Execution Version
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STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT (the "Agreement") is made as of March 19, 2004
by and between SCANSOFT, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Company"), and Warburg Pincus Private Equity
VIII, L.P., Warburg Pincus Netherlands Private Equity VIII I C.V., Warburg
Pincus Netherlands Private Equity VIII II C.V., and Warburg Pincus Germany
Private Equity VIII K.G. (collectively, the "Purchasers").
R E C I T A L S
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A. The Purchasers are acquiring Beneficial Ownership of an aggregate of
15,941,572 shares of the Voting Stock of the Company from Xerox Imaging Systems,
Inc. (the "Transaction");
B. On March 15, 2004 the Company's Board of Directors approved and granted
to the Purchasers a series of warrants which, as of the date hereof and subject
to the provisions thereof, allow for the purchase of up to an aggregate of
2,500,000 shares of Company Common Stock (the "Warrants").
C. The Purchasers have made certain requests, including (i) the appointment
of one (1) representative to the Board of Directors of the Company (the "Board")
and (ii) approval, for purposes of Section 203 of the Delaware General
Corporation Law (including any successor statute thereto "Section 203") of the
transactions pursuant to which one or more of the Purchasers will become,
together with their Affiliates, an "interested stockholder" within the meaning
of Section 203.
D. The Board has determined that it is in the best interests of the
stockholders of the Company to (i) issue the Warrants, (ii) appoint one (1)
designee of the Purchasers to the Board, and (iii) approve, for purposes of
Section 203, the transactions pursuant to which one or more of the Purchasers
will become, together with their Affiliates, an "interested stockholder" within
the meaning of Section 203.
E. The Company and the Purchasers desire to make certain covenants and
agreements with one another pursuant to this Agreement.
NOW THEREFORE, in consideration of the covenants and promises set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
A G R E E M E N T
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1. Certain Definitions. Unless the context otherwise requires, the
following terms, for all purposes of this Agreement, shall have the meanings
specified in this Section 1:
"Affiliate" shall have the meaning set forth in Rule 12b-2 of the rules and
regulations promulgated under the Exchange Act; provided, however, that for
purposes of this Agreement, the Purchasers and their Affiliates, on the one
hand, and the Company and its Affiliates, on the other, shall not be deemed to
be "Affiliates" of one another.
"Beneficially Own," "Beneficially Owned," or "Beneficial Ownership" shall
have the meaning set forth in Rule 13d-3 of the rules and regulations
promulgated under the Exchange Act.
"Board Appointment Period" shall mean the period beginning on the Effective
Date and ending on the date that the Purchasers cease to Beneficially Own at
least 10,000,000 shares of Voting Stock (as adjusted from time to time for any
stock dividends, combinations, splits, recapitalizations and the like).
"Change in Control of the Company" shall mean any of the following: (i) a
merger, consolidation or other business combination or transaction to which the
Company is a party if the stockholders of the Company immediately prior to the
effective date of such merger, consolidation or other business combination or
transaction, as a result of such share ownership, have Beneficial Ownership of
voting securities representing less than 50% of the Voting Power of the
surviving entity following such merger, consolidation or other business
combination or transaction; (ii) an acquisition by any person, entity or 13D
Group of direct or indirect Beneficial Ownership of Voting Stock of the Company
representing 50% or more of the Voting Power of the Company; or (iii) a sale of
all or substantially all of the assets of the Company.
"Company Common Stock" shall mean shares of the Common Stock of the
Company, $0.001 par value.
"Company Competitor" shall mean any person or entity (or any Affiliates of
such a person or entity) that (i) conducts material activities and operations
consisting of providing speech technology primarily for use in telephony-network
based services, mobile or embedded platforms, or desktop or server-based
dictation software applications, (ii) develops and licenses software that
incorporates document capture or image processing technology, (iii) has filed a
statement on Schedule 13D pursuant to Rule 13d-1(a) with the SEC that indicates
under Item 4 of such Schedule that the person has acquired or holds the
securities with a purpose or effect of changing or influencing control of the
Company, or in connection with or as a participant in any transaction having
that purpose or effect, or (iv) to the Purchasers' knowledge after a written
request, intends to file a statement on Schedule 13D with the SEC indicating
under Item 4 of such Schedule that the person has acquired or holds the
securities with a purpose or effect of changing or influencing control of the
Company, or in connection with or as a participant in any transaction having
that purpose or effect.
"Effective Date" shall mean the date on which the Warrants shall first
become exercisable in accordance with their terms.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
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"Exchange Offer" shall mean a bona fide exchange offer subject to the
provisions of Rule 13e-3 promulgated under the Exchange Act.
"Fair Market Value" means, as of any date of determination, (i) in the case
of Company Common Stock, the average of the closing sale prices of Company
Common Stock during the 5 trading days immediately preceding such date of
determination on the principal U.S. or foreign securities exchange on which such
Company Common Stock is listed or, if such Company Common Stock is not listed or
primarily traded on any such exchange, the average of the closing sale prices or
the closing bid quotations of such security during the 5 day period preceding
such date of determination on Nasdaq or any comparable system then in use or, if
no such quotations are available, the fair market value of such security as of
such date of determination as determined in good faith by the Company and the
holders of a majority in interest of the shares of Company Common Stock then
held by the Purchasers and (ii) in the case of property other than cash or a
security, the fair market value of such property on such date of determination
as determined in good faith by the Company and the holders of a majority in
interest of the shares of Company Common Stock then held by the Purchasers;
provided, however, that if such parties are unable to reach agreement as to the
fair market value of such security pursuant to clause (i) above or such property
pursuant to clause (ii) above within a reasonable period of time, the fair
market value shall be determined in good faith by an independent investment
banking firm selected jointly by the Company and the holders of a majority in
interest of the shares of Company Common Stock then held by the Purchasers or,
if that selection cannot be made within 15 days, by an independent investment
banking firm selected by the American Arbitration Association in accordance with
its rules. All costs and expenses of such independent investment banking firm
shall be borne 50% by the Company and 50% by the Purchasers, pro rata based on
the number of shares of Company Common Stock then held by each.
"Form S-3" means such form under the Securities Act as in effect on the
date hereof or any successor or similar registration form under the Securities
Act subsequently adopted by the SEC that permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"Holder" means any person owning of record Registrable Securities that have
not been sold to the public or any transferee or assignee of record of such
Registrable Securities to which the registration rights conferred by this
Agreement have been transferred or assigned in accordance with Section 5.8
hereof.
"Lock-up Period" shall mean the period beginning on the Effective Date and
ending at 12:00 a.m. New York City time on the 365th day after the Effective
Date.
"Register," "registered" and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
"Registrable Securities" means (a) shares of Company Common Stock (i) held
by the Purchasers on the day immediately following the Effective Date or (ii)
acquired pursuant to open
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market purchases following the Effective Date, and (b) any Company Common Stock
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, any Company Common Stock, warrant,
right or other security held by the Purchasers. Notwithstanding the foregoing,
Registrable Securities shall not include any securities of the Company sold by
any person to the public either pursuant to a registration statement under the
Securities Act or Rule 144.
"Registration Expenses" shall mean all expenses incurred by the Company in
complying with Sections 5.1 and 5.2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, Blue Sky fees and expenses and the expense of any
special audits incidental to or required by any such registration (but excluding
the compensation of regular employees of the Company, which shall be paid in any
event by the Company, and all underwriting discounts and commissions).
"Rule 144" means Rule 144 as promulgated by the SEC under the Securities
Act, as such rule may be amended from time to time, or any similar successor
rule that may be promulgated by the SEC.
"SEC" or "Commission" means the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar successor federal statute and the rules and regulations thereunder, all
as the same shall be in effect from time to time.
"Selling Expenses" means all underwriting discounts, selling commissions
and stock transfer rates applicable to the sale of Registrable Securities and,
except as set forth in the definition of "Registration Expenses" above, all fees
and reimbursement of counsel for the Holders.
"Shelf Registration Period" shall mean the period beginning on the 548th
day after the Effective Date and ending at 12:00 a.m. New York City time on the
365th day after the effectiveness of any registration statement filed pursuant
to the terms of Section 5.3, as such period may be extended.
"Third Party Tender Offer" shall mean a bona fide public tender offer
subject to the provisions of Regulation 14D when first commenced within the
meaning of Rule 14d-2(a) of the rules and regulations under the Exchange Act, by
a person or 13D Group (which is not made by and does not include any of the
Company or any Affiliate of the Company) to purchase or exchange for cash or
other consideration any Voting Stock and which consists of an offer to acquire
more than 10% of the Voting Power of the Company.
"13D Group" means any group of persons formed for the purpose of acquiring,
holding, voting or disposing of Voting Stock which would be required under
Section 13(d) of the Exchange Act, and the rules and regulations promulgated
thereunder, to file a statement on Schedule 13D pursuant to Rule 13d-1(a) or
Schedule 13G pursuant to Rule 13d-1(c) with the SEC as a "person"
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within the meaning of Section 13(d)(3) of the Exchange Act if such group
Beneficially Owned Voting Stock representing more than 5% of any class of Voting
Stock then outstanding.
"Voting Power" shall mean the number of votes entitled to then be cast by
the Voting Stock of the Company at any election of directors of the Company,
provided that, for the purpose of determining Voting Power, each share of
Preferred Stock of the Company, if any (the "Preferred Stock"), shall be deemed
to be entitled to the number of votes equal to the number of shares of Company
Common Stock into which such share of Preferred Stock could then be converted.
"Voting Stock" shall mean shares of the Company Common Stock and any other
securities of the Company having the ordinary power to vote in the election of
members of the Board of Directors of the Company and any securities convertible,
exchangeable for or otherwise exercisable to acquire voting securities.
2. Appointment of Purchasers' Nominee to the Board. The Company hereby
agrees that not later than two (2) business days following the Effective Date
and until the expiration of the Board Appointment Period, the Board shall take
such action as may be necessary to appoint one (1) member of the Board who shall
be designated by the holders of a majority in interest of the shares of Company
Common Stock then held by the Purchasers, and shall be reasonably acceptable to,
and approved by a majority of the Board, which acceptance and approval shall not
be unreasonably withheld (such nominee from time to time so designated, the
"Purchaser Nominee"), which Purchaser Nominee shall initially be ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇. The Company shall, throughout the Board Appointment Period, nominate
and take such action as may be necessary to cause the Purchaser Nominee to be
elected or appointed to the Board. If at any time during the Board Appointment
Period there shall occur a vacancy in the Board seat previously occupied by a
Purchaser Nominee by reason of resignation, removal, death or incapacity, then
such vacancy shall be filled by another Purchaser Nominee designated in
accordance with this Section 2.
3. Covenants of the Purchasers.
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3.1 Lock-up Restrictions. For the Lock-Up Period, the Purchasers hereby
agree not to, directly or indirectly, sell, transfer, pledge, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, transfer the economic risk
of ownership of, or otherwise dispose of (each, a "Transfer") any Voting Stock
or Voting Power to any person (other than an Affiliate of the Purchasers who
agrees in writing to be bound by the terms of this Agreement and which does not
have the effect of increasing or decreasing the aggregate amount of Voting Stock
or Voting Power held by the Purchasers and their Affiliates), except in
connection with the closing of a Change in Control of the Company that has been
approved by a majority of the Board.
3.2 Transfer Restrictions. The Purchasers shall not (and shall not permit
any Affiliate to), directly or indirectly:
(a) Transfer five percent (5%) or more of the Voting Stock or Voting Power
(in one or a series of transactions) in response to a Third Party Tender Offer
or an Exchange
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Offer with respect to which the Board shall not have recommended that
stockholders of the Company accept such offer, unless prior to such Transfer,
the Purchasers have complied with the provisions of Section 3.3 below; or
(b) Transfer five percent (5%) or more of the Voting Stock or Voting Power
(in one or a series of transactions that have not been approved by a majority of
the Board) to a Company Competitor who has made a bona fide written offer to
acquire such securities, unless prior to such Transfer, the Purchasers have
complied with the provisions of Section 3.3 below.
3.3 The Company's Right of First Refusal.
(a) Prior to the Purchasers effecting any Transfer of Voting Stock or
Voting Power that is subject to the restrictions set forth in Section 3.1 and
Section 3.2, the Company shall have a first refusal right to purchase such
Voting Stock or Voting Power on the following terms and conditions:
(i) The Purchasers shall give prior notice (the "Transfer Notice") to the
Company in writing of such intention, specifying the name of the proposed
purchaser or transferee, the amount of Voting Stock or Voting Power proposed to
be the subject of such Transfer, the proposed price therefor and the other
material terms upon which such disposition is proposed to be made (including, if
any, a copy of a bona fide written offer).
(ii) The Company shall have the right, exercisable by written notice given
by the Company to the Purchasers within (i) 72-hours with respect to a Transfer
addressed in Section 3.2(a) above, and (ii) twenty (20) business days with
respect to a Transfer addressed in Section 3.2(b) above, after receipt of such
Transfer Notice (the "Response Notice"), to purchase all or any portion of the
Voting Stock or Voting Power specified in such Transfer Notice for cash at the
price per share specified in the Transfer Notice or, if consideration other than
cash is specified in the Transfer Notice, in an amount equal to the Fair Market
Value of such non-cash consideration.
(iii) If the Company exercises its right of first refusal hereunder, the
closing of the purchase of the Voting Stock or Voting Power with respect to
which such right has been exercised shall take place within thirty (30) calendar
days after the Company gives the Response Notice to the Purchasers or, if later,
within five (5) business days of the determination of the Fair Market Value of
any non-cash consideration. Upon exercise of its right of first refusal, the
Company and the Purchasers shall be legally obligated to consummate the purchase
and sale contemplated thereby and shall use their commercially reasonable
efforts to secure any approvals required in connection therewith.
(iv) If the Company does not exercise its right of first refusal hereunder
within the time specified for such exercise in subparagraph (ii) above with
respect to all of the Voting Stock or Voting Power specified in such Transfer
Notice, the Purchasers shall be free, during the period of ninety (90) calendar
days following the expiration of such time for exercise, to Transfer or tender
for Transfer the Voting Stock or Voting Power specified in such Transfer Notice
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with respect to which the Company has not exercised its first refusal rights to
the proposed purchaser or transferee specified in such Transfer Notice and on
terms not materially less favorable to the Purchasers than the terms specified
in such Transfer Notice. After the expiration of such 90-day period, except as
otherwise provided herein, the Purchasers may not Transfer the Voting Stock or
Voting Power specified in such Transfer Notice without first complying with the
provisions of this Section 3.3.
(b) The Company may assign its right of first refusal under this Section
3.3 to any other person or persons; provided, however, that the Company shall be
liable for the timely performance of any obligations in this Section 3.3 by such
assignee.
3.4 Other Transfers. Except as provided in this Section 3, this Agreement
does not, and is not intended to, restrict the Purchasers ability to Transfer
any Voting Stock or Voting Power.
4. Prohibited Transfer. Any purchase which causes the Purchasers to be in
violation of the terms of Section 3 above ("Prohibited Transfer") shall not be
effected by the Company and shall be voidable at the option of the Company by
their giving written notice to the transferor, his transferee and the
Purchasers. Each certificate representing Voting Stock held by the Purchasers
shall be endorsed by the Company with a legend reading as follows:
"THE SHARES EVIDENCED HEREBY ARE SUBJECT TO A STOCKHOLDERS
AGREEMENT BY AND BETWEEN THE COMPANY AND THE HOLDER HEREOF (A
COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY), AND NO TRANSFER
OF THE SHARES EVIDENCED HEREBY SHALL BE EFFECTIVE EXCEPT IN
COMPLIANCE WITH THE TERMS THEREOF."
5. Registration Rights.
5.1 Demand Registration.
(a) Subject to the conditions of this Section 5.1, if the Company shall
receive a written request from the Holders holding not less than a majority of
the Registrable Securities then outstanding that the Company file a registration
statement with respect to all or part of the Registrable Securities under the
Securities Act with an anticipated aggregate offering price of at least
$10,000,000, then the Company shall, within ten (10) calendar days of the
receipt thereof, give written notice of such request to all Holders, and,
subject to the limitations of this Section 5.1, use its commercially reasonable
efforts to effect, as expeditiously as reasonably possible, the registration
under the Securities Act of all Registrable Securities that all Holders request
to be registered pursuant to and in accordance with this Agreement (a "Demand
Registration").
(b) Notwithstanding the foregoing, if the Company shall furnish to the
Holders requesting a registration statement pursuant to this Section 5.1, a
certificate signed by the President or Chief Executive Officer of the Company
stating that in the Board's good faith judgment it would be seriously
detrimental to the Company and its stockholders for such a registration
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statement to be filed in the near future, the Company shall have the right to
defer such filing for a period of not more than ninety (90) days after receipt
of the request of the Holders specified in Section 5.1(a); provided, however,
that the Company may not utilize this right more than twice in any twelve-month
period.
(c) The Company shall not be required to effect or take any action to
effect a registration pursuant to this Section 5.1:
(i) prior to the 548th day after the Effective Date;
(ii) after the Company has effected two Demand Registrations pursuant to
this Section 5.1, and such registrations have been declared or ordered effective
(which, for the avoidance of doubt, shall mean that the registrations shall have
been effective for an aggregate of ninety (90) calendar days, or until all
Registrable Securities covered thereby have been sold, if earlier);
(iii) if the Holders making the request provided for in Section 5.1(a)
propose to dispose of Registrable Securities that could be disposed of in a
single ordinary brokerage transaction under the quantity limitation of Rule 144;
or
(iv) if the Holders making the request provided for in Section 5.1(a)
propose to dispose of Registrable Securities that may be registered on Form S-3
pursuant to a request made pursuant to Section 5.2 below.
5.2 Form S-3 Registration. If at any time following the 548th day following
the Effective Date, the Company shall receive from the Holders holding not less
than a majority of the Registrable Securities then outstanding a written request
that the Company effect a registration on Form S-3 and any related qualification
or compliance with respect to all or a part of the Registrable Securities owned
by such Holders, the Company will:
(a) within ten (10) calendar days after receipt of such notice, give
written notice of the proposed registration, and any related qualification or
compliance, to all other Holders of Registrable Securities; and
(b) as soon as reasonably practicable, effect such registration (a "S-3
Registration") and all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
other Holder or Holders joining in such request as are specified in a written
request given within fifteen (15) calendar days after receipt of such written
notice from the Company; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section 5.2, (i) if Form S-3 is not available to the Company for such
offering, (ii) if the aggregate proceeds from the sale of Registrable Securities
proposed to be sold pursuant to a Form S-3 registration statement will not
exceed $10,000,000, (iii) if, the Company has effected two S-3 Registrations
pursuant to this Section 5.2, and such
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registrations have been declared or ordered effective (which, for the avoidance
of doubt, shall mean that the registrations shall have been effective for an
aggregate of ninety (90) calendar days, or until all Registrable Securities
covered thereby have been sold, if earlier), or (iv) if the Holders propose to
dispose of Registrable Securities that could be disposed of in a single ordinary
brokerage transaction under the quantity limitation of Rule 144.
(c) Notwithstanding the foregoing, if the Company shall furnish to the
Holders requesting a registration statement pursuant to this Section 5.2, a
certificate signed by the President or Chief Executive Officer of the Company
stating that in the Board's good faith judgment it would be seriously
detrimental to the Company and its stockholders for such a registration
statement to be filed in the near future, the Company shall have the right to
defer such filing for a period of not more than ninety (90) days after receipt
of the request of the Holders specified in this Section 5.2; provided, however,
that the Company may not utilize this right more than twice in any twelve-month
period.
Registrations effected pursuant to this Section 5.2 shall be counted as
demands for registration effected pursuant to Section 5.1, and in no event shall
the Company be required to effect more than two (2) S-3 Registrations.
5.3 Shelf Registration. During the Shelf Registration Period, if the
Company shall receive from the Holders holding not less than a majority of the
Registrable Securities then outstanding a written request that the Company
effect a registration on Form S-3 with respect to all or part of the Registrable
Securities owned by such Purchasers, the Company will as soon as reasonably
practicable, effect such registration (a "Shelf Registration Statement") and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the distribution of all or such portion of such Holders'
Registrable Securities as are specified in such request exclusively to partners,
limited partners, retired partners, retired limited partners, members, retired
members and stockholders of such Holders; provided, however, that the Company
shall not be obligated to effect any such registration, qualification or
compliance pursuant to this Section 5.3, if Form S-3 is not available to the
Company for such offering. The Company shall use its commercially reasonable
efforts to keep the Shelf Registration Statement effective, current and
available for use by the Purchasers during the Shelf Registration Period. While
the Shelf Registration Statement remains in effect, the Company may at any time
and from time to time deliver to the Holders written notice to the effect that
distributions may not be effected under the Shelf Registration Statement for a
period of time (a "Blackout Period") because of the existence of material facts
not disclosed or incorporated by reference in such Shelf Registration Statement
and in the then-current prospectus included therein; provided, however, that the
duration of any Blackout Period shall not exceed ninety (90) days. Upon receipt
of any such notice, the Holders shall refrain from distributing Registrable
Securities under such Shelf Registration Statement until the Holders have
received notice from the Company to the effect that such distributions may then
be effected. The Company shall as promptly as reasonably possible update the
Shelf Registration Statement and the prospectus included therein in order to
permit Registrable Securities to be distributed, and the Shelf Registration
Period shall automatically be extended by the aggregate number of days during
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which the Holders were instructed to refrain from distributing Registrable
Securities during all Blackout Periods, without duplication.
5.4 Expenses of Registration. Except as specifically provided herein, all
Registration Expenses incurred in connection with any registration effected
pursuant to Section 5.1, Section 5.2 or Section 5.3 herein shall be borne by the
Company. All Selling Expenses incurred in connection with any registrations
effected pursuant to Section 5.1 or Section 5.2 shall be borne by the holders of
the securities so registered pro rata on the basis of the number of shares so
registered. The Company shall not, however, be required to pay for expenses of
any registration proceeding begun the request of which has been subsequently
withdrawn by the Holders initiating such registration unless a majority of the
Holders of Registrable Securities agree to forfeit their right to one Demand
Registration or S-3 Registration, as the case may be, pursuant to Section 5.1 or
Section 5.2 (in which event such right shall be forfeited by all Holders of
Registrable Securities). If such Holders are required to pay the Registration
Expenses, such expenses shall be borne by the holders of securities (including
Registrable Securities) initiating such registration in proportion to the number
of shares for which registration was requested.
5.5 Underwriting. If the Company determines in its sole discretion that the
registration statement under which the Company gives notice under Section 5.1 or
Section 5.2 will be for an underwritten offering, the Company shall so advise
the Holders of Registrable Securities. In such event, the right of any such
Holder to be included in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by the Company.
Notwithstanding any other provision contained in this Agreement, if the managing
underwriter determines in good faith that marketing factors require a limitation
of the number of shares to be underwritten (including Registrable Securities),
the number of shares that may be included in the underwriting shall be allocated
first to requesting Holders on a pro rata basis based on the total number of
Registrable Securities then held by all such requesting Holders, then to any
other shareholders on a pro rata basis based on the number of shares of Company
Common Stock then held by such other shareholders. If any Holder disapproves of
the terms of any such underwriting, such Holder may elect to withdraw therefrom
by written notice to the Company and the managing underwriter, delivered at
least ten (10) business days prior to the effective date of the registration
statement. Any Registrable Securities excluded or withdrawn from such
underwriting shall be excluded and withdrawn from the registration. For any
Holder that is a partnership, limited partnership, limited liability company or
corporation, the partners, limited partners, retired partners, retired limited
partners, members, retired members and stockholders of such Holder, or the
estates and family members of any such partners, limited partners, retired
partners, retired limited partners, members, retired members and any trusts for
the benefit of any of the foregoing persons shall be deemed to be collectively a
single "Holder," and any pro rata reduction with respect to such "Holder" shall
be based upon the aggregate amount of shares carrying registration rights owned
by all entities and individuals included in such "Holder," as defined in this
sentence.
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5.6 Furnishing Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 5.1 and 5.2
above that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them and the intended
method of disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
5.7 Indemnification.
(a) The Company will indemnify and hold harmless each Holder, each of its
officers, directors and partners, legal counsel, and accountants and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which registration, qualification or compliance has been
effected pursuant to Section 5, and each underwriter, if any, and each person
who controls within the meaning of Section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages, and liabilities (or
actions, proceedings or settlements in respect thereof) arising out of or based
on (i) any untrue statement or alleged untrue statement of a material fact
contained in any prospectus, offering circular, or other document, including any
related registration statement, notification or the like, incident to any such
registration, qualification or compliance, (ii) any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or (iii) any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers, directors, partners, legal
counsel, and accountants and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission based upon written information
furnished to the Company by such Holder or underwriter. It is agreed that the
indemnity agreement contained in this Section 5.7(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company.
(b) Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, legal counsel and accountants, and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company or such underwriter within the meaning of Section 15 of the
Securities Act, each other such Holder and each of its officers and directors,
and each person controlling such other Holder, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on (i) any untrue statement or alleged untrue statement of a material fact by
such Holder contained in any such registration statement, prospectus, offering
circular or other document, or (ii) any omission or alleged omission to state
therein by such Holder a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and such Holders, directors, officers, legal counsel, accountants,
persons,
11
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder; provided, however, that the obligations
of such Holder hereunder shall not apply to amounts paid in settlement of any
such claims, losses, damages or liabilities (or actions in respect thereof) if
such settlement is effected without the consent of such Holder; and provided
that in no event shall any indemnity under this Section 5.7(b) exceed the net
proceeds from the offering received by such Holder.
(c) Each party entitled to indemnification under this Section 5.7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom; provided, however, that legal counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not be unreasonably withheld), and the Indemnified Party
may participate in such defense at such party's expense; and, provided further,
however, that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 5.7(c), to the extent such failure is not prejudicial. Consent by the
Indemnifying Party to entry of any judgment or entry into any settlement shall
not bind the Indemnified Party without the Indemnified Party's written consent,
unless such settlement includes as an unconditional term thereof the giving by
the claimant or plaintiff to the Indemnified Party of a release from all
liability with respect to such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as in
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with defense of such claim and litigation resulting
therefrom.
(d) If the indemnification provided for in this Section 5.7 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage or expense as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and to parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omissions.
12
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with an underwritten public offering of the Company's
securities are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
5.8 Transfer or Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 5 may not be
transferred or assigned by a Holder without the prior written consent of the
Company.
5.9 Amendment of Registration Rights. Any provision of this Section 5 may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of at least a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this Section 5.9 shall be binding upon each Holder and the
Company.
6. Management Rights.
6.1 For so long as any Purchaser owns 1,000,000 shares of Voting Stock, the
Company covenants that:
(a) if any Purchaser is not represented on the Board, such Purchaser shall
be entitled to consult with and advise management of the Company on significant
business issues, including management's proposed annual operating plans, and
management will meet with the Purchaser regularly during each year at the
Company's facilities at mutually agreeable times for such consultation and
advice and to review progress in achieving said plans;
(b) each Purchaser may examine the books and records of the Company and
inspect its facilities and may request information at reasonable times and
intervals concerning the general status of the Company's financial condition and
operations, provided that access to highly confidential proprietary information
and facilities need not be provided; and
(c) if any Purchaser is not represented on the Board, the Company shall,
concurrently with delivery to the Board, give a representative of such Purchaser
copies of all notices, minutes, consents and other material that the Company
provides to its directors, except that the representative may be excluded from
access to any material or meeting or portion thereof if the Board determines in
good faith, upon advice of counsel, that such exclusion is reasonably necessary
to preserve the attorney-client privilege, to protect highly confidential
proprietary information, or for other similar reasons, provided that, upon
reasonable notice, at a scheduled meeting of the Board or such other time, if
any, as the Board may determine in its sole discretion, such representative may
address the Board with respect to such Purchaser's concerns regarding
significant business issues facing the Company.
13
7. Miscellaneous.
7.1 Governing Law; Jurisdiction. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware without giving effect to the principles of conflicts of laws. Any legal
action or other legal proceeding relating to this Agreement or the enforcement
of any provision of this Agreement may be brought or otherwise commenced in any
state or federal court located in the State of Delaware. Each party hereto
agrees to the entry of an order to enforce any resolution, settlement, order or
award made pursuant to this Section 7.1 by the state and federal courts located
in the State of Delaware and in connection therewith hereby waives, and agrees
not to assert by way of motion, as a defense, or otherwise, any claim that such
resolution, settlement, order or award is inconsistent with or violative of the
laws or public policy of the laws of the State of Delaware or any other
jurisdiction.
7.2 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successor and assigns of the parties hereto.
7.3 Entire Agreement; Amendment. This Agreement and the Warrants constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and thereof. Neither this Agreement nor any provision
hereof may be amended, changed, waived, discharged or terminated other than by a
written instrument signed by the party against who enforcement of any such
amendment, change, waiver, discharge or termination is sought. This Agreement
shall become and thereafter be null and void if the Effective Date shall not
have occurred on or prior to April 30, 2004.
7.4 Notices, etc. All notices and other communications required or
permitted hereunder shall be effective upon receipt and shall be in writing and
may be delivered in person, by telecopy, electronic mail, express delivery
service or U.S. mail, in which event it may be mailed by first-class, certified
or registered, postage prepaid, addressed, to the party to be notified, at the
respective addresses set forth below, or at such other address which may
hereinafter be designated in writing:
(a) If to the Purchasers, to:
Warburg Pincus Private Equity VIII, ▇.▇.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Netherlands Private Equity VIII I ▇.▇.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Netherlands Private Equity VIII II ▇.▇.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Germany Private Equity VIII K.G.
c/o Warburg Pincus LLC
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax No. ▇▇▇-▇▇▇-▇▇▇▇
14
with a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Fax No. ▇▇▇-▇▇▇-▇▇▇▇
(b) If to the Company, to:
ScanSoft, Inc.
▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇,
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax No. ▇▇▇-▇▇▇-▇▇▇▇
7.5 Severability. If any provision of this Agreement shall be judicially
determined to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
7.6 Titles and Subtitles. The titles of the Articles and Sections of this
Agreement are for convenience of reference only and in no way define, limit,
extend, or describe the scope of this Agreement or the intent of any of its
provisions.
7.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.8 Delays or Omissions. It is agreed that no delay or omission to exercise
any right, power or remedy accruing to any party upon any breach or default of
any other party under this Agreement shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach or default,
or any acquiescence therein, or of any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. It is
further agreed that any waiver, permit, consent or approval of any kind or
character of any breach or default under this Agreement, or any waiver of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in writing, and that all
remedies, either under this Agreement, by law or otherwise, shall be cumulative
and not alternative.
15
7.9 Consents. Any permission, consent, or approval of any kind or character
under this Agreement shall be in writing and shall be effective only to the
extent specifically set forth in such writing.
7.10 SPECIFIC PERFORMANCE. THE PARTIES HERETO AGREE THAT IRREPARABLE DAMAGE
WOULD OCCUR IN THE EVENT THAT ANY OF THE PROVISIONS OF THIS AGREEMENT WERE NOT
PERFORMED IN ACCORDANCE WITH ITS SPECIFIC INTENT OR WERE OTHERWISE BREACHED. IT
IS ACCORDINGLY AGREED THAT THE PARTIES SHALL BE ENTITLED TO AN INJUNCTION OR
INJUNCTIONS, WITHOUT BOND, TO PREVENT OR CURE BREACHES OF THE PROVISIONS OF THIS
AGREEMENT AND TO ENFORCE SPECIFICALLY THE TERMS AND PROVISIONS HEREOF, THIS
BEING IN ADDITION TO ANY OTHER REMEDY TO WHICH THEY MAY BE ENTITLED BY LAW OR
EQUITY, AND ANY PARTY SUED FOR BREACH OF THIS AGREEMENT EXPRESSLY WAIVES ANY
DEFENSE THAT A REMEDY IN DAMAGES WOULD BE ADEQUATE.
7.11 Payment of Fees and Expenses. Each party shall be responsible for
paying its own fees, costs and expenses in connection with this Agreement and
the transactions herein contemplated.
7.12 Construction of Agreement. No provision of this Agreement shall be
construed against either party as the drafter thereof.
7.13 Section References. Unless otherwise stated, any reference contained
herein to a Section or subsection refers to the provisions of this Agreement.
7.14 Variations of Pronouns. All pronouns and all variations thereof shall
be deemed to refer to the masculine, feminine, or neuter, singular or plural, as
the context in which they are used may require.
[Remainder of Page Intentionally Left Blank]
16
IN WITNESS WHEREOF, the parties have caused this Stockholders Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first written above.
SCANSOFT, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇
--------------
Name: ▇▇▇▇ ▇▇▇▇▇
Title: Chief Executive Officer
PURCHASERS
WARBURG PINCUS PRIVATE EQUITY VIII, L.P.
By: WARBURG PINCUS & CO.,
its General Partner
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Partner
WARBURG PINCUS NETHERLANDS PRIVATE
EQUITY VIII I C.V.
By: WARBURG PINCUS & CO.,
its General Partner
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Partner
WARBURG PINCUS NETHERLANDS PRIVATE
EQUITY VIII II C.V.
By: WARBURG PINCUS & CO.,
its General Partner
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Partner
WARBURG PINCUS GERMANY PRIVATE EQUITY
VIII, K.G.
By: WARBURG PINCUS & CO.,
its General Partner
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Partner