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 [ ]
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ScanSoft, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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SCANSOFT, INC.
9 CENTENNIAL DRIVE
PEABODY, MA 01960
(978) 977-2000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholders:
The Annual Meeting of Stockholders of ScanSoft, Inc. (the "Company") will
be held at the Company's headquarters, 9 Centennial Drive, Peabody,
Massachusetts 01960, on June 20, 2003 at 9:00 a.m. for the purpose of
considering and acting upon the following proposals:
(1) To elect five (5) directors to our Board of Directors to hold office
until the next annual meeting of stockholders or until their respective
successors have been elected and qualified;
(2) To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants for the year ending December 31,
2003; and
(3) 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 April 21, 2003 as
the record date for determination of stockholders entitled to notice of, and to
vote at, the Annual Meeting and at any postponements or adjournments thereof. A
list of stockholders entitled to vote will be available at 9 Centennial Drive,
Peabody, Massachusetts 01960 for ten days prior to the Annual Meeting.
The Company's Annual Report on Form 10-K for the year ended December 31,
2002 accompanies this Notice of Annual Meeting of Stockholders and Proxy
Statement.
By Order of the Board of Directors
(-s- Katherine Martin)
KATHARINE A. MARTIN
Secretary
Peabody, Massachusetts
April 30, 2003
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.
SCANSOFT, INC.
9 CENTENNIAL DRIVE
PEABODY, MA 01960
(978) 977-2000
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
JUNE 20, 2003
This Proxy Statement is furnished in connection with the solicitation by
ScanSoft, Inc. (the "Company") on behalf of the Board of Directors (the "Board"
or the "Board of Directors") of proxies for use at the Annual Meeting of
Stockholders of the Company to be held on June 20, 2003 at 9:00 a.m. at 9
Centennial Drive, Peabody, Massachusetts 01960 (the "Annual Meeting"). This
proxy statement and the accompanying form of proxy are being mailed to
stockholders on or about May 7, 2003.
VOTING RIGHTS
Each share of Common Stock entitles the holder thereof to one vote on
matters to be acted upon at the Annual Meeting, including the election of
directors. The Company's Series B Preferred Stock is not entitled to a vote on
matters to be acted upon at the Annual Meeting. Votes cast in person or by proxy
at the Annual Meeting will be tabulated by U.S. Stock Transfer Corporation, the
Inspector of Elections. Any proxy that is returned using the form of proxy
enclosed will be voted in accordance with the instructions thereon, and if no
instructions are given, will be voted (i) FOR the election of the director
nominees as provided under Proposal 1 herein, (ii) FOR ratification of the
appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants as provided under Proposal 2 herein, and (iii) as the proxy holders
deem advisable in their sole discretion on any other matters that may come
before the Annual Meeting. A stockholder may indicate on the enclosed proxy or
its substitute that it is abstaining from voting on a particular matter (an
"abstention"). A broker may indicate on the enclosed proxy or its substitute
that it does not have discretionary authority as to certain shares to vote on a
particular matter (a "broker non-vote"). Abstentions and broker non-votes are
each tabulated separately.
The Inspector of Elections will determine whether or not a quorum is
present at the Annual Meeting. In general, Delaware law provides that a majority
of the shares entitled to vote present in person or represented by proxy
constitutes a quorum. Abstentions and broker non-votes of shares that are
entitled to vote are treated as shares that are present in person or represented
by proxy for purposes of determining the presence of a quorum. Except for the
election of directors, the affirmative vote of the majority of shares entitled
to vote and present in person or represented by proxy at a duly held meeting at
which a quorum is present is required under Delaware law for approval of
proposals presented to stockholders. Directors are elected by a plurality of the
votes.
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
Holders of record of Common Stock as of the close of business on April 21,
2003 have the right to receive notice of and to vote at the Annual Meeting. On
April 21, 2003, the Company had issued and outstanding 65,720,122 shares of
Common Stock.
PROXIES
Proxies for use at the Annual Meeting are being solicited by the Company on
behalf of the Board of Directors 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.
The Annual Report of the Company on Form 10-K (which does not form a part
of the proxy solicitation materials), containing the consolidated financial
statements of the Company for the fiscal year ended December 31, 2002, is being
distributed concurrently with this proxy statement to stockholders.
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
At the Annual Meeting, five (5) directors will be elected to the Board,
leaving two vacancies on the Board. Except as set forth below, unless otherwise
instructed, the persons appointed in the accompanying form of proxy will vote
the proxies received by them for the nominees named below. The nominees are
presently directors of the Company. In the event that any nominee becomes
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. Mr. Herve Gallaire, who was elected to the Board of
Directors at the last Annual Meeting of Stockholders, resigned from the Board in
September 2002 and is not a nominee for election to the Board at the Annual
Meeting. Mr. Gallaire resigned due to the demands of his duties at Xerox
Corporation. In addition, Michael K. Tivnan is not standing for re-election to
the Board of Directors. Mr. Tivnan has tendered his resignation as an executive
officer and director of the Company effective April 30, 2003. The remaining
positions on our Board previously filled by Messrs. Gallaire and Tivnan will
remain vacant until suitable nominees are identified.
INFORMATION REGARDING THE NOMINEES FOR ELECTION AS DIRECTORS
The following information with respect to the principal occupation or
employment, other affiliations and business experience during the last five
years of the nominees has been furnished to the Company by such nominees. Except
as indicated, the nominees have had the same principal occupation during the
last five years.
Paul A. Ricci, 46, has served as the Company's Chairman since March 2, 1999
and our Chief Executive Officer since August 21, 2000. From January 1998 to
August 2000, Mr. Ricci was the Vice President, Corporate Business Development of
Xerox. Prior to 1998, Mr. Ricci held several positions within Xerox, including
serving as President, Software Solutions Division and as President of the
Desktop Document Systems Division. Between June 1997 and March 1999, Mr. Ricci
served as Chairman of the Board of Directors of ScanSoft, Inc., which was then
operating as an indirect wholly-owned subsidiary of Xerox.
Robert J. Frankenberg, 55, has served as a director since March 13, 2000.
Since December 1999, Mr. Frankenberg has served as Chairman of Kinzan, Inc., an
Internet Services software platform provider. From May 1997 to July 2000, Mr.
Frankenberg served as the Chairman, President and Chief Executive Officer of
Encanto Networks, Inc., a developer of hardware and software designed to enable
creation of businesses on the Internet. Since July 2000, Mr. Frankenberg has
continued as Chairman, and since January 2001, has served as Acting President
and CEO of Encanto. From April 1994 to August 1996, Mr. Frankenberg was
Chairman, President and Chief Executive Officer of Novell, Inc., a producer of
network software. Mr. Frankenberg is a director of Electroglas, Inc., National
Semiconductor, Daw Technologies, Inc. and Secure Computing Corporation.
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Katharine A. Martin, 40, has served as a director 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, Professional Corporation. Wilson Sonsini Goodrich & Rosati
serves as the Company's primary outside corporate and securities counsel. Prior
thereto, Ms. Martin was a Partner of Pillsbury Madison & Sutro LLP.
Mark B. Myers, 64, has served as a director since March 2, 1999. Dr. Myers
served as Senior Vice President, Xerox Research and Technology, responsible for
worldwide research and technology from February 1992 until April 2000. Dr. Myers
is presently on the faculty of the Wharton Business School, The University of
Pennsylvania.
Robert G. Teresi, 61, has served as a director 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.
REQUIRED VOTE
The five (5) 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 THAT THE STOCKHOLDERS VOTE
"FOR" THE ELECTION OF THE FOREGOING NOMINEES TO SERVE AS DIRECTORS UNTIL THE
NEXT ANNUAL MEETING OF STOCKHOLDERS.
BOARD COMMITTEES
The Company's audit committee consists of Messrs. Frankenberg, Myers and
Teresi. The audit committee reviews the Company's internal accounting procedures
and consults with and reviews the services provided by our independent public
accountants.
The Company's compensation committee consists of Messrs. Frankenberg and
Teresi. Ms. Martin was a member of the compensation committee until she resigned
from the committee in October 2002. The compensation committee reviews and
recommends to the Board of Directors the compensation and benefits of our
employees.
ATTENDANCE AT BOARD OF DIRECTOR AND COMMITTEE MEETINGS
The Board of Directors held a total of 12 meetings during the fiscal year
ended December 31, 2002. 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 or she served.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2002, no member of the compensation committee was an officer or
employee of the Company. During 2002, no member of the compensation committee or
executive officer of the Company served as a member of the board of directors or
compensation committee of any entity that has an executive officer serving as a
member of the Company's Board of Directors or compensation committee.
COMPENSATION OF NON-EMPLOYEE DIRECTORS
Non-employee directors are entitled to participate in the 1995 Directors'
Stock Option Plan. Options granted under this plan constitute the sole
compensation for board service. The plan, as amended in June 2001, provides that
each non-employee director will receive an initial option grant to purchase
50,000 shares of Common Stock at an exercise price equal to the fair market
value of the stock on the respective effective date of the grant. Each option is
exercisable in installments, 25% each year beginning on the first anniversary of
the grant so that the options are 100% exercisable four years after the
effective date of the grant. The plan also provides for the automatic annual
grant of stock options to purchase 15,000 shares of Common Stock (5,000
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prior to the June 2001 amendment), to each non-employee director on January 1 of
each year, provided that, on such date, he or she shall have served on the Board
for at least six months. These annual grants become fully vested and exercisable
on the first anniversary of the date of grant. Pursuant to the automatic grant
provision, on January 2, 2001, each non-employee director was granted an option
to purchase 5,000 shares of Common Stock at an exercise price of $.6563, the
market price on that date, which amounted to 25,000 shares in the aggregate.
Also pursuant to the automatic grant provision, on January 2, 2002, each
non-employee director was granted an option to purchase 15,000 shares of Common
Stock at an exercise price of $4.45, the market price on that date, which
amounted to 75,000 shares in the aggregate. The June 2001 amendment also allowed
for the non-automatic grant of an option to purchase 40,000 shares of Common
Stock to all non-employee directors who were outside directors on January 23,
2001 ("Eligible Directors"). Accordingly, each Eligible Director received a
grant of an option to purchase 40,000 shares on June 27, 2001 at an exercise
price of $1.18, the market price on that date, which amounted to 160,000 shares
in the aggregate. These June 27, 2001 options became fully vested and
exercisable on June 27, 2002, the first anniversary of the date of grant.
EXECUTIVE COMPENSATION, MANAGEMENT AND OTHER INFORMATION
INFORMATION CONCERNING EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Wayne S. Crandall, 44, has served as the Company's Senior Vice President
Sales and Business Development since January of 2002. Mr. Crandall served as
Senior Vice President Sales and Marketing from November 2000 until December of
2001. From March 2000 to November 2000, Mr. Crandall was Senior Vice President
Sales, and from March 1995 to March 2000, he was Vice President Sales and
Channel Marketing. From January of 1993 until March 1995 Mr. Crandall was the
Company's Managing Director of International Sales, Marketing and Operations
based in the United Kingdom. From December 1989 until January of 1993, Mr.
Crandall was Vice President of North American Sales for Xerox Imaging Systems, a
wholly owned subsidiary of Xerox. From January of 1984 until December of 1989,
Mr. Crandall was the Director of North American Sales for Kurzweil Computer
Products. From 1978 until January of 1984, Mr. Crandall held several sales and
marketing positions with Philips N.V., Lexitron, a Division of Raytheon and
Savin Corporation.
Jeanne McCann, 52, has served as the Company's Senior Vice President of
Speech Research and Development since December 2001. From June 2000 to December
2001, Ms. McCann served as Senior Vice President, Development -- SLS Division of
Lernout & Hauspie. From July 1998 to June 2000, Ms. McCann served as Vice
President, Development for Dragon Systems, Inc., and from March 1997 to July
1998, as Vice President, Development for Eastman Software, Inc.
Richard S. Palmer, 52, has served as the Company's Senior Vice President
and Chief Financial Officer since May 2000. From July 1994 to April 2000, Mr.
Palmer was the Director of Corporate Development at Xerox Corporation. Prior to
that, Mr. Palmer worked in a number of financial management positions at Xerox
including Vice President of Business Analysis for Xerox Financial Services,
Inc., Corporate Assistant Treasurer, and Manager of Planning and Pricing for
Xerox's Latin American Operations.
Michael K. Tivnan, 50, has tendered his resignation as an executive officer
and director of the Company effective April 30, 2003. Prior to his resignation,
Mr. Tivnan served as the President and Chief Operating Officer of the Company
since August 21, 2000. From March 2, 1999 until August 21, 2000, Mr. Tivnan
served as the President and Chief Executive Officer of the Company. From
February 1998 until March 2, 1999, Mr. Tivnan served as the President of
ScanSoft, Inc., as General Manager and Vice President of ScanSoft from November
1993 until February 1998, and as Chief Financial Officer of ScanSoft from
January 1991 until November 1993.
Robert J. Weideman, 44, became the Chief Marketing Officer and Senior Vice
President of the Company in August 2002. Mr. Weideman has served as Vice
President, Marketing since November 2001. From February 1999 until November
2001, Mr. Weideman was Vice President of Marketing for Cardiff Software, Inc.
From August 1994 to January 1999, Mr. Weideman was Vice President of Marketing
for TGS N.V. (TGS Inc., Europe).
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Ben S. Wittner, 45, has served as the Company's Senior Vice President
Imaging Research and Development since August 2000. From March 2000 to August
2000, Dr. Wittner served as Vice President Technology Research and Development.
From February 1995 until March 2000, Dr. Wittner was Director of OCR Research
and Development of ScanSoft, Inc., which was operating as an indirect
wholly-owned subsidiary of Xerox until March 1999. Dr. Wittner joined ScanSoft
in 1992 as manager of text recognition for OCR development. Previously, Dr.
Wittner was an individual contributor and then supervisor for the handwriting
recognition project at NYNEX. Prior to that, he held a post-doctoral position at
AT&T Bell Laboratories, researching fundamentals and applications of neural
networks. Dr. Wittner earned a Ph.D. in mathematics from Cornell University.
EXECUTIVE COMPENSATION
The following table provides certain summary information for the fiscal
years 2002, 2001 and 2000 concerning compensation earned by the Company's Chief
Executive Officer and by the Company's four other most highly compensated named
executive officers whose compensation exceeded $100,000 in 2002 (the "Named
Executive Officers").
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------------ ------------------------
RESTRICTED SECURITIES ALL OTHER
OTHER ANNUAL STOCK UNDERLYING ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION AWARD(S)($) OPTIONS(#) COMPENSATION(2)
--------------------------- ---- ------- -------- ------------ ----------- ---------- ---------------
Paul A. Ricci............. 2002 299,000 25,000(3) 107,000(4) -- 1,011,554 --
Chief Executive Officer 2001 300,000 39,700 52,746(4)(5) -- -- --
2000(6) 110,385 12,248 -- -- 2,505,000 --
Michael K. Tivnan......... 2002 274,516 25,000(3) -- -- 122,918 8,000
President and Chief 2001 275,016 99,250 5,289(5) -- -- 7,062
Operating Officer(7) 2000 269,180 36,378 5,289(5) -- 330,000 8,250
Wayne S. Crandall......... 2002 224,500 -- -- -- 263,125 7,125
Senior Vice President, 2001 225,000 67,382 4,327(5) -- -- 9,154
Sales and Business 2000 180,673 58,102 577(5) -- 200,000 6,773
Development
Richard S. Palmer......... 2002 219,500 -- -- -- 14,667 6,967
Senior Vice President and 2001 220,000 69,872 4,231(5) $ 90,750(8) 100,000 7,017
Chief Financial Officer 2000(9) 155,833 25,868 4,231(5) 550,000 --
Robert Weideman........... 2002(10) 209,500 42,000 19,943(12) $200,002(11) 10,500 6,650
Chief Marketing Officer,
Senior Vice President
---------------
(1) Unless specified otherwise, bonuses were paid pursuant to Bonus Incentive
Plans.
(2) Represents Company contributions to the Company's 401(k) plan.
(3) Represents a bonus paid for successful completion of the Lernout & Hauspie
acquisition.
(4) Includes allowance paid for remote living expenses.
(5) Includes payment of one week of accrued vacation.
(6) Mr. Ricci began operating in this capacity in August 2000.
(7) Mr. Tivnan served as President and Chief Executive Officer from March 1999
to August 2000, and thereafter as President and Chief Operating Officer.
Mr. Tivnan has tendered his resignation as an executive officer and
director of the Company effective April 30, 2003.
(8) Mr. Palmer received a Restricted Stock Award for 75,000 shares. This
Restricted Stock Award has a 2 1/2 year cliff vesting, which vests 100% on
April 17, 2004. The value of the Restricted Stock Award as of December 31,
2002 was $390,000.
5
(9) Mr. Palmer joined the Company in May 2000.
(10) Mr. Weideman began operating in this capacity in August 2002.
(11) Mr. Weideman received a Restricted Stock Award in November 2001 for 58,824
shares. This Restricted Stock Award vests in equal installments of 1/3 on
each anniversary date. On November 27, 2002, 19,608 shares vested at a
value of $147,060. The value of the unvested Restricted Stock holdings as
of December 31, 2002 was $203,923.
(12) Represents reimbursement of relocation expenses.
CHANGE IN CONTROL AND EMPLOYMENT AGREEMENTS
The Board approved the acceleration of vesting of options for certain
officers and the directors 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, certain changes in the composition of the Board, and certain changes in
the ownership of the Company.
Mr. Ricci serves as the Company's Chief Executive Officer and Chairman of
the Board. Under the terms of his August 21, 2000 employment agreement, his
annual base compensation is $300,000 and he is eligible to receive a target
bonus of $50,000 per year. The agreement also provided for a grant of 2,500,000
options at $1.3438 per share, subject to 1/8 vesting per quarter over a two-year
period. Mr. Ricci's severance (in the event of involuntary termination other
than for cause, death or disability) under the employment agreement would
entitle him to, among other things, a lump-sum payment equal to 8.5% of his base
salary and target bonus, and acceleration of vesting of all options held by him
that were unvested immediately prior to termination. Additionally, upon a change
in control, Mr. Ricci would be entitled to vesting of all of his unvested
options. Mr. Ricci's employment agreement was amended in July 2001 to provide
him with a living expenses allowance, not to exceed $107,000 annually, in
connection with his relocation to the Massachusetts area, where our corporate
headquarters are located.
Mr. Tivnan served as the Company's President, Chief Operating Officer and
director. Mr. Tivnan has tendered his resignation as an executive officer and
director of the Company effective April 30, 2003. As a result of Mr. Tivnan's
resignation, per an amended agreement with Mr. Tivnan approved by the Company's
Compensation Committee, Mr. Tivnan will receive a payment of $250,000, which
will be paid over a one-year period pursuant to the Company's standard payment
practices. In addition, he will receive six years of Company health benefits.
Mr. Crandall serves as the Company's Senior Vice President Sales and
Business Development. Under the terms of a vesting agreement that he entered
into in April 1999, all of Mr. Crandall's unvested stock options will
immediately vest upon his involuntarily or constructive termination prior to,
but in contemplation of, or within twelve months after, a change in control.
Ms. McCann serves as Senior Vice President of Speech and Language Research
and Development. Under the terms of a Company letter addressed to Ms. McCann on
February 17, 2003, in the event there is a change in control of the Company and
Ms. McCann's employment is terminated within 6 months of the change in control,
all of her stock options will become fully vested as of the effective date of
the termination of her employment.
Mr. Weideman serves as the Company's Chief Marketing Officer. Under the
terms of a Company letter addressed to Mr. Weideman on September 26, 2002, in
the event there is a change in control of the Company and Mr. Weideman's
employment is terminated within 6 months of the change in control, all of his
stock options will become fully vested as of the effective date of the
termination of his employment.
Mr. Wittner serves as the Company's Senior Vice President of Imaging
Research and Development. Under the terms of a Company letter addressed to Mr.
Wittner in July 2000, in the event there is a change in control of the Company
and Mr. Wittner's employment is terminated within twelve months of the change in
control, all of his stock options will become fully vested as of the effective
date of the termination of his employment. Additionally, in the event that Mr.
Wittner's position with the Company is eliminated for any
6
reason other than for cause, Mr. Wittner would be entitled to 52 weeks of
severance pay, based on his base salary at the time of termination.
RECENT OPTION GRANTS
The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 2002 to the Named Executive
Officers.
POTENTIAL REALIZABLE VALUE
PERCENT OF TOTAL AT ASSUMED ANNUAL
OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES IN EXERCISE OR TERM($)(2)
OPTIONS FISCAL BASE PRICE EXPIRATION ---------------------------
NAME GRANTED(#) YEAR(%)(1) ($/SHARE) DATE 5% 10%
---- ---------- ---------------- ----------- ---------- ------------ ------------
Paul Ricci........... 11,554(3) .2362 5.3600 04/29/12 38,947.09 98,699.58
550,000(4) 11.2453 5.3600 04/29/12 1,853,981.36 4,698,352.77
450,000(4) 9.2007 6.9700 06/14/12 1,972,528.00 4,998,773.23
Michael Tivnan....... 22,918(3) .4686 5.3600 04/29/12 77,253.72 195,776.09
100,000(5) 2.0446 5.3600 04/29/12 337,087.52 854,245.96
Wayne Crandall....... 50,000(6) 1.0223 4.7000 02/11/12 147,790.24 374,529.48
13,125(3) .2684 5.3600 04/29/12 44,242.74 112,119.78
100,000(7) 2.0446 5.3600 04/29/12 337,087.52 854,245.96
100,000(7) 2.0446 6.9700 06/14/12 438,339.55 1,110,838.49
Richard S. Palmer.... 14,667(3) .2999 5.3600 04/29/12 49,440.63 125,292.25
Robert Weideman...... 10,500(3) .2147 5.3600 04/29/12 35,394.19 89,695.83
---------------
(1) Based on options to purchase an aggregate of 4,890,913 shares of common
stock granted to employees during fiscal 2002.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of five percent (5%) and
ten percent (10%) compounded annually from the date the respective options
were granted to their expiration date and are not presented to forecast
possible future appreciation, if any, in the price of our common stock. The
gains shown are net of the option exercise price, but do not include
deductions for taxes or other expenses associated with the exercise of the
options or the sale of the underlying shares of common stock. The actual
gains, if any, on the stock option exercises will depend on the future
performance of our common stock, the optionee's continued employment through
applicable vesting periods and the date on which the options are exercised.
(3) Options granted to Mr. Ricci, Mr. Tivnan, Mr. Crandall, Mr. Palmer and Mr.
Weideman have a ten year term, and are exercisable 50% on 8/31/02 and 50% on
2/28/03.
(4) Options granted to Mr. Ricci have a ten year term, and are exercisable over
a two year period commencing one month after grant date.
(5) Options granted to Mr. Tivnan have a ten year term, and are 100% exercisable
on the grant anniversary date.
(6) Options granted to Mr. Crandall have a ten year term, and are exercisable
over a two year period commencing 3 months after grant date and monthly
thereafter.
(7) Options granted to Mr. Crandall have a ten year term, and are exercisable
over a four year period commencing 1 year after grant date and monthly
thereafter.
7
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, 2002. (No stock appreciation rights were granted by the Company in
2002 and none were outstanding at December 31, 2002.)
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES(1)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT 12/31/02 OPTIONS/SARS AT 12/31/02
SHARES ACQUIRED VALUE --------------------------- ---------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- -------- ----------- ------------- ----------- -------------
Paul A. Ricci............. -- -- 2,821,609 714,945 $9,695,400 $ 17,550
Michael K. Tivnan......... -- -- 988,395 216,459 3,640,686 232,050
Wayne Crandall............ -- -- 502,781 315,126 1,779,034 198,281
Richard S. Palmer......... -- -- 494,834 169,833 1,463,055 401,750
Robert Weideman........... -- -- 140,666 369,834 243,749 656,251
---------------
(1) Based on a per share price of $5.20, the closing price of our common stock
as reported by The Nasdaq National Market on December 31, 2002, the last
trading day of the fiscal year, less the exercise price. The actual value of
unexercised options fluctuates with stock market activity.
RELATED PARTY TRANSACTIONS
At December 31, 2002, Xerox owned approximately 19% of the Company's
outstanding common stock and all of the Company's outstanding Series B Preferred
Stock. In connection with the Company's acquisition of ScanSoft in 1999
(following which the Company renamed itself ScanSoft), the Company issued
3,562,238 shares of Series B Preferred Stock to Xerox. The Series B Preferred
Stock is convertible into shares of common stock on a share for share basis. The
Series B Preferred Stock has a liquidation preference of $1.30 per share plus
all declared but unpaid dividends. The Series B Preferred Stockholders are
entitled to non-cumulative dividends at the rate of $0.065 per annum per share,
payable when, as and if declared by the Board of Directors. To date no dividends
have been declared by the Board of Directors. Holders of Series B Preferred
Stock have no voting rights, except those rights provided under Delaware law.
In addition, Xerox has the opportunity to acquire additional shares of
common stock pursuant to a ten-year warrant. The warrant allows Xerox to acquire
a number of shares of common stock equal to the number of options (whether
vested or unvested) that remain unexercised at the expiration of any ScanSoft
option assumed by the Company in the merger. The exercise price for each warrant
share is $0.61. If all of the assumed ScanSoft options expire without being
exercised, Xerox would be entitled to purchase 1,736,630 shares of common stock.
The warrant was fully vested on the date of grant; however, Xerox could not
exercise the warrant prior to March 2, 2002, unless, immediately after such
exercise, Xerox owned directly or indirectly less than 45% of the Company's
shares of common stock outstanding immediately after such exercise. From the
date of acquisition through March 28, 2003, approximately 525,732 ScanSoft
options have been forfeited and accordingly, the Xerox warrant was exercisable
for the purchase of 525,732 shares of the Company's common stock.
The Company and Xerox have entered into multiple non-exclusive agreements
in which the Company grants Xerox the royalty-bearing right to copy and
distribute certain versions of the Company's software programs with Xerox's
multi-function peripherals. Xerox accounted for 5%, 11% and 12% of total net
revenues during each of the years ended December 31, 2002, 2001 and 2000,
respectively, amounting to $5.1 million, $7.2 million and $6.0 million,
respectively. As of December 31, 2002 and 2001, Xerox owed the Company $1.5
million and $1.8 million, respectively, pursuant to these agreements, which are
included in accounts receivable. The Company believes that the terms of its
agreements with Xerox are no more favorable than those with unrelated parties.
In connection with the Caere acquisition in the first quarter of 2000 and
pursuant to a concurrent non-competition and consulting agreement, the Company
agreed to pay the former Caere President and CEO, Robert Teresi, a current
member of the Board of Directors of the Company, on the second anniversary of
the
8
merger, March 13, 2002, the difference between $13.50 and the closing price per
share of ScanSoft common stock at that time, multiplied by 486,548. On March 5,
2002, the Company negotiated a deferred payment agreement with the former Caere
President and CEO to terminate this agreement. Under the terms of the deferred
payment agreement, the Company paid the former Caere President and CEO $1.0
million in cash on March 5, 2002, and agreed to make future cash payments
totaling $3.3 million, with such amounts payable in equal quarterly installments
of approximately $0.4 million over the following two years. During the year
ended December 31, 2002, the Company paid three quarterly installments under
this agreement totaling $1.2 million. The total consideration under the original
agreement was accounted for in the Caere purchase price and accordingly had no
effect on the results of operations. The remaining liability at December 31,
2002 is $2.1 million, of which $1.6 million is included in other current
liabilities and $0.5 million is included in other long-term liabilities.
During the year ended December 31, 2002, the law firm of Wilson Sonsini
Goodrich & Rosati, Professional Corporation acted as primary outside corporate
and securities counsel to the Company. Ms. Martin, a director of the Company, is
a member of Wilson Sonsini Goodrich & Rosati. Aggregate fees and costs billed to
the Company during the year ended December 31, 2002 by Wilson Sonsini Goodrich &
Rosati were approximately $935,000. The Company believes that the services
performed by Wilson Sonsini Goodrich & Rosati were provided on terms no more
favorable than those with unrelated parties.
COMPENSATION COMMITTEE REPORT ON COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors. During the fiscal year ended
December 31, 2002, the Compensation Committee consisted of Robert G. Teresi,
Robert J. Frankenberg and Katharine A. Martin. Ms. Martin resigned from the
Compensation Committee in October 2002. No member of the Compensation Committee
during this fiscal year ended December 31, 2002 was an employee of the Company
or any of its subsidiaries.
COMPENSATION STRATEGY
Generally, the Company's executive compensation programs consist of a base
salary program, a performance-based cash bonus program and a long-term incentive
plan consisting solely of nonqualified stock options. A large part of executive
compensation is at-risk and tied to individual and Company performance. The
Compensation Committee's executive compensation policy has the following
objectives:
- To align the interests of the Company's executives and other key
employees with those of the Company's stockholders, employees, and
customers
- To link compensation of executives to the Company's performance
- To target base salaries at about the 50th to 75th percentile and total
annual cash incentive at about the 75th percentile for each executive as
compared to his or her industry-specific peers
- To offer significant levels of at-risk compensation in the form of stock
options so that the long-term rewards available to the Company's
executive officers will have a direct correlation to stockholder value
FACTORS CONSIDERED IN ESTABLISHING COMPENSATION PACKAGES
Several of the more important factors that were considered in establishing
the components of each executive officer's compensation package are summarized
below. Additional factors were also taken into account to a lesser degree.
- Base Salary. The Compensation Committee reviews recommendations and sets
the salary levels of executive officers in the spring of each year. This
review is based on the duties and responsibilities that we expect each
executive to discharge during the current year and upon the executive's
performance during the previous year. We perform external market
comparisons, relative to industry-specific peers, based on individual job
responsibility. The Compensation Committee reviews companies whose
9
employee size and annual revenue are similar to the Company's. The
compensation for Messrs. Ricci and Tivnan is guided by the terms of their
employment agreements.
- Bonuses. Bonuses were paid in the form of options for the fiscal year
ended December 31, 2002. The number of options granted was determined by
a calculation using an assumed spread of the Company's common stock value
and 50% of each of the officers target annual bonus opportunity. Please
see "Recent Option Grants" table for details on options granted to each
of the Executive Officers in 2002.
Payments under the Second Half 2002 Incentive for Performance Bonus
Program, designed to reward the remaining 50% of the officers target
annual bonus opportunity, were contingent upon the achievement of
year-end business objectives. The Committee, however, determined that
these objectives were not met, and thus no Second Half bonuses were paid.
In 2002, additional bonuses were paid to Messrs. Tivnan and Ricci in the
amount of $25,000 each for their efforts relating to the acquisition of
Lernout & Hauspie assets in December 2001.
Mr. Weideman was also paid a bonus in recognition of his performance
during his first year with the Company.
- Options. The Compensation Committee periodically approves grants of
stock options to each of the Company's executive officers under the
Company's stock option plans. The grants are designed to give executive
officers the opportunity to build a meaningful stake in the Company, with
the objective of aligning executive officers' long-range interests with
those of the stockholders and encouraging the achievement of superior
results over time. Each grant generally allows the officer to acquire
shares of the Company's Common Stock at a fixed price per share (the fair
market value on the grant date) over a specified period of time (up to 10
years), thus providing a return to the executive officer only if the
market price of the shares appreciates over the option term.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The employment agreement dated August 21, 2000 between Mr. Ricci and the
Company establishes the base annual salary of $300,000 and other items included
in the "Other Annual Compensation" and "All Other Annual Compensation" columns
in the Summary Compensation Table. This Agreement includes a target bonus of
$50,000 per year and an option grant of 2,500,000 shares of our common stock at
$1.3438 per share, which vests 1/8 per quarter over a two-year period. In
addition, at least once during each fiscal year, the Compensation Committee has
agreed to consider granting Mr. Ricci additional options. The number and terms
and conditions of any options granted to Mr. Ricci will be determined in the
discretion of the Compensation Committee, but the Compensation Committee
generally will seek to grant options to Mr. Ricci in an amount and on terms and
conditions that are at least as favorable as option grants received by senior
officers of companies comparable to the Company. Please see "Recent Option
Grants" table for details on options granted to Mr. Ricci during 2002.
The Compensation Committee has considered the potential impact of Section
162(m) of the Internal Revenue Code adopted under the Federal Revenue
Reconciliation Act of 1993. This section precludes a public corporation from
taking a tax deduction for individual compensation in excess of $1 million for
its chief executive officer or any of its four other highest-paid officers. This
section also provides for certain exemptions to this limitation, specifically
compensation that is performance based within the meaning of Section 162(m). The
Compensation Committee concluded that Section 162(m) should not reduce the tax
deductions available to the Company and that no changes to our compensation
program were needed in this regard. However, the Compensation Committee may from
time to time approve compensation that is not deductible under this Section.
Robert G. Teresi
Robert J. Frankenberg
10
PROPOSAL NUMBER 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors, following the recommendation of the audit
committee, approved the appointment of PricewaterhouseCoopers LLP ("PwC") as
independent accountants for the Company until revoked by further action.
The stockholders are asked to ratify the appointment of PwC as independent
accountants for the Company for the fiscal year ending December 31, 2003. A
representative of PwC 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.
Although ratification by stockholders is not required by law, the Board of
Directors has determined that it is desirable to request approval of this
selection by the stockholders. Should the stockholders fail to ratify the
appointment of PwC as independent accountants, the Board of Directors will
reconsider whether or not to retain PwC. Even if the selection is ratified, the
Board of Directors may appoint new independent accountants at any time during
the year if they believe that such a change would be in the best interest of the
Company and its stockholders.
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, 2003.
AUDIT AND NON-AUDIT FEES
During the year ended December 31, 2002, PricewaterhouseCoopers LLP ("PwC")
rendered no professional services to the Company in connection with the design
and implementation of financial information systems. The aggregate fees for
professional services rendered by PwC in connection with its audit of the
Company's consolidated financial statements as of and for the year ended
December 31, 2002 and its limited reviews of the Company's unaudited
consolidated interim financial statements were approximately $511,000. In
addition to the fees described above, aggregate fees of approximately $2,459,000
were billed by PwC during the year ended December 31, 2002 including $824,000
for income tax compliance and other tax-related services and $1,635,000 for
other services including due diligence in connection with acquisitions,
assistance with various documents filed with the Securities and Exchange
Commission, accounting advisory services, foreign statutory audits and the audit
of the Company's 401(k) plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" RATIFICATION OF
APPOINTMENT OF PWC AS THE COMPANY'S INDEPENDENT ACCOUNTANTS.
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is responsible for providing
an independent, objective review of the Company's accounting functions and
internal controls. During the fiscal year ended December 31, 2002, the Audit
Committee was comprised of Messrs. Frankenberg, Teresi and Myers, and was
governed by a written charter first adopted and approved by the Board of
Directors in June 2001. The Audit Committee met four times during the fiscal
year ended December 31, 2002. Each of the members of the Audit Committee, other
than Mr. Teresi, is independent based upon the independence standards adopted by
the Board, which incorporate the independence requirements under applicable
laws, rules and regulations. The Board of Directors has determined that Mr.
Teresi is not "independent" by reason of the deferred payments he receives from
the Company in connection with arrangements in place relating to the Company's
acquisition of Caere. Under these arrangements, the Company paid Mr. Teresi $1.0
million in cash on March 5, 2002, and agreed to make future cash payments
totaling $3.3 million, with such amounts payable in equal quarterly installments
of approximately $0.4 million over the following two years. During the year
ended December 31, 2002, the Company paid three quarterly installments under
this agreement totaling $1.2 million. The Board of Directors determined that
exceptional and limited circumstances existed and Mr. Teresi's
11
continued membership on the Audit Committee is in the best interests of the
Company and its stockholders due to Mr. Teresi's experience in the technology
industry and his familiarity with the Company's business as the prior President
and CEO of Caere, as well as Mr. Teresi's understanding of accounting and
finance matters. The Board of Directors has further determined that
notwithstanding Mr. Teresi's interest in the deferred payments described above,
Mr. Teresi will be able to exercise independent judgment and to perform his
Audit Committee responsibilities in a fair and impartial manner.
In connection with the Company's audited financial statements for the year
ended December 31, 2002, the Audit Committee (1) reviewed and discussed the
audited financial statements with management, (2) discussed with the independent
accountants the matters required to be discussed by Statement on Auditing
Standards No. 61, and (3) received the written disclosures and the letter from
the independent accountants required by Independence Standards Board Standard
No. 1 and discussed with the independent accountants the independent
accountants' independence. The Audit Committee has considered and determined
that the provision of the services other than audit services referenced above is
compatible with maintenance of PwC's independence. Based upon these reviews and
discussions, the Audit Committee recommended to the Board of Directors, and the
Board of Directors approved, that the Company's audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002 for filing with the Securities and Exchange Commission.
On April 29, 2003, a new written Charter was adopted by the Board of
Directors governing the Audit Committee, a copy of which is attached to this
proxy statement as Annex A.
Robert J. Frankenberg
Mark B. Myers
Robert G. Teresi, Chairman
12
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 28, 2003, 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 officer
named in the Summary Compensation Table; and (4) all current directors and
executive officers of the Company as a group.
Beneficial ownership is determined in accordance with SEC rules and
includes voting or investment power with respect to securities. All shares of
common stock subject to options exercisable within 60 days of March 28, 2003 are
deemed to be outstanding and beneficially owned by the persons holding those
options for the purpose of computing the number of shares beneficially owned and
the percentage ownership of that person. They are not, however, deemed to be
outstanding and beneficially owned for the purpose of computing the percentage
ownership of any other person.
Subject to the paragraph above, percentage ownership of outstanding shares
is based on 65,700,950 shares of common stock outstanding as of March 28, 2003.
PERCENT OF
NUMBER OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED SHARES
--------------------------------------- ---------- -----------
Xerox Imaging Systems, Inc.(2).............................. 15,941,572 22.8%
800 Long Ridge Road
Stamford, CT 06904
State of Wisconsin Investment Board......................... 11,735,000 17.9%
P.O. Box 7842
Madison, WI 53707
Koninklijke Philips Electronics N.V.(3)..................... 4,587,384 6.5%
Breitner Centre
Amstelplein 2
107 MX Amsterdam, The Netherlands
Paul A. Ricci(4)............................................ 3,172,804 4.6%
Michael K. Tivnan(5)........................................ 1,267,354 1.9%
Mark B. Myers(6)............................................ 85,000 *
Katharine A. Martin(7)...................................... 101,000 *
Robert G. Teresi(8)......................................... 247,186 *
Robert J. Frankenberg(9).................................... 216,708 *
Wayne S. Crandall(10)....................................... 620,907 *
Richard S. Palmer(11)....................................... 664,583 1.0%
Robert Weideman(12)......................................... 257,854 *
All directors and executive officers as a group (11
persons)(13).............................................. 7,107,578 9.8%
---------------
* 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) Includes a warrant that as of March 28, 2003 was exercisable for up to
525,732 shares of our common stock, and 3,562,238 shares of non-voting
Series B Preferred Stock. The shares that underlie this warrant and the
Series B shares have not been converted into common stock and are factored
into the calculation of Xerox's beneficial ownership only for the purposes
of this table. As of March 28, 2003, Xerox owned 11,853,602 shares of our
common stock. All of these securities are owned of record by Xerox Imaging
Systems, Inc., a wholly-owned subsidiary of Xerox Corporation.
(3) Represents shares issuable upon conversion of a $27.5 million three-year,
zero-interest convertible debenture, convertible at any time at the option
of Koninklijke Philips Electronics N.V.
13
(4) Includes options to acquire 3,017,804 shares of our common stock that are
exercisable through May 27, 2003.
(5) Includes options to acquire 1,184,854 shares of our common stock that are
exercisable through May 27, 2003. Mr. Tivnan has tendered his resignation
as an executive officer and director of the Company effective April 30,
2003.
(6) Represents options to acquire shares of our common stock that are
exercisable through May 27, 2003.
(7) Includes options to acquire 100,000 shares of our common stock that are
exercisable through May 27, 2003.
(8) Includes options to acquire 75,000 shares of our common stock that are
exercisable through May 27, 2003.
(9) Represents options to acquire shares of our common stock that are
exercisable through May 27, 2003.
(10) Includes options to acquire 592,907 shares of our common stock that are
exercisable through May 27, 2003.
(11) Includes 75,000 shares of restricted stock with a 2 1/2 year cliff vesting,
which vest 100% on April 17, 2004, and options to acquire 587,583 shares of
our common stock that are exercisable through May 27, 2003.
(12) Includes 58,824, of which 19,608 was released, shares of restricted stock,
restrictions on which will lapse 1/3 on each anniversary of the date of
grant; and options to acquire 198,000 shares of our common stock that are
exercisable through May 27, 2003.
(13) Includes 75,000 shares of restricted stock issued to Mr. Palmer (see note
11 above); 58,824, of which 19,608 was released, shares of restricted stock
issued to Mr. Weideman (see note 12 above); and options to acquire
6,527,630 shares of our common stock that are exercisable through May 27,
2003.
14
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.
PERFORMANCE GRAPH
The following performance graph compares the Company's cumulative total
return on its Common Stock for a five-year period with the cumulative total
return of the Russell 2000, and the S&P Information Technology indices assuming
$100 was invested in the Company's Common Stock and each of the indices on
December 31, 1997. The stock price performance on the following graph is not
necessarily indicative of future stock price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN ON $100 INVESTED IN SCANSOFT, INC.
COMMON STOCK ON DECEMBER 31, 1997 VS. RUSSELL 2000
AND S&P INFORMATION TECHNOLOGY INDICES
[PERFORMANCE LINE GRAPH]
----------------------------------------------------------------------------------------------------------------
12/97 12/98 12/99 12/00 12/01 12/02
----------------------------------------------------------------------------------------------------------------
Scansoft, Inc. $100.00 $ 73.08 $246.15 $ 28.86 $264.62 $320.00
Russell 2000 $100.00 $ 97.45 $118.17 $114.60 $117.45 $ 93.39
S&P Information Technology $100.00 $178.14 $318.42 $188.18 $139.50 $ 87.31
15
OTHER MATTERS
Proposals Intended to be Presented at Next Annual Meeting. Proposals of
security holders intended to be presented at the Company's 2004 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 31, 2003.
Other Matters. Management knows of no business or nominations 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.
Not Soliciting Materials. The information contained in this Proxy
Statement under the captions "Report of the Audit Committee", "Compensation
Committee Report on Compensation" and "Performance Graph" shall not be deemed to
be "soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor will such information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent that the Company
specifically incorporates it by reference in such filing.
By Order of the Board of Directors,
(-s- Katherine Martin)
KATHARINE A. MARTIN
Secretary
Peabody, Massachusetts
April 30, 2003
16
ANNEX A
CHARTER FOR THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF
SCANSOFT, INC.
(AMENDED AND RESTATED EFFECTIVE AS OF APRIL 29, 2003)
PURPOSE
The purpose of the Audit Committee of the Board of Directors of ScanSoft,
Inc. (the "COMPANY") shall be to:
- Oversee the accounting and financial reporting processes of the Company
and audits of the financial statements of the Company;
- Assist the Board in oversight and monitoring of (i) the integrity of the
Company's financial statements, (ii) the Company's compliance with legal
and regulatory requirements, (iii) the independent auditor's
qualifications, independence and performance, and (iv) the Company's
internal accounting and financial controls;
- Prepare the Audit Committee report that the rules of the Securities and
Exchange Commission (the "SEC") require be included in the Company's
annual proxy statement;
- Provide the Company's Board with the results of its monitoring and
recommendations derived therefrom; and
- Provide to the Board such additional information and materials as it may
deem necessary to make the Board aware of significant financial matters
that require the attention of the Board.
In addition, the Audit Committee will undertake those specific duties and
responsibilities listed below and such other duties as the Board of Directors
may from time to time prescribe.
The Board and management shall ensure that the Audit Committee has adequate
funding and other resources and authority to discharge its responsibilities as
determined by the Audit Committee.
MEMBERSHIP
The Audit Committee members will be appointed by, and will serve at the
discretion of, the Board of Directors. The Audit Committee will consist of at
least three members of the Board of Directors.
Members of the Audit Committee must meet the following criteria (as well as
any criteria required by the SEC):
- Each member will be an independent director, as defined in (i) NASDAQ
Rule 4200 (except as permissible under NASDAQ Rule 4350) and (ii) the
rules of the SEC;
- Each member will be able to read and understand fundamental financial
statements, in accordance with the NASDAQ National Market Audit Committee
requirements; and
- At such time as required by applicable law, at least one member will have
past employment experience in finance or accounting, requisite
professional certification in accounting, or other comparable experience
or background, including a current or past position as a principal
financial officer or other senior officer with financial oversight
responsibilities.
A-1
RESPONSIBILITIES
The responsibilities of the Audit Committee shall include:
- Reviewing on a continuing basis the adequacy of the Company's system of
internal controls, including meeting periodically with the Company's
management and the independent auditors to review the adequacy of such
controls and to review before release the disclosure regarding such
system of internal controls required under SEC rules to be contained in
the Company's periodic filings and the attestations or reports by the
independent auditors relating to such disclosure;
- Appointing, compensating and overseeing the work of the independent
auditors (including resolving disagreements between management and the
independent auditors regarding financial reporting) for the purpose of
preparing or issuing an audit report or related work;
- Pre-approving audit and non-audit services provided to the Company by the
independent auditors; in this regard, the Audit Committee shall have the
sole authority to approve the hiring and firing of the independent
auditors, all audit engagement fees and terms and all non-audit
engagements, as may be permitted under applicable SEC rules or applicable
laws, with the independent auditors;
- Reviewing and providing guidance with respect to the external audit and
the Company's relationship with its independent auditors by (i) reviewing
the independent auditors' proposed audit scope, approach and
independence; (ii) obtaining on a periodic basis a statement from the
independent auditors regarding relationships and services with the
Company which may impact independence and presenting this statement to
the Board of Directors, and to the extent there are relationships,
monitoring and investigating them; (iii) reviewing the independent
auditors' peer review conducted every three years; (iv) discussing with
the Company's independent auditors the financial statements and audit
findings, including any significant adjustments, management judgments and
accounting estimates, significant new accounting policies and
disagreements with management and any other matters described in SAS No.
61, as may be modified or supplemented ("SAS 61"); and (v) reviewing
reports submitted to the audit committee by the independent auditors in
accordance with the applicable SEC requirements;
- Recommending to the Board as to whether the Company's audited financial
statements should be included in the Company's Annual Report on Form 10-K
based on the Audit Committee's review and discussions (1) with management
of the audited financial statements, (2) with the independent auditor of
the matters required to be discussed by SAS 61, and (3) with the
independent auditor concerning the independent auditor's independence;
- Reviewing and discussing with management and the independent auditors the
annual audited financial statements and quarterly unaudited financial
statements, including the Company's disclosures under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," prior to filing the Company's Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q, respectively, with the SEC;
- Directing the Company's independent auditors to review before filing with
the SEC the Company's interim financial statements included in Quarterly
Reports on Form 10-Q, using professional standards and procedures for
conducting such reviews;
- Conducting a post-audit review of the financial statements and audit
findings, including any significant suggestions for improvements provided
to management by the independent auditors;
- Reviewing before release the unaudited quarterly operating results in the
Company's quarterly earnings release;
- Overseeing compliance with legal requirements for disclosure of auditor's
services and audit committee members, member qualifications and
activities;
- Reviewing, approving and monitoring the Company's code of ethics for its
senior financial officers when such code is adopted;
A-2
- Reviewing, in conjunction with counsel, any legal matters that could have
a significant impact on the Company's financial statements;
- Providing oversight and review at least annually of the Company's risk
management policies, including its investment policies;
- If necessary, instituting special investigations with full access to all
books, records, facilities and personnel of the Company;
- As appropriate, obtaining advice and assistance from outside legal,
accounting or other advisors;
- Reviewing and approving in advance any proposed related party
transactions;
- Reviewing its own charter, structure, processes and membership
requirements;
- Providing a report in the Company's proxy statement in accordance with
the rules and regulations of the SEC; and
- Establishing procedures for receiving, retaining and treating complaints
received by the Company regarding accounting, internal accounting
controls or auditing matters and procedures for the confidential,
anonymous submission by employees of concerns regarding questionable
accounting or auditing matters.
MEETINGS
The Audit Committee will meet at least four times each year. The Audit
Committee may establish its own schedule, which it will provide to the Board of
Directors in advance.
The Audit Committee will meet separately with the Chief Executive Officer
and separately with the Chief Financial Officer of the Company at such times as
are appropriate to review the financial affairs of the Company. The Audit
Committee will meet separately with the independent auditors of the Company, at
such times as it deems appropriate, but not less than quarterly, to fulfill the
responsibilities of the Audit Committee under this charter.
MINUTES
The Audit Committee will maintain written minutes of its meetings, which
minutes will be filed with the minutes of the meetings of the Board of
Directors.
REPORTS
In addition to preparing the report in the Company's proxy statement in
accordance with the rules and regulations of the SEC, the Audit Committee will
summarize its examinations and recommendations to the Board of Directors as may
be appropriate, consistent with the Committee's charter.
COMPENSATION
Members of the Audit Committee shall receive such fees, if any, for their
service as Audit Committee members as may be determined by the Board of
Directors in its sole discretion. Such fees may include retainers or per meeting
fees. Fees may be paid in such form of consideration as is determined by the
Board of Directors.
Members of the Audit Committee may not receive any compensation from the
Company except the fees that they receive for service as a member of the Board
of Directors or any committee thereof.
DELEGATION OF AUTHORITY
The Audit Committee may delegate to one or more designated members of the
Audit Committee the authority to pre-approve audit and permissible non-audit
services, provided such pre-approval decision is presented to the full Audit
Committee at its scheduled meetings.
A-3
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SCANSOFT, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 20, 2003
The undersigned stockholder of ScanSoft, Inc., a Delaware corporation (the
"Company"), hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and accompanying Proxy Statement each dated April 29, 2003 and
hereby appoints Paul A. Ricci and Richard S. Palmer, or one of them, proxies and
attorneys-in-fact, each with full power of substitution, to represent the
undersigned at the Annual Meeting of Stockholders of ScanSoft, Inc. to be held
on June 20, 2003 at 9:00 a.m., local time at the Company's headquarters at 9
Centennial Drive, Peabody, Massachusetts, and at any adjournment thereof, and to
vote all shares of Common Stock of the Company held of record by the undersigned
on April 21, 2003 as hereinafter specified upon the proposals listed on the
reverse side.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING OF STOCKHOLDERS,
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE.
PLEASE MARK VOTES AS IN THIS EXAMPLE.[X]
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE PROPOSALS BELOW
AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE MEETING OR MAY OTHERWISE BE ALLOWED TO BE CONSIDERED AT THE MEETING.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSALS BELOW.
THIS PROXY WILL BE VOTED "FOR" ALL OF THE NOMINEES UNLESS SUCH AUTHORITY IS
SPECIFICALLY WITHHELD AS TO ANY ONE NOMINEE OR NOMINEES.
1. To elect the following individuals as directors of the Company, to serve
until his or her successor shall be duly elected and qualified:
VOTE FOR [ ] WITHHOLD VOTE [ ] VOTE FOR, EXCEPT WITHHOLD AS
SET FORTH BELOW [ ]
Robert J. Frankenberg Katharine A. Martin Mark B. Myers
Paul A. Ricci Robert G. Teresi
Withhold from the following nominee(s) ______________________________
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
(REVERSE SIDE)
2. To ratify the appointment of PricewaterhouseCoopers LLP as the independent
public accountants for the period ending December 31, 2003.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To transact such other business as may properly come before the meeting or
any postponement or adjournment thereof.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
MARK HERE FOR ADDRESS CHANGE
AND NOTE AT LEFT [ ]
Please sign exactly as your
name appears hereon. When
shares are registered in the
names of two or more persons,
whether as joint tenants, as
community property or
otherwise, both or all of
such persons should sign.
When signing as attorney,
executor, administrator,
trustee, guardian or another
fiduciary capacity, please
give full title as such. If a
corporation, please sign in
full corporate name by
President or other authorized
person. If a partnership,
please sign in partnership
name by authorized person.
Signature: __________________________________ Date: _____________
Signature: __________________________________ Date: _____________