March , 2000 to remove the holders other than Xerox from the
Agreement and to modify certain other provisions. The following is a summary of
the terms of the Voting Agreement as amended.
At each annual meeting of stockholders during the term of the Voting
Agreement, or at any special meeting of stockholders at which board members are
to be elected, the parties to the Voting Agreement will vote their shares so as
to elect the following directors:
(i) so long as Xerox owns at least 20% of our outstanding voting stock:
two persons designated by Xerox, two individuals designated by the four
members of the Board of Directors who were not nominated by Xerox and who
are not our Chief Executive Officer or our then-current Chief Executive
Officer, and three independent members with relevant industry experience
who are to be designated by at least four out of the five directors who are
not considered to be independent directors; or
(ii) so long as Xerox owns at least 10% of our outstanding voting stock:
one person designated by Xerox, two individuals designated by the five
members of the board who were not nominated by Xerox and who are not our
Chief Executive Officer or our then-current Chief Executive Officer, and
four independent members with relevant industry experience who are
designated by at least three out of the four directors who are not
considered to be independent directors.
The Voting Agreement will terminate upon the earliest to occur of: (1) the
sale of all or substantially all of our property or business or our merger into
or consolidation with any other corporation or if we effect any other
transaction(s) in which more than 50% of our voting power is disposed of; (2)
such time as Xerox owns less than 10% of our outstanding voting stock; or (3)
such time as the non-reporting person parties to the Voting Agreement own, in
the aggregate, less than 7% of our outstanding voting stock; provided, however,
that if such time occurs prior to March 2, 2001 and Xerox holds at such time
shares of our Series B Preferred Stock, the Voting Agreement will not terminate
until the earlier of (x) March 2, 2001 or (y) the date on which Xerox (together
with its affiliates) no longer holds any shares of our Preferred Stock.
6
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of March 1, 2000, as to (1) each
person (or group of affiliated persons) who is known by us to own beneficially
more than 5% of our common stock; (2) each of our directors; (3) each of our
executive officers; and (4) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Shares
Beneficially
Owned(2)
------------------
Name and Address of Beneficial Owner(1) Number Percent
- --------------------------------------- ---------- -------
<S> <C> <C>
Xerox Imaging Systems, Inc.(3)............................. 11,853,602 44.4%
800 Long Ridge Road
Stamford, CT 06904
Michael K. Tivnan(4)....................................... 221,423 *
Paul A. Ricci(5)........................................... 140,000 *
Wayne S. Crandall(6)....................................... 119,971 *
Steven C. Ricketts......................................... 15,000 *
Stanley E. Swiniarski(7)................................... 102,187 *
Mark B. Myers(8)........................................... 5000 *
J. Larry Smart(9).......................................... 36,263 *
John J. Rogers, Jr......................................... -- --
Katharine A. Martin(10).................................... 6,000 *
Robert G.Teresi(11)........................................ 1,000
Robert J. Frankenberg(12).................................. --
Anne M. Mulcahy............................................ --
All directors and executive officers as a group (9
persons)(13).............................................. 646,844 2.42%
</TABLE>
- --------
* Less than 1%.
(1) Unless otherwise indicated, the address for the following stockholders is
c/o ScanSoft, Inc., 9 Centennial Drive, Peabody, Massachusetts 01960.
(2) Applicable percentage ownership is based on 26,725,883 shares of common
stock outstanding as of March 10, 2000. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission. In
computing the number of shares beneficially owned by a person and the
percentage of ownership of that person, shares of common stock subject to
options held by that person that are currently exercisable or exercisable
within 60 days of March 1, 2000 are deemed outstanding. Such shares,
however, are not deemed outstanding for the purpose of computing the
percentage of ownership of any other person. The persons named in the
table have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them, subject to the community
property laws where applicable and except as indicated in the other
footnotes to this table.
(3) Excludes a warrant to purchase up to 1,738,552 shares of common stock and
7,179,495 shares of nonvoting Series B Preferred Stock. As a result of the
acquisition of Caere Corporation, which closed on March 13, 2000, the
number of shares owned by Xerox Imaging Systems now represents
approximately approximately 26%.
(4) Includes 171,423 shares subject to options exercisable within 60 days of
March 1, 2000.
(5) Excludes 11,853,602 shares of common stock held by Xerox Imaging Systems,
Inc. Includes 5,000 shares subject to options exercisable within 60 days
of March 1, 2000.
(6) Includes 94,971 shares subject to options exercisable within 60 days of
March 1, 2000.
(7) Includes 102,187 shares subject to options exercisable within 60 days of
March 1, 2000.
(8) Includes 5,000 shares subject to options exercisable within 60 days of
March 1, 2000.
(9) Includes 34,166 shares subject to options exercisable within 60 days of
March 1, 2000.
(10) Includes 5,000 shares subject to options exercisable within 60 days of
March 1, 2000.
(11) Excludes 172,186 shares and 889,586 shares subject to options exercisable
within 60 days of March 1, 2000 issued on March 13, 2000 in connection
with the acquisition of Caere Corporation.
(12) Excludes 141,708 shares subject to options exercisable within 60 days of
March 1, 2000 issued on March 13, 2000 in connection with the acquisition
of Caere Corporation.
(13) Includes 417,747 shares subject to options exercisable within 60 days of
March 1, 2000.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table provides certain summary information for the fiscal
years 1997, 1998 and 1999 concerning compensation paid to the Company's Chief
Executive Officer and to the Company's four other named executive officers
whose compensation exceeded $100,000 in 1999 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------- ----------------------
Name and Principal Other Annual Securities Underlying
Position Year Salary Bonus Compensation Options(#)
- ------------------ ---- -------- -------- ------------ ----------------------
<S> <C> <C> <C> <C> <C>
J. Larry Smart(1)....... 1999 $165,846 $ 38,000 $122,750 120,000
President and Chief Ex- 1998 314,357 114,500 -- 698,574
ecutive 1997 190,050 98,429 21,500 815,000
Officer
Michael K. Tivnan(2).... 1999 204,304 25,920 -- 801,936
President and Chief Ex-
ecutive Officer
Stanley E.
Swiniarski(2).......... 1999 131,606 17,089 -- 295,887
Vice President, Soft-
ware Development
Wayne Crandall(2)....... 1999 127,676 77,551 -- 369,782
Vice President, Sales
and Marketing
Steven C. Ricketts(3)... 1999 114,679 0 -- 243,570
Senior Marketing Direc-
tor
John J. Rogers, Jr.(4).. 1999 99,397 17,150 -- 400,000
Vice President, Sales
and Marketing --------
</TABLE>
- --------
1) Mr. Smart left this capacity on March 1, 1999.
2) Mr. Tivnan, Mr. Swiniarski, and Mr. Crandall began operating in these
capacities as of March 2, 1999.
3) Mr. Ricketts left the Company in January 2000.
4) Mr. Rogers joined the Company in May 1999.
Recent Option Grants
The following table sets forth certain information regarding options granted
during the fiscal year ended December 31, 1999 to the Named Executive Officers.
<TABLE>
<CAPTION>
Potential Realizable Value
Percent of Total at Assumed Annual Rates of
Securities Options Granted Stock Price Appreciation
Underlying to Employees Exercise or for Option Term ($)(2)
Options in Fiscal Base Price Expiration ---------------------------
Name Granted(#) Year(%)(1) ($/Share) Date 5% 10%
- ---- ---------- ---------------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael K. Tivnan....... 260,000 8.23% $1.63 3/2/09 $ 266,526 $ 675,428
240,000 7.59 1.72 10/28/09 259,608 657,897
10,000 .32 1.72 10/28/09 10,817 27,412
John J. Rogers, Jr ..... 400,000 12.66 1.56 5/6/09 392,430 994,495
Wayne Crandall.......... 142,588 4.51 1.63 3/2/09 146,167 370,415
75,000 2.37 2.19 9/30/09 103,296 261,772
Stanley Swiniarski...... 175,938 5.57 1.63 3/2/09 180,354 457,052
Steven C. Ricketts...... 142,000 4.49 1.63 3/2/09 145,564 368,888
</TABLE>
- --------
(1) Based on options to purchase an aggregate of 3,255,392 shares of common
stock granted during fiscal 1999.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of five percent (5%) and
ten percent (10%) compounded annually from the date the respective options
were granted to their
8
<PAGE>
expiration date and are not presented to forecast possible future
appreciation, if any, in the price of our common stock. The gains shown are
net of the option exercise price, but do not include deductions for taxes
or other expenses associated with the exercise of the options or the sale
of the underlying shares of common stock. The actual gains, if any, on the
stock option exercises will depend on the future performance of our common
stock, the optionee's continued employment through applicable vesting
periods and the date on which the options are exercised.
The following table shows the number of shares of common stock represented
by outstanding stock options held by each of the Named Executive Officers as
of December 31, 1999.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values(1)
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at Fiscal Options at Fiscal Year-End
Name Year-End Exercisable/Unexercisable ($) Exercisable/Unexercisable
---- ---------------------------------- ---------------------------------
<S> <C> <C>
Michael K. Tivnan....... 106,423/665,513 $360,774/1,713,389
John J. Rogers, Jr...... 0/400,000 0/976,000
Wayne Crandall.......... 59,324/295,458 201,108/737,662
Stanley Swiniarski...... 58,202/237,685 197,305/626,295
Steven C. Ricketts...... 32,158/196,412 109,016/520,996
</TABLE>
- --------
(1) Based on a per share price of $4.00, the closing price of our common stock
as reported by The Nasdaq National Market on December 31, 1999, the last
trading day of the fiscal year.
9
<PAGE>
COMPENSATION COMMITTEE REPORT ON COMPENSATION
The Company's compensation policies for its executive officers and Chief
Executive Officer are determined by the Compensation Committee of the Board of
Directors (the "Committee"). The Committee sets the base salary and bonus
programs for executive officers each fiscal year. In addition, the Committee
administers the Company's 1993 Incentive Stock Option Plan and 1997 Employee
Stock Option Plan under which option grants may be made to such officers and
other key employees as an inducement essential to such officers and employees
joining and/or remaining with the Company.
General Compensation Policy
The Company's executive compensation program consists of three main
components: (1) base salary which reflects individual performance and Company
performance and is designed generally to be competitive with salary levels in
the Company's industry and geographical area, (2) potential for a quarterly or
annual bonus payable in cash and based on individual performance and Company
performance, and (3) long-term stock option awards that provide executive
officers with the opportunity to build a meaningful stake in the Company, with
the objective of aligning executive officers' long-range interests with those
of the stockholders and encouraging the achievement of superior results over
time.
Factors
Several of the more important factors which were considered in establishing
the components of each executive officer's compensation package for the 1999
fiscal year are summarized below. Additional factors were also taken into
account to a lesser degree. The Committee may at its discretion apply entirely
different factors, particularly different measures of financial performance,
insetting executive compensation for future fiscal years.
. Base Salary. The base salary for each executive officer is set on the
basis of personal performance, internal comparability standards, and the
salary levels in effect for comparable positions with companies in the
Company's industry and at high technology companies generally in Silicon
Valley and Boston that are of comparable size to the Company and with
which the Company competes for executive personnel. External salary data
is obtained by reviewing data from specific companies in Silicon Valley
and Boston in the Company's industry and a variety of compensation
surveys. The Committee believes that the Company's most direct
competitors for executive talent are not necessarily all of the companies
that the Company would use in a comparison for stockholder returns.
Therefore, the compensation comparison group is not the same as the
industry group index in the "Performance Graph" included below.
. Annual Incentive Compensation. Bonuses were paid to executive officers
for fiscal 1999. The Company had adopted a Management Incentive Program
in December 1995 pursuant to which bonuses were payable to eligible
employees for fiscal 1999 upon achievement of individual goals
established for each employee and Company performance goals. The
individual performance portion of the bonus varied, depending on the
individual, and the Company performance portion of the bonus was a
function of net profit before taxes. Individual goals and Company
performance goals were generally targeted at 40% and 60%, respectively,
of the total bonus amount to be paid to any particular executive officer.
Performance goals related to revenue, product delivery and cash flow
criteria. For 1999, the executive bonuses paid represented between 25-35%
of the total bonus opportunity.
. Long-term Incentive Compensation. The Committee periodically approves
grants of stock options to each of the Company's executive officers under
the Company's 1993 Incentive Stock Option Plan. The grants are designed
to give executive officers the opportunity to build a meaningful stake in
the Company, with the objective of aligning executive officers' long-
range interests with those of the stockholders and encouraging the
achievement of superior results over time. Each grant generally allows
the officer to acquire shares of the Company's Common Stock at a fixed
price per share (the fair market
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value on the grant date) over a specified period of time (up to 10 years),
thus providing a return to the executive officer only if the market price
of the shares appreciates over the option term. During the 1999 fiscal
year, the Committee approved grants to officers with vesting commencing on
the date of grant, after taking into account the option holdings and
direct stock holdings of such individuals. The size of such grants was set
to achieve a potential percentage ownership stake in the Company that the
Committee deemed appropriate to create a meaningful opportunity for stock
ownership based upon such individuals' current position with the Company,
but also taking into account the individual's potential for future
responsibility and promotion over the option term and the individual's
personal performance in recent periods.
Chief Executive Officer Compensation
The Committee meets without the Chief Executive Officer's presence to
evaluate his performance and reports on that evaluation to the independent
members of the Board of Directors. The compensation payable to Michael K.
Tivnan in his capacity as the Company's Chief Executive Officer for fiscal 1999
was based on a number of factors, including comparative salaries of chief
executive officers of similar companies of comparable sales and capitalization
in the Company's industry and geographical area. The primary data source for
chief executive officer compensation was the 1999 Radford Executive Management
Survey and the 1999 Price Waterhouse Coopers Software Industry Council. The
data indicated that Mr. Tivnan's base salary falls in the 50th percentile of
the market as determined by similar companies with revenue between $40 and $99
million. Mr. Tivnan's bonus is based on the same performance criteria as the
other executive officers. He was paid a bonus of approximately $26,000, which
represented approximately 25% of this total target bonus.
COMPENSATION COMMITTEE
Paul Ricci
Katharine A. Martin
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PERFORMANCE GRAPH
The following graph compares, for the period of time since the Company's
Common Stock was first registered under Section 12 of the Securities Exchange
Act of 1934 (December 11, 1995), the cumulative total stockholder return for
the Company with the cumulative total return of the Standard & Poor's 500 Stock
Index, and the Nasdaq Computer Manufacturers Index assuming $100 was invested
on December 11, 1995 in the Company's Common Stock and both of the indices. The
stock price performance on the following graph is not necessarily indicative of
future stock price performance.
[GRAPH TO COME]
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PROPOSAL NUMBER 2
APPROVAL OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors has approved an amendment to the Company's Restated
Certificate of Incorporation, subject to the approval of the Company's
stockholders. The amendment deletes paragraph (c) of ARTICLE IV in its entirety
and restates the Company's Certificate of Incorporation. The purpose of the
amendment is to delete certain supermajority vote provisions that were added to
the Company's Certificate of Incorporation at the time of the merger with Xerox
Corporation's subsidiary in March 1999. The effect of the amendment will be to
reduce the vote required to take the enumerated actions to the minimum vote
required by the Delaware General Corporation Law ("DGCL") and in some instances
eliminate the need for stockholder approval altogether. A copy of the Company's
Amended and Restated Certificate of Incorporation is attached hereto as Annex
A.
Paragraph (c) of ARTICLE IV of the Company's Restated Certificate of
Incorporation provides in its entirety that:
"This corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the then outstanding shares
of Common Stock, voting together as a separate class:
(A) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or
consolidate with any other corporation (other than a wholly-owned
subsidiary corporation) or effect any other transaction or series of
related transactions in which more than fifty percent (50%) of the
voting power of the corporation is disposed of, provided that his
provision shall not apply to a merger effected exclusively for the
purpose of changing the domicile of the corporation;
(B) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or
exercisable for any equity security, having a preference over, or being
on a parity with, the Series B Preferred Stock with respect to voting,
dividends, conversion or upon liquidation;
(C) alter or change the rights, preferences or privileges of the
shares of Series B Preferred Stock so as to adversely affect them;
(D) increase or decrease (other than by conversion) the total
number of authorized shares of Series B Preferred Stock;
(E) redeem, purchase or otherwise acquire (or pay into or set aside
for a sinking fund for such purpose) any share or shares of Common
Stock or Preferred Stock, provided, however, that this restriction
shall not apply to the repurchase of shares of Common stock from
employees, officers, directors, consultants or other persons performing
services for this corporation or any subsidiary pursuant to agreements
under which this corporation has the option to repurchase such shares
at cost or at cost upon occurrence of certain events, such as the
termination of employment;
(F) declare or pay any dividends on its Common or Preferred Stock;
or
(G) amend the corporation's Bylaws."
These provisions were added at the time of the merger with the Xerox
subsidiary because Xerox became the holder of approximately 45% of the
Company's outstanding voting shares following the merger. Generally, these
provisions were designed to protect the interests of all stockholders of the
Company in view of the concentrated vote in one single stockholder. However, as
a result of the Company's recent acquisition of Caere Corporation, in which
approximately 19 million shares of Common Stock were issued to former
stockholders of Caere Corporation effective as of the closing of the merger on
March 13, 2000, Xerox now holds approximately 26% of the Company's outstanding
voting securities. Therefore, the Company's management no longer believes that
the supermajority voting provisions are necessary to protect the interests of
all stockholders and in fact believes that they may have the effect of
preventing, discouraging or delaying an acquisition of the Company and
interfering with the day-to-day operations of the Company.
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Subparagraph (A) precludes the Company from being acquired or merged or from
selling all or susbtanitally all of its assets without a supermajority vote.
Under Delaware law, a merger, acquisition or sale of all or substantially all
of the assets of the corporation would require the affirmative vote of a
majority of the outstanding shares. The requirement to obtain a supermajority
vote on these transactions is likely to have the effect of preventing,
discouraging or delaying an acquisition, merger or takeover of the Company,
including a negotiated transaction that the Company's board of directors
believes is in the best interests of the Company's stockholders. In the case of
any unsolicited proposal that the Company may receive in the future, the Board
believes that without the supermajority vote it can adequately protect the
interests of the Company's stockholders with the Company's poison pill (i.e.
the Company's Rights Agreement with U.S. Stock Transfer Corporation N.A.), the
use of authorized but unissued shares of Preferred Stock and the protections
afforded by Section 203 of the DGCL. The Company's Board of Directors is not
aware of any present arrangement, agreement, understanding or plan regarding a
proposed acquisition or takeover of the Company or of a sale of all or
substantially all of the Company's assets.
Under the DGCL, an encumbrance of all or substantially all of the assets of
the Company does not require a stockholder vote. The current inability of the
Company to encumber all of its assets has the effect of interfering with the
Company's ability to enter into routine, ordinary course of business secured
credit facility transactions, which may be necessary or desirable from time to
time in order to maintain the Company's liquidity requirements. On March ,
2000 the Company entered into a $10,000,000 secured credit facility with Fleet
National Bank. The credit facility is secured by the Company's accounts
receivable, patents and trademarks. If the Company's stockholders approve the
Amended and Restated Certificate of Incorporation, Fleet National Bank will
perfect a security interest in all of the Company's remaining assets.
Subparagraph (B) generally prohibits the Company's ability to issue its
authorized, but unissued preferred stock from time to time without a
supermajority vote of the stockholders. The Company believes that it is in the
best interests of the stockholders to have these shares available to issue from
time to time to meet the Company's future business needs as they arise. The
Company's Board of Directors has no present arrangements, agreements,
understandings or plans for the use of any such authorized, but unissued shares
of Preferred Stock. The Board believes that the availability of such shares
will provide the Company with the flexibility to issue Preferred Stock, when
appropriate or desirable, without further action by the Company's stockholders,
unless required by law, regulatory or stock exchange rule.
Subparagraphs (C) and (D) are generally applicable only to the sole holder
of the Series B Preferred Stock, a subsidiary of Xerox Corporation. Under the
DGCL, even in the absence of these provisions, Xerox, as the sole holder of
Series B Preferred Stock, would have to consent to any action that would alter
or change the rights, preferences or privileges of the shares of Series B
Preferred Stock so as to adversely affect it.
Subparagraph (E) generally prohibits the Company's reacquisition or
redemption of shares of Common or Preferred Stock without a supermajority vote
of the stockholders. Under the DGCL, this generally does not require
stockholder consent, but it is prohibited if any such acquisition or redemption
would impair the Company's capital. The Company's Board of Directors has no
present arrangements, agreements, understandings or plans to reacquire or
redeem any shares of Common or Preferred Stock, except in the ordinary course
of business the Company may from time to time reacquire unvested shares of
Common Stock from employees, officers, directors consultant or other persons
pursuant to agreements under which the Company has the option to repurchase
such shares at cost upon the occurrence of certain events, such as the
termination of employment.
Subparagraph (F) prohibits the Company from declaring or paying a dividend
on its Common or Preferred Stock without a supermajority vote of the
stockholders. Under the DGCL, this does not require stockholder approval, but
it does prohibit the payment of any such dividend if it would impair the
Company's capital. The Company's Board of Directors has no present
arrangements, agreements, understandings or plans to declare or pay a dividend
on any shares of Common or Preferred Stock. In addition, pursuant to the terms
of the Series B Preferred Stock, the Company may not declare any dividend on
the Common Stock without first paying a dividend on the Series B Preferred
Stock.
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Subparagraph (G) precludes the Company from amending its Bylaws. In the
absence of a requirement in the certificate of incorporation, amendments to
Bylaws do not generally require stockholder approval.
Required Approval
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock of the Company is required to approve the Amendment and
Restatement of the Certificate of Incorporation. Unless marked to the contrary,
proxies received will be voted "FOR" approval of the amendment and restatement
of the Certificate of Incorporation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF
THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
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PROPOSAL NUMBER 3
APPROVAL OF THE COMPANY'S 2000 STOCK PLAN
The Company currently grants options to its employees under the 1993
Incentive Stock Option Plan (including executive officers) and the 1997
Employee Stock Option Plan (including, in some instances, executive officers).
As of March 10, 2000, options to purchase a total of 1,928,901 were outstanding
under the 1993 Incentive Stock Option Plan and options to purchase 747,893
shares remained available for grant thereunder (plus any canceled or expired
options that may be returned to 1993 Incentive Stock Option Plan). As of March
10, 2000, options to purchase 1,393,366 shares were outstanding under the 1997
Employee Stock Option Plan and options to purchase -0- shares remained
available for grant thereunder (plus any canceled or expired options that may
be returned to the 1997 Employee Stock Option Plan). To ensure the company can
continue to grant stock options to employees at levels determined appropriate
by the Board and the Compensation Committee of the Board, the shareholders are
being asked to approve the Company's 2000 Stock Plan (the "2000 Plan"). The
Board believes the 2000 Plan is necessary in order to continue the Company's
policy of equity ownership by employees as an incentive for employees to exert
maximum efforts. The total number of shares authorized for issuance under the
2000 Plan is 2,500,000 shares.
DESCRIPTION OF THE 2000 PLAN
General
The 2000 Option Plan provides for the grant of both incentive and
nonstatutory stock options and stock purchase rights. Incentive stock options
granted under the 2000 Plan are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Code. Nonstatutory stock
options granted under the 2000 Plan are not intended to qualify as incentive
stock options under the Code. See "Federal Income Tax Information" below for a
discussion of the tax treatment of options.
Purpose
The purpose for the 2000 Plan is to attract and retain the best available
personnel; to provide additional incentives to employees, directors, and
consultants; and to promote the success of the Company's business.
Administration
The 2000 Plan may be administered by the Board of Directors or a committee
appointed by the Board of Directors. The Board of Directors or its committee
has full power to adopt, amend and rescind any rules deemed desirable and
appropriate for the administration of the 2000 Plan and not inconsistent with
the 2000 Plan, to construe and interpret the 2000 Plan, and to make all other
determinations necessary or advisable for the administration of the 2000 Plan.
The Board has the power to delegate administration of the 2000 Plan to a
committee composed of one or more members of the Board. In the discretion of
the Board, a committee may consist solely of two or more "non-employee
directors" within the meaning of Rule 16b-3 of the Exchange Act or solely of
two or more "outside directors" within the meaning of Section 162(m) of the
Code. For this purpose, a "non-employee director" generally is a director who
does not receive remuneration from the Company other than compensation for
service as a director (except for amounts not in excess of specified limits
applicable pursuant to Rule 16b-3 of the Exchange Act). An "outside director"
generally is a director who is neither a current or former officer of the
Company nor a current employee of the Company, does not receive any
remuneration from the Company other than compensation for service as a
director, and is not employed by or have certain ownership interests in an
entity that receives remuneration from the Company (except within specified
limits applicable under regulations issued pursuant to Section 162(m) of the
Code). If administration is delegated to a committee, the committee has the
power to delegate administrative powers to a subcommittee. As used herein with
respect to the 2000 Plan, the "Board" refers to any committee the Board
appoints or, if applicable, any such subcommittee, as well as to the Board
itself.
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Eligibility
Incentive stock options may be granted under the 2000 Plan only to employees
(including officers) of the Company and its affiliates. Nonstatutory stock
options and stock purchase rights may be granted to service providers,
including employees (including officers), directors of, and consultants to, the
Company and its affiliates.
No incentive stock option may be granted under the 2000 Plan to any person
who, at the time of the grant, owns (or is deemed to own) stock possessing more
than 10 percent of the total combined voting power of the Company or any
affiliate of the Company, unless the exercise price is at least 110 percent of
the fair market value of the stock subject to the option on the date of grant
and the term of the option does not exceed five years from the date of grant.
In addition, the aggregate fair market value, determined at the time of grant,
of the shares of Common Stock with respect to which incentive stock options are
exercisable for the first time by an optionholder during any calendar year
(under the 2000 Plan and all other such plans of the Company and its
affiliates) may not exceed $100,000.
Under the 2000 Option Plan, no employee may be granted options to purchase
more than 150,000 shares of Common Stock during any calendar year, except in
connection with his/her initial service when an additional 400,000 shares may
be granted, which shall not count against the 150,000 share per year limit.
Stock Subject to the 2000 Plan
Subject to this Proposal 2, an aggregate of 2,500,000 shares of Common Stock
is reserved for issuance under the 2000 Plan. If an option or stock purchase
right granted under the 2000 Plan expires or becomes unexercisable without
having been exercised in full, or is surrendered pursuant to an Option Exchange
Program, the unpurchased shares will again become available for future grant or
sale under the 2000 Plan, provided that all shares which have actually been
issued under the 2000 Plan, whether upon an option or right, shall not be
returned to the 2000 Plan and shall not become available for future
distribution under the 2000 Plan.
Terms of Options
The following is a description of the permissible terms of options under the
2000 Plan. Individual option grants may be more restrictive as to any or all of
the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options may
not be less than 100 percent of the fair market value of the stock subject to
the option on the date of the grant and, in some cases (see "Eligibility"
above), may not be less than 110 percent of such fair market value. The
exercise price of nonstatutory options may not be less than 85 percent of the
fair market value of the stock on the date of grant. If options are granted
with exercise prices below 100 percent of fair market value, deductions for
compensation attributable to the exercise of such options could be limited by
Section 162(m) of the Code. See "Federal Income Tax Information" below. As of
March 10, 2000, the closing price of the Company's Common Stock as reported on
the Nasdaq National Market System was $5.19 per share.
The exercise price of options granted under the 2000 Plan must be paid
either in cash at the time the option is exercised or, at the discretion of the
Board, (i) by delivery of other Common Stock of the Company, (ii) pursuant to a
deferred payment arrangement or (iii) in any other form of legal consideration
acceptable to the Board.
Option Exercise. Options granted under the 2000 Plan may become exercisable
in cumulative increments ("vest") as determined by the Board. Vesting typically
will occur during the optionholder's continued service with the Company or an
affiliate, whether such service is performed in the capacity of employee,
director or consultant (collectively, "service") and regardless of any change
in the capacity of such service. Shares
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covered by different options granted under the 2000 Plan may be subject to
different vesting terms. The Board has the power to accelerate the time during
which an option may vest or be exercised. In addition, options granted under
the 2000 Plan may permit exercise prior to vesting, but in such event the
optionholder may be required to enter into an early exercise stock purchase
agreement that allows the Company to repurchase unvested shares, generally at
their exercise price, should the optionholder's service terminate before
vesting. To the extent provided by the terms of an option, an optionholder may
satisfy any federal, state or local tax withholding obligation relating to the
exercise of such option by a cash payment upon exercise, by authorizing the
Company to withhold a portion of the stock otherwise issuable to the
optionholder, by delivering already-owned Common Stock of the Company or by a
combination of these means.
Term. The maximum term of options under the 2000 Plan is 10 years, except
that in certain cases (see "Eligibility") the maximum term is five years.
Options under the 2000 Plan generally terminate three months after termination
of the optionholder's service unless (1) such termination is due to the
optionholder's permanent and total disability (as defined in the Code), in
which case the option may, but need not, provided that it may be exercised (to
the extent the option was exercisable at the time of the termination of
service) at any time within 12 months of such termination; (ii) the
optionholder dies before the optionholder's service has terminated, or within
three months after termination of such service, in which case the option may,
but need not, provided that it may be exercised (to the extent the option was
exercisable at the time of the optionholder's death) within 12 months of the
optionholder's death by the person or persons to whom the rights to such option
pass by will or by the laws of descent and distribution; or (iii) the option by
its terms specifically provides otherwise. An optionholder may designate a
beneficiary who may exercise the option following the optionholder's death.
Individual option grants by their terms may provide for exercise within a
longer period of time following termination of service.
The Board may at any time offer to buy out for a payment in cash or shares
an option previously granted based on such terms and conditions as the Board
shall establish and communicate to the optionholder at the time that such offer
is made.
Stock Purchase Rights
Stock Purchase Rights may be issued either alone, in addition to, or in
tandem with other awards granted under the Plan and/or cash awards made outside
of the Plan. After the Board determines that it will offer Stock Purchase
Rights under the Plan, it shall advise the offeree in writing or
electronically, by means of a Notice of Grant, of the terms, conditions and
restrictions related to the offer, including the number of Shares that the
offeree shall be entitled to purchase, the price to be paid, and the time
within which the offeree must accept such offer. The offer shall be accepted by
execution of a Restricted Stock Purchase Agreement in the form determined by
the Board.
Repurchase Option. Unless the Board determines otherwise, the Restricted
Stock Purchase Agreement shall grant the Company a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
service with the Company for any reason (including death or Disability). The
purchase price for Shares repurchased pursuant to the Restricted Stock Purchase
Agreement shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. The
repurchase option shall lapse at a rate determined by the Board.
Restrictions on Transfer
Unless otherwise determined by the Board, an option or stock purchase right
may not be transferred or disposed of in any manner other than by will or by
the laws of descent and distribution. During the lifetime of the employee, only
the employee may exercise an option stock purchase right.
The Board may make an option or stock purchase right transferable in certain
limited instances subject to restrictions on transfer that the Board deems
appropriate.
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Adjustment Provisions
Transactions not involving receipt of consideration by the company, such as
a merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares of Common Stock subject to the 2000 Plan
and outstanding options. In that event, the 2000 Plan will be appropriately
adjusted as to the class and the maximum number of shares of Common Stock
subject to the 2000 Plan and the Section 162(m) Limitation, and outstanding
options will be adjusted as to the class, number of shares and price per share
of Common Stock subject to such options.
Effect of Certain Corporate Events
The 2000 Plan provides that, in the event of sale of substantially all of
the assets of the Company, specified types of merger or other corporate
reorganization ("change in control"), then any surviving corporation will be
required to either assume options and stock purchase rights outstanding under
the 2000 Plan or substitute similar options and stock purchase rights for those
outstanding under the 2000 Plan. If any surviving corporation declines to
assume options and stock purchase rights outstanding under the 2000 Plan, or to
substitute similar options, then, optionholders shall fully vest in the and
have the right exercise the option or stock purchase right as to all the
optioned stock, including shares as to which it would not otherwise be vested
or exercisable. In such event, an outstanding option or stock purchase right
will terminate if the holder does not exercise it within fifteen (15) days of
the date of the notice from the Board that vesting for said option or stock
purchase right has been accelerated in full.
The acceleration of an option in the event of an acquisition or similar
corporate event may be viewed as an anti-takeover provision, which may have the
effect of discouraging a proposal to acquire or otherwise obtain control of the
Company.
Duration, Amendments and Termination
The Board may suspend or terminate the 2000 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 2000 Plan will terminate on , 2010.
The Board also may amend the 2000 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within 12 months before or after its adoption by the Board if the
amendment would (i) modify the requirements as to eligibility for participation
(to the extent such modification requires stockholder approval in order for the
2000 Plan to satisfy Section 422 of the Code, if applicable, or Rule 16b-3 of
the Exchange Act); (ii) increase the number of shares reserved for issuance
upon exercise of options; or (iii) change the 2000 Plan in any other way if
such change requires stockholder approval in order to comply with Rule 16b-3 of
the Exchange Act or to satisfy the requirements of Section 422 of the Code or
any Nasdaq or other applicable securities exchange listing requirements. The
Board may submit any other amendment to the 2000 Plan for stockholder approval,
including, but not limited to, amendments intended to satisfy the requirements
Section 162(m) of the Code regarding the exclusion of performance-based
compensation from the limitation on the deductibility of compensation paid to
certain employees.
The Board also may amend any of the terms of one or more outstanding opt
ions granted under the 2000 Plan provided, however, that the rights under any
option shall not be impaired by any such amendment unless (i) the Company
requests the consent of the optionholder and (ii) the optionholder consents in
writing.
Federal Income Tax Information
Incentive Stock Options. Incentive stock options under the 2000 Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
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There generally are no federal income tax consequences to the optionholder
or the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may cause an optionholder to
become subject to, or result in an increase in, liability for alternative
minimum tax.
If an optionholder holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is
granted and at least one year from the date on which the shares are transferred
to the optionholder upon exercise of the option, any gain or loss on a
disposition of such stock will be a long-term capital gain or loss if the
optionholder held the stock for more than one year.
Generally, if the optionholder disposes of the stock before the expiration
of either of these holding periods (a "disqualifying disposition"), then at the
time of disposition the optionholder will realize taxable ordinary income equal
to the lesser of (i) the excess of the stock's fair market value on the date of
exercise over the exercise price, or (ii) the optionholder's actual gain, if
any, on the purchase and sale. The optionholder's additional gain or any loss
upon the disqualifying disposition will be a capital gain or loss, which will
be long-term or short-term depending on whether the stock was held for more
than one year. Slightly different rules may apply to optionholders who acquire
stock subject to certain repurchase options or who are subject to Section 16(b)
of the Exchange Act.
Long-term capital gains currently are generally subject to lower tax rates
than ordinary income or short-term capital gains. The maximum long-term capital
gains rate for federal income tax purposes is currently 20 percent while the
maximum ordinary income rate and short-term capital gains rate is effectively
39.6 percent.
To the extent the optionholder recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition
occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
2000 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionholder or the Company by
reason of the grant of a nonstatutory stock option. Upon exercise of a
nonstatutory stock option, the optionholder normally will recognize taxable
ordinary income equal to the excess, if any, of the stock's fair market
value on the date of exercise over the option exercise price. However, to
the extent the stock is subject to certain types of vesting restrictions,
the taxable event will be delayed until the vesting restrictions lapse
unless the participant elects to be taxed on receipt of the stock. With
respect to employees, the Company is generally required to withhold from
regular wages or supplemental wage payments an amount based on the ordinary
income recognized. Subject to the requirement of reasonableness, the
provisions of Section 162(m) of the Code and the satisfaction of a tax
reporting obligation, the Company will generally be entitled to a business
expense deduction equal to the taxable ordinary income realized by the
optionholder.
Upon disposition of the stock, the optionholder will recognize a capital
gain or loss equal to the difference between the selling price and the sum
of the amount paid for such stock plus any amount recognized as ordinary
income upon exercise of the option (or subsequent vesting of the stock,
where applicable). Such gain or loss will be long-term or short-term
depending on whether the stock was held for more than one year. Slightly
different rules may apply to optionholders who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
Potential Limitation on Company Deductions. Section 162(m) of the Code
denies a deduction to any publicly held corporation for compensation paid
to certain "covered employees" in a taxable year to the
extent that such compensation exceeds $1 million. It is possible that
compensation attributable to stock options, when combined with other
compensation received by a covered employee from the Company, may cause
this limitation to be exceeded in any particular year.
20
<PAGE>
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m) of the
Code, compensation attributable to stock options will qualify as
performance-based compensation if the option is granted by a compensation
committee comprised solely of "outside directors" and either (i) the plan
contains a per-employee limitation on the number of shares for which
options may be granted during a specified period, the per-employee
limitation is approved by the stockholders, and the exercise price of the
option is no less than the fair market value of the stock on the date of
grant, or (ii) the option is granted (or exercisable) only upon the
achievement (as certified in writing by the compensation committee) of an
objective performance goal established in writing by the compensation
committee while the outcome is substantially uncertain, and the option is
approved by stockholders.
Required Approval
The affirmative vote of the holders of a majority of shares of capital stock
represented and voting at a duly held meeting at which a quorum is present is
required to approve the 2000 Stock Plan as it relates to the two million five
hundred thousand (2,500,000) new shares available for issuance under the 2000
Stock Plan. Unless marked to the contrary, proxies received will be voted "FOR"
approval of the amendment of the 1995 Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF
THE 2000 STOCK PLAN.
21
<PAGE>
PROPOSAL NUMBER 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has approved the appointment of
PricewaterhouseCoopers LLP as independent accountants for the Company until
revoked by further action. PricewaterhouseCoopers LLP has been the Company's
independent accountants since inception (March 10, 1992).
The stockholders are asked to ratify the appointment of
PricewaterhouseCoopers LLP as independent accountants for the Company for the
fiscal year ending December 31, 2000. A representative of
PricewaterhouseCoopers LLP is expected to be present at the Annual Meeting to
make a statement if he or she desires to do so, and such representative is
expected to be available to respond to appropriate questions.
Should the stockholders fail to ratify the appointment of
PricewaterhouseCoopers LLP as independent accountants, appointment of the firm
for the fiscal year ending December 31, 2000 will be reconsidered by the Board
of Directors.
Unless marked to the contrary, proxies received will be voted "FOR"
ratification of the designation of PricewaterhouseCoopers LLP as independent
accountants for the Company's fiscal year ending December 31, 2000.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF
APPOINTMENT OF THE COMPANY'S INDEPENDENT ACCOUNTANTS.
Other Matters
Proposals Intended to be Presented at Next Annual Meeting. Proposals of
security holders intended to be presented at the Company's 2001 Annual Meeting
of Stockholders must be received by the Company for inclusion in the Company's
proxy statement and form of proxy no later than December 5, 2000.
Other Matters. Management knows of no business that will be presented for
consideration at the Annual Meeting other than as stated in the Notice of
Meeting. If, however, other matters are properly brought before the meeting, it
is the intention of the persons named in the accompanying form of proxy to vote
the shares represented thereby on such matters in accordance with their best
judgment.
Proxy Solicitation. The expense of solicitation of proxies will be borne by
the Company. In addition to solicitation of proxies by mail, certain officers,
directors and Company employees who will receive no additional compensation for
their services may solicit proxies by telephone, telegraph or personal
interview. The Company is required to request brokers and nominees who hold
stock in their name to furnish this proxy material to beneficial owners of the
stock and will reimburse such brokers and nominees for their reasonable out-of-
pocket expenses in so doing.
Annual Report. The Company will provide a copy of its Annual Report on
Form 10-K for the year ended December 31, 1999, without charge, to any
stockholder who makes a written request to Katharine A. Martin, Secretary,
Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road,
Palo Alto, California 94304.
By Order of the Board of Directors,
Katharine A. Martin
Secretary
Peabody, Massachusetts
April 4, 2000
22
<PAGE>
ANNEX A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
of
SCANSOFT, INC.
a Delaware Corporation
(Pursuant to Sections 242 & 245 of the Delaware General Corporation Law)
Michael K. Tivnan and Katharine A. Martin certify that:
1. They are the duly elected and acting President and the Secretary,
respectively, of Scansoft, Inc., a corporation organized under the laws of the
State of Delaware (the "corporation").
2. The name of the corporation is Scansoft, Inc. and that the corporation
was originally incorporated on September 21, 1995 under the name Visioneer
Communications, Inc. pursuant to the General Corporation Law.
3. The Amended and Restated Certificate of Incorporation of the
corporation shall be restated to read in full as follows:
ARTICLE I
The name of this corporation is ScanSoft, Inc.
ARTICLE II
The address of the registered office of this corporation in the State of
Delaware is 1013 Centre Road, Wilmington, County of New Castle, Delaware and its
registered agent at such address is The Prentice-Hall Corporation System, Inc.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
(A) Classes of Stock. This corporation is authorized to issue two classes
----------------
of stock to be designated common stock ("Common Stock") and preferred stock
("Preferred Stock"). the total number of shares which the corporation is
authorized to issue is 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), per 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.
<PAGE>
(B) Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock authorized by this Amended and Restated Certificate of
Incorporation may be issued from time to time in one or more series. The first
series of Preferred Stock shall be designated "Series 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 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
-2-
<PAGE>
adjusted by multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) The corporation shall declare a dividend or distribution
on the Series A Participating Preferred Stock as provided in paragraph (a) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Participating Preferred Stock, unless the date of issue of such shares is
prior to the record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the date of issue of
such shares, or unless the date of issue is a Quarterly Dividend Payment Date or
is a date after the record date for the determination of holders of shares of
Series A Participating Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Participating Preferred Stock in an amount less
than the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Participating Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be no more than 30 days prior to the date fixed for the
payment thereof.
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.
-3-
<PAGE>
(c) Except as required by law, holders of Series A
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
3. Certain Restrictions.
--------------------
(a) The corporation shall not declare any dividend on, make
any distribution on, or redeem or purchase or otherwise acquire for
consideration any shares of Common Stock after the first issuance of a share or
fraction of a share of Series A Participating Preferred Stock unless
concurrently therewith it shall declare a dividend on the Series A Participating
Preferred Stock as required by Section (A)(1) hereof.
(b) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Participating Preferred Stock as provided
in Section (A)(1) are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Participating Preferred Stock outstanding shall have been paid in full, the
corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Participating Preferred Stock;
(ii) declare or pay dividends on, make any other
distributions on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with Series A Participating
Preferred Stock, except dividends paid ratably on the Series A Participating
Preferred Stock and all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Participating
Preferred Stock, provided that the corporation may at any time redeem, purchase
or otherwise acquire shares of any such parity stock in exchange for shares of
any stock of the corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Participating Preferred
Stock;
(iv) purchase or otherwise acquire for consideration any
shares of Series A Participating Preferred Stock, or any shares of stock ranking
on a parity with the Series A Participating Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
-4-
<PAGE>
(c) The corporation shall not permit any subsidiary of the
corporation to purchase or otherwise acquire for consideration any shares of
stock of the corporation unless the corporation could, under paragraph (a) of
this Section (A)(3), purchase or otherwise acquire such shares at such time and
in such manner.
4. Reacquired Shares. Any shares of Series A Participating
-----------------
Preferred Stock purchased or otherwise acquired by the corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
5. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) Upon any liquidation (voluntary or otherwise),
dissolution or winding up of the corporation, no distribution shall be made to
the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Participating Preferred
Stock unless, prior thereto, the holders of shares of Series A Participating
Preferred Stock shall have received an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, plus an amount equal to the greater of (1) $1,000 per share,
provided that in the event the corporation does not have sufficient assets,
after payment of its liabilities and distribution to holders of Preferred Stock
ranking prior to the Series A Participating Preferred Stock, available to permit
payment in full of the $1,000 per share amount, the amount required to be paid
under this Section (A)(5)(a)(1) shall, subject to Section (A)(5)(b) hereof,
equal the value of the amount of available assets divided by the number of
outstanding shares of Series A Participating Preferred Stock or (2) subject to
the provisions for adjustment hereinafter set forth, 1,000 times the aggregate
per share amount to be distributed to the holders of Common Stock (the greater
of (1) or (2), the "Series A Liquidation Preference"). In the event the
corporation shall at any time after the Rights Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount to which holders of
shares of Series A Participating Preferred Stock were entitled immediately prior
to such event under clause (2) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock that were outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) In the event, however, that there are not sufficient
assets available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of Preferred
Stock, if any, which rank on a parity with the Series A Participating Preferred
Stock, then such remaining assets shall be distributed ratably to the holders of
such parity shares in proportion to their respective liquidation preferences.
6. Consolidation, Merger, etc. In case the corporation shall
--------------------------
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any
-5-
<PAGE>
such case the shares of Series A Participating Preferred Stock shall at the same
time be similarly exchanged or changed in an amount per share (subject to the
provision for adjustment hereinafter set forth) equal to 1,000 times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common Stock
is changed or exchanged. In the event the corporation shall at any time after
the Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Participating Preferred Stock shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding 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
-6-
<PAGE>
rights convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock of this corporation) shall be paid
or declared, and no distribution shall be made, on any Common Stock. Dividends,
if declared, must be declared and paid with respect to all series of Preferred
Stock contemporaneously, and if less than full dividends are declared, the same
percentage of the dividend rate will be payable to each series of Preferred
Stock.
(b) After payment of such dividends, any additional
dividends or distributions shall be distributed among all holders of Common
Stock and all holders of Series B Preferred Stock in proportion to the number of
shares of Common Stock which would be held by each such holder if all shares of
Series B Preferred Stock were converted to Common Stock at the then effective
conversion rate.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding
up of this corporation, either voluntary or involuntary, the holders of Series B
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets of this corporation to the holders of Common
Stock by reason of their ownership thereof, an amount per share equal to (i)
$1.30 for each outstanding share of Series B Preferred Stock (the "Original
Series B Issue Price") plus an amount equal to all declared but unpaid dividends
on each such share. If upon the occurrence of such event, the assets and funds
thus distributed among the holders of the Series B Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of this corporation
legally available for distribution shall be distributed ratably among the
holders of the Series B Preferred Stock in proportion to the product of the
liquidation preference of each such share and the number of such shares owned by
each such holder.
(b) After the distribution described in Section (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
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<PAGE>
Series B Preferred Stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing the Original Series B Issue
Price by the Conversion Price applicable to such shares in effect on the date
the certificate for such share is surrendered for conversion. The initial
Conversion Price per share for shares of Series B Preferred Stock shall be the
Original Series B Issue Price; provided, however, that the Conversion Price for
shares of Series B Preferred Stock shall be subject to adjustment as set forth
in subsection 4(c) below.
(ii) The shares of Series B Preferred Stock shall not be
convertible into Common Stock prior to March 2, 2001; provided, however, that
notwithstanding the foregoing, each share of Series B Preferred Stock shall be
convertible into Common Stock, at the option of the holder thereof, at any time
after the date on which such holder owns directly or indirectly a number of
outstanding shares of Common Stock of this corporation that represents less than
30.0% of the total number of shares of Common Stock outstanding immediately
prior to conversion of such share; and provided further, however, that such
holder shall not be entitled to convert any share of Series B Preferred Stock
pursuant to this Section (B)(4)(a)(ii) if the conversion of such share to Common
Stock would result in such holder owning directly or indirectly a number of
outstanding shares of Common Stock of this corporation that represents more than
50.0% of the total number of shares of Common Stock outstanding immediately
after the conversion of such share.
(iii) At any time after March 2, 2001, upon the written
consent of the holders of at least 66-2/3% of the then outstanding shares of
Series B Preferred Stock, each share of Series B Preferred Stock shall
automatically and immediately be converted into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Original
Series B Issue Price by the Conversion Price applicable to such shares in effect
on the date the certificate for such share is surrendered for conversion. The
initial Conversion Price per share for shares of Series B Preferred Stock shall
be the Original Series B Issue Price; provided, however, that the Conversion
Price for shares of Series B Preferred Stock shall be subject to adjustment as
set forth in subsection 4(c) below.
(b) Mechanics of Conversion. Before any holder of shares of
-----------------------
Series B Preferred Stock shall be entitled to convert the same into shares of
Common Stock, such holder shall surrender the certificate or certificates
therefor, duly endorsed, at the office of this corporation or of any transfer
agent for such Series B Preferred Stock, and shall give written notice by mail,
postage prepaid, to this corporation at its principal corporate office, of the
election to convert the same and shall state therein the name or names in which
the certificate or certificates for shares of Common Stock are to be issued.
This corporation shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of Series B Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series B Preferred Stock
to be converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall 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,
-8-
<PAGE>
be conditioned upon the closing with the underwriter(s) of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock issuable upon such conversion of shares of Series B
Preferred Stock shall not be deemed to have converted such shares of Series B
Preferred Stock until immediately prior to the closing of such sale of
securities.
(c) Conversion Price Adjustments of Series B Preferred
--------------------------------------------------
Stock. The Conversion Price of the Series B Preferred Stock shall be subject to
- -----
adjustment from time to time as follows:
(i) In the event this corporation should at any time or
from time to time after the date upon which any shares of Series B Preferred
Stock were initially issued (a "Purchase Date") fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then as of such record date (or the date of
such dividend distribution split or subdivision if no record date is fixed), the
Conversion Price of the Series B Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of each such series shall be increased in proportion to such increase
of outstanding shares.
(ii) If the number of shares of Common Stock outstanding
at any time after a Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series B Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of each such series shall be decreased in proportion to
such decrease in outstanding shares.
(d) Other Distributions. In the event this corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(c)(i), then, in
each such case for the purpose of this subsection 4(d), the holders of Series B
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of this corporation into which their shares of Series B Preferred Stock
are convertible as of the record date fixed for the determination of the holders
of Common Stock of this corporation entitled to receive such distribution.
(e) Recapitalization. If at any time or from time to time
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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
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in the application of the provisions of this Section (B)(4) with respect to the
rights of the holders of Series B Preferred Stock after the recapitalization to
the end that the provisions of this Section (B)(4) (including adjustment of the
Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series B Preferred Stock) shall be applicable after that event
as nearly equivalent as may be practicable.
(f) No Impairment. This corporation will not, by amendment
-------------
of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or 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.
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(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
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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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(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
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Section (B)(4) t 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 give such holders prompt notice of
any material changes. The transaction shall in no event take
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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
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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.
(C) No Preemptive Rights. The holders of the Series B Preferred Stock
--------------------
shall not have any preemptive rights.
ARTICLE V
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, repeal, alter, amend,
and rescind any or all of the Bylaws of this corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors of
by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws of
this corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of this corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of this corporation.
ARTICLE IX
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A director of this corporation shall, to the full extent permitted by the
Delaware General Corporation Law as it now exists or as it may hereafter be
amended, not be liable to this corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Neither any amendment nor
repeal of this Article, nor the adoption of any provision of this Amended and
Restated Certificate of Incorporation inconsistent with this Article, shall
eliminate or reduce the effect of this Article in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision. If the Delaware General Corporation Law is amended
after approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article by
the stockholders of this corporation shall not adversely affect any right or
protection of a director of this corporation existing at the time of such repeal
or modification.
ARTICLE X
No action required to be taken or that may be taken at any annual or
special meeting of the stockholders of this corporation may be taken without a
meeting, and the power of stockholders to consent in writing, without a meeting,
to the taking of any action is specifically denied.
ARTICLE XI
To the fullest extent permitted by applicable law, this corporation is
authorized to provide indemnification of (and advancement of expenses to) its
agents (and any other persons to which Delaware law permits this corporation to
provide indemnification) through Bylaw provisions, agreements with such agents
or other persons, vote of stockholders or disinterested directors or otherwise,
in excess of the indemnification and advancement otherwise permitted by Section
145 of the General Corporation Law of the State of Delaware, subject only to
limits created by applicable Delaware law (statutory or non-statutory), with
respect to actions for breach of duty to this corporation, its stockholders, and
others.
Any repeal or modification of any of the foregoing provisions of this
Article shall not adversely affect any right or protection of a director,
officer, agent or other person existing at the time of, or increase the
liability of any director of this corporation with respect to any acts or
omissions of such director, officer, agent or other person occurring prior to
such repeal or modification.
ARTICLE XII
This corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
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4. Michael K. Tivnan and Katharine A. Martin further declare under penalty
of perjury that each has read the foregoing certificate and knows the contents
thereof and that the same is true and correct.
IN WITNESS WHEREOF, the undersigned have executed this certificate on
_________, 2000.
__________________________________________
Michael K. Tivnan, President
__________________________________________
Katharine A. Martin, Secretary
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