UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
NUANCE COMMUNICATIONS
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(Nuance Communications Logo)
NUANCE COMMUNICATIONS, INC.
-----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 23, 2002
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Nuance
Communications, Inc., a Delaware corporation (the "Company" or "Nuance"), will
be held on Thursday, May 23, 2002, 8:30 a.m., local time, at the Westin Palo
Alto Hotel, 675 El Camino Real, Palo Alto, CA 94301 for the following purposes:
1. To elect three (3) Class II directors to the Board of Directors for a
term of three years and until their successors are duly elected and
qualified;
2. To ratify the appointment by the Company of Deloitte & Touche LLP as
independent auditors of the Company for the fiscal year ending December
31, 2002; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 28, 2002 are
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to ensure your representation at the meeting, you are urged to vote,
sign, date and return the enclosed Proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose or to vote by telephone or
via the Internet as instructed on the enclosed Proxy. Any stockholder attending
the meeting may vote in person even if he or she previously returned a Proxy.
By order of the Board of Directors of
Nuance Communications, Inc.
William Dewes
Vice President and Chief Financial
Officer
Menlo Park, California
April 22, 2002
NUANCE COMMUNICATIONS, INC.
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PROXY STATEMENT
FOR 2002 ANNUAL MEETING OF STOCKHOLDERS
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INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited on behalf of Nuance Communications, Inc.
(the "Company" or "Nuance") for use at the Annual Meeting of Stockholders to be
held on Thursday, May 23, 2002 at 8:30 a.m., or at any adjournment thereof (the
"Annual Meeting" or the "Meeting"), for the purposes set forth herein and in
the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting
will be held at the Westin Palo Alto Hotel, 675 El Camino Real, Palo Alto, CA
94301. The Company's headquarters are located at 1005 Hamilton Court, Menlo
Park, California 94025. The Company's telephone number at that location is
(650) 847-0000.
These proxy solicitation materials were mailed on or about April 22, 2002 to
all stockholders entitled to vote at the Meeting.
Record Date; Outstanding Shares
Stockholders of record at the close of business on March 28, 2002 (the
"Record Date") are entitled to notice of and to vote at the Meeting. At the
Record Date, 33,383,453 shares of the Company's common stock, $0.001 par value,
were issued and outstanding. The closing price of the Company's common stock on
the Record Date, as reported by Nasdaq, was $6.83 per share.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by filing a written instrument revoking
the proxy with the Secretary of the Company, by executing a subsequent proxy
prior to the meeting, or by attending the Meeting and voting in person.
Voting and Solicitation
On all matters other than the election of directors, each share has one
vote. See "Election of Directors--Required Vote" for voting information with
respect to the election of directors.
If you have telephone or Internet access, you may submit your Proxy by
following the "Vote by Phone" or "Vote by Internet" instructions on the Proxy
card. You may also vote by mail by signing, dating and returning the enclosed
Proxy in the envelope provided.
The cost of soliciting proxies will be borne by the Company. The Company has
retained the services of Chase Mellon Investor Services LLC to aid in the
solicitation of proxies. The Company will reimburse Chase Mellon Investor
Services LLC for reasonable out-of-pocket expenses. In addition, the Company
may reimburse brokerage firms and other persons representing beneficial owners
of shares for their expenses in forwarding solicitation material to such
beneficial owners. Proxies may also be solicited by certain of the Company's
directors, officers and regular employees, without additional compensation,
personally or by telephone, telegram, telefax or otherwise.
1
Deadline for Receipt of Stockholder Proposals
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's next Annual Meeting of Stockholders to be
held in 2002 must be received by the Company no later than December 23, 2002 in
order that they may be considered for possible inclusion in the proxy statement
and form of proxy relating to that meeting.
In addition, the Company's Bylaws establish an advance notice procedure with
regard to certain matters, including stockholder proposals not included in the
Company's proxy statement, to be brought before an annual meeting of
stockholders. For nominations or other business to be properly brought before
the meeting by a stockholder, such stockholder must provide written notice
delivered to the Secretary of the Company between 60 and 90 days in advance of
the annual or special meeting, which notice must contain specified information
concerning the matters to be brought before such meeting and concerning the
stockholder proposing such matters. In the event that less than 65 days notice
of the date of the meeting is given to stockholders, notice by the stockholder
to be timely must be received not later than the close of business on the
seventh day following the day on which such notice of the date of the annual
meeting was mailed. A copy of the full text of the Bylaw provision discussed
above may be obtained by writing to the Secretary of the Company. All notices
of proposals by stockholders, whether or not included in the Company's proxy
materials, should be sent to Nuance Communications, Inc., 1005 Hamilton Court,
Menlo Park, California, 94025, Attn.: General Counsel.
The attached proxy card grants the proxy holders discretionary authority to
vote on any matter raised at the Meeting. If a stockholder intends to submit a
proposal at the next annual meeting of stockholders, which proposal is not
eligible for inclusion in the proxy statement relating to that meeting, the
stockholder must give notice to the Company in accordance with the requirements
set forth in the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), no later than March 8, 2003. If a stockholder does not comply with the
foregoing notice provision, the proxy holders will be allowed to use their
discretionary voting authority when and if the proposal is raised at the next
annual meeting of stockholders.
Quorum; Abstentions; Broker Non-Votes
The required quorum for the transaction of business at the Annual Meeting is
the holders of a majority of the common stock issued and outstanding and
entitled to vote thereat. Shares that are voted "FOR," "AGAINST" or "ABSTAIN"
on a matter are treated as being present at the meeting for purposes of
establishing a quorum and are also treated as shares entitled to vote (the
"Votes Cast") at the Annual Meeting with respect to such matter.
While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to a matter (other than the election of directors). In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, with the exception of the proposal for
the election of directors, abstentions will have the same effect as a vote
against the proposal. Because directors are elected by a plurality vote,
abstentions in the election of directors have no impact once a quorum exists.
In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme Court
held that, while broker non-votes may be counted for purposes of determining
the presence or absence of a quorum for the transaction of business, broker
non-votes should not be counted for purposes of determining the number of Votes
Cast with respect to the particular proposal on which the broker has expressly
not voted. Broker non-votes with respect to proposals set forth in this Proxy
Statement will therefore be counted only for purposes of determining the
presence or absence of a quorum and will not be considered Votes Cast.
Accordingly, broker non-votes will not affect the determination as to whether
the requisite majority of Votes Cast has been obtained with respect to a
particular matter.
2
Fiscal Year End
The Company's fiscal year ends on December 31. The Company's last fiscal
year ended on December 31, 2001 and is referred to herein as the "Last Fiscal
Year."
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's executive officers,
directors and persons who own more than 10% of a registered class of the
Company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC"). Such
executive officers, directors and ten-percent stockholders are also required by
SEC rules to furnish the Company with copies of all forms that they file
pursuant to Section 16(a). Based solely on its review of copies of Forms 3 and
4 and amendments thereto furnished to the Company pursuant to Rule 16a-3(e) and
Forms 5 and amendments thereto furnished to the Company with respect to the
Last Fiscal Year, and any written representations referred to in
Item 405(b)(2)(i) of Regulation S-K stating that no Forms 5 were required, the
Company believes that, during the Last Fiscal Year, all Section 16(a) filing
requirements applicable to the Company's officers and directors were complied
with, except that Lloyd Leanse reported an option exercise late on a Form 5.
3
PROPOSAL ONE
ELECTION OF DIRECTORS
General
The Company's Board of Directors is currently comprised of eight (8)
directors who are divided into three classes with overlapping three-year terms.
A director serves in office until his or her respective successor is duly
elected and qualified or until his or her earlier death or resignation. Any
additional directorships resulting from an increase in the number of directors
will be distributed among the three classes so that, as nearly as possible,
each class will consist of an equal number of directors.
Nominees for Class II Directors
Three Class II directors are to be elected at the Annual Meeting for a
three-year term ending in 2005. The Board of Directors has nominated CURTIS
CARLSON, ALAN HERZIG and PHILIP QUIGLEY for re-election as Class II directors.
Unless otherwise instructed, the persons named in the enclosed Proxy intend to
vote proxies received by them for the re-election of Messrs. Carlson, Herzig
and Quigley. The Company expects that each of Messrs. Carlson, Herzig and
Quigley will accept such nomination; however, in the event that any nominee is
unable to or declines to serve as a director at the time of the Annual Meeting,
proxies will be voted for a substitute nominee or nominees designated by the
present Board of Directors. The term of office of each person elected as a
director will continue until such director's term expires in 2005 or until such
director's successor has been elected and qualified.
Information Regarding Nominees and Other Directors
Set forth below is certain information regarding the nominees for Class II
directors and each other director of the Company whose term of office continues
after the Annual Meeting. Information as to the stock ownership of each
director and all current directors and executive officers of the Company as a
group is set forth below under "Security Ownership of Certain Beneficial Owners
and Management."
Director
Name Age Position Since
---- --- -------- --------
Class I Directors
Ronald Croen................. 47 President and CEO of the Company 1995
Vinton Cerf.................. 58 Senior Vice President of Internet Architecture and 1999
Technology for WorldCom
Irwin Federman............... 66 General Partner of U.S. Venture Partners 1995
Class II Directors
Curtis Carlson............... 56 President and CEO of SRI International 1998
Alan Herzig.................. 68 President and CEO of SRI Holdings, Inc. 1994
Philip Quigley............... 59 Chairman and CEO (Retired), Pacific Telesis Group 2000
Class III Directors
Yogen Dalal.................. 51 General Partner of Mayfield Fund 1995
Gary Morgenthaler............ 53 General Partner of Morgenthaler Ventures 1997
Nominees for Class II Directors for a Term Expiring In 2005
Curtis Carlson has served as one of the Company's directors since December
1998. Dr. Carlson has been President and Chief Executive Officer of SRI
International since December 1998. From April 1996 to November 1998, Dr.
Carlson served as Executive Vice President of Ventures and Licensing of the
Sarnoff Corporation, an information technology company and one of SRI's two
wholly owned subsidiaries. Prior to this, Dr. Carlson served as a Technical
Director at RCA Laboratories. Dr. Carlson also serves as a director of several
private
4
companies. Dr. Carlson holds a Ph.D. and an M.S. from Rutgers University and a
B.S. from Worcester Polytechnic Institute.
Alan Herzig has served as one of the Company's directors since October 1994.
Mr. Herzig has been President and Chief Executive Officer of SRI Holdings,
Inc., a subsidiary of SRI International, since September 1997. From April 1994
to April 1997, Mr. Herzig served in the Office of the Chairman of SRI
International. From 1987 to 1994, Mr. Herzig served as the President and Chief
Executive Officer of Robert Fleming Pacific, Inc., the U.S. investment banking
arm of Robert Fleming & Co., a U.K.-based merchant bank. From 1981 to 1987, Mr.
Herzig served as a Managing Director of L.F. Rothschild Unterberg Towbin, an
investment bank. Mr. Herzig also serves on the board of directors of Sarnoff
Corporation, a subsidiary of SRI International, and several privately held
companies. Mr. Herzig holds a B.A. from Yale University.
Philip Quigley has served as one of the Company's directors since March
2000. From 1994 to 1997, Mr. Quigley served as Chairman and Chief Executive
Officer of Pacific Telesis Group, a communications company, and Vice Chairman
of SBC Communications, Inc., a telecommunications company. From 1987 to 1994,
Mr. Quigley served as the President and Chief Executive Officer of Pacific
Bell, a telecommunications company. From 1986 to 1987, Mr. Quigley served as
Executive Vice President and Chief Operating Officer of PacTel Corporation, a
cellular and paging company. From 1982 to 1986, Mr. Quigley served as President
and Chief Executive Officer of PacTel Corporation. Mr. Quigley serves as a
director of Wells Fargo Bank & Co., SRI International and several other
privately held companies. Mr. Quigley has also served on the boards of Pacific
Telesis, SBC Communications, Inc. and the United Way. Mr. Quigley holds a B.S.
from California State University, Los Angeles.
Incumbent Class I Directors Whose Terms Expire in 2004
Ronald Croen, a co-founder of Nuance, has served as the Company's President
since July 1994, as the Company's Chief Executive Officer since October 1994
and as one of the Company's directors since October 1995. From 1993 to 1994,
Mr. Croen served as a consultant to SRI International. From 1989 to 1993, Mr.
Croen was an independent management consultant in Paris, France. Prior to this,
Mr. Croen served in various positions at The Ultimate Corp., including Managing
Director of European Operations and Vice President and General Counsel. Mr.
Croen serves as a director of Logitech Corporation, a company that designs and
manufactures personal interface products. Mr. Croen holds a J.D. degree from
the University of Pennsylvania Law School and a B.A. from Tufts University.
Vinton Cerf has served as one of the Company's directors since December
1999. Dr. Cerf has been the Senior Vice President for Internet Architecture and
Technology of MCI WorldCom since February 1994. From 1986 to 1994, Dr. Cerf
served as Vice President of the Corporation for National Research Initiatives,
a non-profit research and development organization. Prior to this, Dr. Cerf
held positions with MCI Digital Information Services and the U.S. Department of
Defense's Advanced Research Projects Agency. Dr. Cerf serves as a director of
Avanex Corporation, a supplier of fiber optic-based products, CoSine, a
supplier of Internet application support systems, and several privately held
companies. Dr. Cerf has served as Chairman of the Board of the Internet
Corporation for Assigned Names and Numbers (ICANN) since November 2000. Dr.
Cerf is the co-inventor of TCP/IP and the architecture of the Internet. Dr.
Cerf holds a Ph.D. and an M.S. in computer science from the University of
California at Los Angeles and a B.S. from Stanford University.
Irwin Federman has served as one of the Company's directors since August
1995. Mr. Federman has been a general partner of U.S. Venture Partners, a
venture capital firm, since 1990. From 1988 to 1990, Mr. Federman was a
managing director of Dillon, Read and Company, an investment bank. From 1981 to
1988, Mr. Federman was President and Chief Executive Officer of Monolithic
Memories, an integrated circuit company. Mr. Federman also serves as a director
of CheckPoint Software Technologies, Inc., an Internet security company, MMC
Networks, Inc., a developer and supplier of network processors, Netro
Corporation, a provider of broadband wireless access systems, Centillum
Communications, Inc., an integrated circuit company, SanDisk
5
Corp., a computer memory company, and several privately held companies. Mr.
Federman holds a B.S. from Brooklyn College.
Incumbent Class III Directors Whose Terms Expire in 2003
Yogen Dalal has served as one of the Company's directors since September
1995 and Chairman of the Company's Board since January 2000. Dr. Dalal has been
a general partner of Mayfield Fund, a venture capital firm, since 1991. Dr.
Dalal also serves as a director of Singtel, a telecommunications company, TIBCO
Software Inc., a software company, and several privately held companies. Dr.
Dalal holds a Ph.D. and an M.S. in Electrical Engineering from Stanford
University and a B.Tech. in electrical engineering from the Indian Institute of
Technology in Bombay.
Gary Morgenthaler has served as one of the Company's directors since January
1997. Mr. Morgenthaler has been a general partner at Morgenthaler Ventures, a
venture capital firm, since 1989. He also serves as Chairman of Versata, Inc.,
and as a director of Catena Networks, Inc., Crossbow Technology, Inc., Terawave
Communications, Inc., Westwave Communications, Inc., and Yotta Networks, Inc.
Mr. Morgenthaler was a co-founder and past Chairman of Illustra Information
Technologies, Inc., and served as a director on Illustra's board until it was
acquired by Informix in 1995. He served as Chairman of Ingres Corporation
(formerly Relational Technology) until its sale in October 1990, and was a
founder of the company in 1980. Between 1984 and 1988 he was Chief Executive
Officer of Ingres. Earlier he was with McKinsey & Company, Tymshare, Inc., and
Stanford University's Institute for Mathematical Studies in the Social
Sciences. Mr. Morgenthaler holds an A.B. from Harvard University.
There are no family relationships among any of the Company's directors or
officers.
Board Composition
The Company currently has eight directors. In accordance with the terms of
the Nuance's certificate of incorporation, the terms of office of the Company's
Board of Directors are divided into three classes: Class I, whose term will
expire at the annual meeting of stockholders to be held in 2004, Class II,
whose term will expire at the Meeting and Class III, whose term will expire at
the annual meeting of stockholders to be held in 2003. The Class I directors
are Dr. Cerf, Mr. Croen and Mr. Federman, the Class II directors are Dr.
Carlson, Mr. Herzig and Mr. Quigley and the Class III directors are Dr. Dalal
and Mr. Morgenthaler. At each annual meeting of stockholders after the initial
classification, the successors to directors whose terms will then expire will
be elected to serve from the time of election and qualification until the third
annual meeting following election. Any additional directorships resulting from
an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the Company's directors. This classification of the Board of Directors may have
the effect of delaying or preventing changes in control of the Company. The
Company's directors may be removed for cause by the affirmative vote of the
holders of a majority of the Company's outstanding common stock.
Board Meetings and Committees
The Board of Directors of the Company held a total of four meetings during
the Last Fiscal Year. During the Last Fiscal Year, no director, other than
Vinton Cerf, attended fewer than 75% of the aggregate of the number of meetings
held by the Board of Directors and the number of meetings of committees, if
any, upon which such director served. Certain matters approved by the Board of
Directors were approved by unanimous written consent.
The Audit Committee, which was established in January 2000, consists of
Messrs. Federman, Herzig and Morgenthaler. The Audit Committee approves the
appointment of the Company's independent auditors, reviews the scope and
results of annual audits and other accounting-related services and evaluates
the Company's internal control functions. The Audit Committee held a total of
four meetings during the Last Fiscal Year.
6
The Compensation Committee, which was established in March 1998, consists of
Dr. Dalal and Mr. Morgenthaler. The Compensation Committee makes
recommendations regarding the Company's stock option plans and all matters
concerning executive compensation. The Compensation Committee held a total of
four meetings during the Last Fiscal Year.
The Board of Directors does not have a nominating committee nor any
committee performing such function.
Director Compensation
Directors currently receive no cash fees for serving on the Board of
Directors. However, directors are entitled to reimbursement for reasonable
expenses incurred in attending meetings of the Board of Directors. The Board of
Directors also has the discretion to grant options and rights to directors
pursuant to the Company's stock option plans. Employee directors are also
eligible to participate in the Company's employee stock purchase plan. The
Company does not intend to pay cash fees for the services of its Board members
in the immediate future, nor to provide for the automatic grant of stock
options to its directors.
Options may also be granted to directors under the Company's 2000 Stock Plan
(the "Stock Plan"), which was approved by the Company's stockholders in
February 2000. The Board, in its discretion, selects directors to whom options
may be granted, the time or times at which such options may be granted, the
number of shares subject to each grant and the period over which such options
become exercisable. All options granted to directors under the Stock Plan
contain the following provisions: the exercise price per share of common stock
is 100% of the fair market value of the Company's common stock on the date the
option is granted; the term of the option may be no more than ten years from
the date of grant; and the option may be exercised only while the Outside
Director remains a director or within ninety days after the date he or she
ceases to be a director or service provider of the Company; upon a proposed
liquidation or dissolution of the Company, the options will terminate
immediately prior to such action; and in the event of a merger or sale of
substantially all of the Company's assets, each option may be assumed or an
equivalent option substituted by the successor corporation. The Board may at
any time amend, alter, suspend or discontinue the Stock Plan, subject to
stockholder approval in certain circumstances.
Compensation Committee Interlocks and Insider Participation
The members of the Company's Compensation Committee are Dr. Dalal and Mr.
Morgenthaler. None of the members of the Compensation Committee of the Board of
Directors is currently or has been, at any time since the formation of the
Company, an officer or employee of the Company. During the Last Fiscal Year, no
executive officer of the Company (i) served as a member of the compensation
committee (or other board committee performing similar functions or, in the
absence of any such committee, the Board of Directors) of another entity, one
of whose executive officers served on the Company's Compensation Committee,
(ii) served as a director of another entity, one of whose executive officers
served on the Company's Compensation Committee, or (iii) served as a member of
the compensation committee (or other board committee performing similar
functions or, in the absence of any such committee, the Board of Directors) of
another entity, one of whose executive officers served as a director of the
Company.
Required Vote
If a quorum is present and voting, the three nominees for director receiving
the highest number of votes will be elected to the Board of Directors. Votes
withheld from any director are counted for purposes of determining the presence
or absence of a quorum, but have no other legal effect under Delaware law. See
"Information Concerning Solicitation and Voting--Quorum; Abstentions; Broker
Non-Votes."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES LISTED
ABOVE.
7
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
In April 2002, the Company selected Deloitte & Touche LLP as the Company's
independent auditors to audit the financial statements of the Company for the
Company's fiscal year ending December 31, 2002. Arthur Andersen LLP served as
the Company's independent auditors for the Last Fiscal Year. The Board of
Directors recommends that stockholders vote for ratification of such
appointment. In the event of a negative vote or ratification, the Board of
Directors will reconsider its selection.
Information Regarding Change of Auditors
On April 11, 2002, the Company made a determination to no longer engage
Arthur Andersen LLP ("Arthur Andersen") as its independent auditors. The
Company's Board of Directors participated in and approved the decision to
change principal accountants. On April 12, 2002, the Company engaged Deloitte &
Touche LLP to serve as its independent auditors for the fiscal year ending
December 31, 2002.
Arthur Andersen's reports on the Company's consolidated financial statements
for each of the years ended December 31, 2001 and 2000 did not contain an
adverse opinion or disclaimer of opinion, nor were they qualified or modified
as to uncertainty, audit scope or accounting principles.
During the years ended December 31, 2001 and 2000 and through April 17,
2002, the filing date of the Company's Current Report on Form 8-K regarding its
change of auditors, there were no disagreements with Arthur Andersen on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure which, if not resolved to Arthur Andersen's
satisfaction, would have caused it to make reference to the subject matter in
connection with its report on the Company's consolidated financial statements
for such years; and there were no reportable events as specified in Item
304(a)(1)(v) of Regulation S-K.
During the years ended December 31, 2001 and 2002 and through April 12,
2002, the Company did not consult Deloitte & Touche LLP with respect to the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the Company's consolidated financial statements, or any other matters or
reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
Fees Paid to Accountants for Services Rendered During the Last Fiscal Year
Audit Fees:
Audit fees billed to the Company by Arthur Andersen LLP during the Company's
Last Fiscal Year for review of the Company's annual financial statements and
those financial statements included in the Company's quarterly reports on Form
10-Q totaled $270,029.
Financial Information Systems Design and Implementation Fees:
The Company did not engage Arthur Andersen LLP to provide advice to the
Company regarding financial information systems design and implementation
during the Last Fiscal Year.
All Other Fees:
Fees billed to the Company by Arthur Andersen LLP during the Company's 2001
fiscal year for all other non-audit services rendered to the Company, including
tax related services totaled $404,281.
8
Required Vote
Stockholder ratification of the selection of Deloitte & Touche LLP as the
Company's independent auditors is not required by the Company's Bylaws or other
applicable legal requirement. However, the Board is submitting the selection of
Deloitte & Touche LLP to the stockholders for ratification as a matter of good
corporate practice. If the stockholders fail to ratify the selection, the Audit
Committee and the Board will reconsider whether or not to retain that firm.
Even if the selection is ratified, the Board at its discretion may direct the
appointment of a different independent accounting firm at any time during the
year if it determines that such a change would be in the best interests of the
Company and its stockholders.
The affirmative vote of the holders of a majority of the shares represented
and entitled to vote at the meeting will be required to ratify the selection of
Deloitte & Touche LLP as the Company's independent auditors for the fiscal year
ending December 31, 2002. Abstentions will be counted toward the tabulation of
votes cast on proposals presented to the stockholders and will have the same
effect as negative votes. Broker non-votes are counted towards a quorum, but
are not counted for any purpose in determining whether this matter has been
approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR
THE 2002 FISCAL YEAR.
9
OTHER INFORMATION
Executive Officers
In addition to Mr. Ronald Croen, the following persons are executive
officers of the Company:
Name Age Position
---- --- --------
William Dewes................ 45 Vice President and Chief Financial Officer
Eng Yew Lee.................. 41 Vice President, Technical Services
Matthew Lennig............... 50 Senior Vice President, Engineering
Stephen Milton............... 36 Vice President, Professional Services
Paul Scott................... 48 Senior Vice President, Worldwide Sales
Lynda Kate Smith............. 40 Vice President and Chief Marketing Officer
Donna Allen Taylor........... 57 Vice President, Human Resources and Chief People Officer
William Dewes has served as the Company's Vice President and Chief Financial
Officer since January 2002. From March 2001 to January 2002, Mr. Dewes served
as the Company's Vice President and Controller. From June 2000 to January 2002,
Mr. Dewes served as the Vice President and Controller of Scient Corporation, a
consulting company. From March 1998 to June 2000 Mr. Dewes served as Finance
Director of Dell Computers, a computer manufacturer. From September 1987 to
March 1998, Mr. Dewes held various finance and controller positions at Silicon
Graphics. From September 1981 to September 1987, Mr. Dewes served as Cost and
General Accounting Manager of Hewlett-Packard Mr. Dewes holds a B.S. in
business administration from the University of California at Berkeley.
Eng Yew Lee has served as the Company's Vice President, Technical Services
since February 2000. From May 1998 to February 2000, Mr. Lee served as the
Company's Director of Technical Services. From August 1995 to June 1998, Mr.
Lee served as Director of Server Technologies Support of Oracle Corporation.
From 1989 to 1994, Mr. Lee held a variety of manager positions with Oracle in
the United States and the United Kingdom. Mr. Lee holds an M.S. in Business
Systems Analysis and Design from the City University of London, England and a
B.S. from London University.
Matthew Lennig has served as the Company's Senior Vice President,
Engineering since January 2000. From January 1996 to January 2000, Dr. Lennig
served as the Company's Vice President, Engineering. From December 1989 to
January 1996, Dr. Lennig served as Senior Manager of Speech Technology &
Applications of Bell-Northern Research, the research and development subsidiary
of Northern Telecom. Dr. Lennig holds a Ph.D. in Linguistics from the
University of Pennsylvania, a M.Eng. from McGill University and an A.B. from
Princeton University.
Stephen Milton has served as the Company's Vice President; Professional
Services since September 2000. Prior to joining the Company, Mr. Milton was a
founder of and served as the Vice President of Technology for Living.com, an
online home furnishings retailer, from April 1999 to August 2000. From January
1997 to April 1999, Mr. Milton was the General Manager and Director of
Technology for the Automotive business unit of Trilogy, a provider of
industry-specific e-business software for Global 2000 companies. From January
1995 to January 1997, Mr. Milton was the General Manager and Director of
Technology for the Computer Industry business unit for Trilogy. Mr. Milton
holds a B.S. in Aerospace Engineering from the University of Texas at Austin.
Paul Scott has served as the Company's Senior Vice President, Worldwide
Sales since February 2000. From May 1996 to January 2000, Mr. Scott served as
Senior Vice President of Sales for the Octel Messaging Division of Lucent
Technologies. From June 1992 to April 1996, Mr. Scott served as Vice President
of Sales of Octel Communications Corporation, a voice-messaging company. Prior
to this, Mr. Scott held various sales management positions at Octel
Communications. Mr. Scott holds an M.A. and a B.A. from Northwestern University.
10
Lynda Kate Smith has served as the Company's Vice President and Chief
Marketing Officer since December 2001. From January 1998 to December 2001, Ms.
Smith served as Vice President of Worldwide Marketing at Genesys (a subsidiary
of Alcatel) and as a member of the company's executive committee. From August
1996 to January 1998, Ms. Smith worked with Lockheed Martin Telecommunications
and American Eurocopter, a joint venture between Daimler Benz and Aerospatiale.
Ms. Smith received a B.A. from Simpson College and an MBA from the University
of Pennsylvania's Wharton School of Business.
Donna Allen Taylor has served as the Company's Vice President, Human
Resources and Chief People Officer since January 2000. From September 1996 to
December 1999, Ms. Taylor served as Vice President of Human Resources of The
Vantive Corporation, a worldwide customer asset management applications
software company. From October 1995 to August 1996, Ms. Taylor served as a
senior consultant of Post Associates, an organizational consulting firm. From
September 1993 to September 1995, Ms. Taylor served as a Corporate Human
Resources Director of Intel Corporation. Prior to this, Ms. Taylor held several
senior Human Resource management positions with various divisions of Digital
Equipment Corporation, a computer hardware, software and services company. Ms.
Taylor holds a B.F.A. from Kansas University.
11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information known to us with respect to the
beneficial ownership of the Company's common stock as of March 1, 2002 by (i)
each person known by us to own beneficially more than 5% of the outstanding
shares of the Company's common stock, (ii) each of the Named Executive Officers
(as defined below in the section entitled "EXECUTIVE OFFICER
COMPENSATION--Summary Compensation"), (iii) each of the Company's directors,
and (iv) all of the Company's directors and executive officers as a group.
Except as otherwise indicated, and subject to applicable community property
laws, to the Company's knowledge the persons named below have sole voting and
investment power with respect to all shares of common stock held by them.
For the purposes of calculating percent ownership, as of March 1, 2002,
33,332,305 shares of the Company's common stock were issued and outstanding.
Shares of common stock subject to options or warrants that are presently
exercisable or exercisable within 60 days of March 1, 2002 are deemed
outstanding for the purpose of computing the percentage ownership of the person
or entity holding such options or warrants, but are not treated as outstanding
for the purpose of computing the percentage ownership of any other person or
entity.
Shares of Common
Stock Beneficially
Owned
-----------------
Name and Address of Beneficial Owner Number Percent
------------------------------------ --------- -------
5% Stockholders:
Entities affiliated with Merrill Lynch & Co.(1)........... 2,611,976 7.8%
World Financial Center, North Tower
250 Vesey Street
New York, New York 10281
SRI International(2)...................................... 2,355,580 7.1%
333 Ravenswood Avenue
Menlo Park, California 94025
Cisco Systems, Inc.(3).................................... 1,935,000 5.8%
170 West Tasman Drive
San Jose, California 95134
Name of Beneficial Owner
------------------------
Directors and Named Executive Officers:
Ronald Croen(4)........................................... 585,704 1.7%
Paul Scott(5)............................................. 96,041 *
Matthew Lennig(6)......................................... 231,905 *
Graham Smith(7)........................................... 32,377 *
Stephen Milton(8)......................................... 51,583 *
Steven Ehrlich(9)......................................... 39,783 *
Donna Allen Taylor(10).................................... 78,125 *
Curtis Carlson(11)........................................ 15,625 *
Vinton Cerf(12)........................................... 29,166 *
Yogen Dalal(13)........................................... 67,613 *
Irwin Federman(14)........................................ 15,625 *
Alan Herzig(15)........................................... 91,958 *
Gary Morgenthaler(16)..................................... 122,044 *
Philip Quigley(17)........................................ 30,041 *
All directors, officers and named executive officers as a
group (17 persons)(18)................................... 1,591,442 4.7%
--------
* Less than 1%
12
(1) Consists of shares held by Merrill Lynch Investment Managers, L.P. and
Fund Asset Management, L.P. Merrill Lynch & Co., inc. is a parent holding
company. Merrill Lynch Investment Managers is an operating division of
Merrill Lynch & Co.'s indirectly owned asset management subsidiaries. Each
of Merrill Lynch Investment Managers, L.P. and Fund Asset Management,
L.P., is an asset management subsidiary of Merrill Lynch & Co.
(2) Consists of shares held by Technology Venture Management Inc. a
wholly-owned subsidiary of SRI. The Board of Directors of SRI
International has voting and dispositive authority with respect to the
shares held by Technology Venture Management. From time to time, the Board
of Directors of SRI International delegates such voting and dispositive
authority to Samuel Armacost, Curtis Carlson, one of the Company's
directors, and Alan Herzig, one of the Company's directors. Each of these
individuals disclaim beneficial ownership of these shares except to the
extent of his pecuniary interest therein.
(3) These shares are held by Coastdock & Co. The Board of Directors of Cisco
Systems has voting and dispositive authority with respect to the shares
held by Coastdock & Co.
(4) Includes 259,069 shares subject to options exercisable within 60 days of
March 1, 2002.
(5) Includes 96,041 shares subject to options exercisable within 60 days of
March 1, 2002.
(6) Includes 190,355 shares held by Dr. Lennig, 2,000 shares held by The
Thomas D. Lennig Trust and 2,000 shares held by The Miriam D. Lennig
Trust. Also includes 37,550 shares subject to options exercisable within
60 days of March 1, 2002.
(7) Includes 2,377 shares held by Mr. Smith, 15,000 shares held by The Graham
V. Smith 2000 Grantor Retained Annuity Trust, 7,500 shares held by The
Smith Children's 2000 Irrevocable Trust and 7,500 shares held by the
Elaine F. Smith 2000 Grantor Retained Annuity Trust.
(8) Includes 51,583 shares subject to options exercisable within 60 days of
March 1, 2002.
(9) Includes 39,783 shares held in trust by Mr. Ehrlich.
(10) Includes 72,500 shares subject to options exercisable within 60 days of
March 1, 2002.
(11) Includes 15,625 shares subject to options exercisable within 60 days of
March 1, 2002.
(12) Includes 29,166 shares subject to options exercisable within 60 days of
March 1, 2002.
(13) Includes 37,613 shares held by the Dalal Revocable Trust.
(14) Includes 15,625 shares subject to options exercisable within 60 days of
March 1, 2002.
(15) Includes 72,333 shares held by Mr. Herzig, 4,000 shares held by the Herzig
Family Foundation and 15,625 shares subject to options exercisable within
60 days of March 1, 2002.
(16) Includes 62,385 shares held by Mr. Morganthaler, 44,034 shares held by the
Morgenthaler Family Partnership and 15,625 shares subject to options
exercisable within 60 days of March 1, 2002.
(17) Includes 26, 041 shares subject to options exercisable within 60 days of
March 1, 2002.
(18) Includes 695,595 shares subject to options exercisable within 60 days of
March 1, 2002.
13
EXECUTIVE OFFICER COMPENSATION
Summary Compensation
The following table shows, as to any person serving as Chief Executive
Officer during the Last Fiscal Year, and two individuals for whom such
disclosure would have been required but for the fact that those individuals
were no longer serving as executive officers of the Company at the end of the
Last Fiscal Year. Each of the four other most highly compensated executive
officers whose salary plus bonus exceeded $100,000 (each a "Named Executive
Officers" together the "Named Executive Officers"), information concerning
compensation paid for services to the Company during the Last Fiscal Year.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation -----------------------
--------------------------------- Securities All Other
Other Annual Underlying Compensation
Name and Principal Position Year Salary($) Bonus($) Compensation Options(#) ($)(1)
--------------------------- ---- --------- -------- ------------ ---------- ------------
Ronald Croen............................. 2001 250,000 72,813 -- 200,000 4,304
President and Chief Executive Officer 2000 265,000 103,750 -- -- 4,362
1999 206,561 20,000 -- 400,000 527
Paul Scott(2)............................ 2001 220,000 77,652 -- 25,000 8,893
Senior Vice President, Worldwide Sales 2000 201,667 115,995 -- 325,000 6,020
Matthew Lennig........................... 2001 215,000 54,245 -- -- 8,193
Senior Vice President, Engineering 2000 215,000 105,102 -- -- 5,968
1999 171,040 52,250 -- 75,000 527
Graham Smith(3).......................... 2001 210,000 43,988 -- 50,000 7,507
Vice President and 2000 214,167 41,710 14,838(7) -- 5,968
Chief Financial Officer 1999 197,840 22,333 22,446(7) 75,000 212
Stephen Milton(4)........................ 2001 187,500 53,407 -- 132,000 2,687
Vice President, Professional Services 2000 200,000 52,414 -- 100,000 589
Steven Ehrlich(5)........................ 2001 200,000 35,957 -- 20,000 6,739
Vice President, Marketing 2000 200,000 52,414 -- -- 5,968
1999 174,936 42,100 -- 75,000 176
Donna Allen Taylor(6).................... 2001 185,000 40,341 -- 30,000 3,197
Vice President, Human Resources and 2000 172,193 42,167 -- 140,000 2,155
Chief People Officer
--------
(1) Amounts represent premiums paid by the Company for term life insurance and
medical, dental, and vision insurance.
(2) Mr. Scott became an executive officer of the Company in February 2000.
(3) Mr. Smith ceased to be an executive officer of the Company in January 2002.
(4) Mr. Milton became an executive officer of the Company in September 2000.
(5) Mr. Ehrlich ceased to be an executive officer of the Company in November
2001.
(6) Ms. Taylor became an executive officer of the Company in January 2000.
(7) Amount represents the forgiveness of principal and interest associated with
an interest-bearing loan of $50,000, which Mr. Smith received in connection
with his employment with the Company.
14
Stock Option Grants and Exercises
The following table shows, as to each Named Executive Officer, information
concerning stock options granted during the Last Fiscal Year.
OPTION GRANTS DURING LAST FISCAL YEAR
Individual Grants
------------------------------------------- Potential Realizable
Percent of Value at Assumed
Number of Total Annual Rates of Stock
Securities Options Price Appreciation for
Underlying Granted Exercise Option Term
Options in Last Price Expiration ----------------------
Name Granted Fiscal Year ($/Share) Date 5%($) 10%($)
---- ---------- ----------- --------- ---------- --------- ---------
Ronald Croen............................. 200,000 5.97% 8.95 12/20/11 1,125,721 2,852,799
President and Chief Executive Officer
Paul Scott............................... 25,000 0.75% 11.78 7/25/11 185,209 469,357
Senior Vice President, Worldwide Sales
Matthew Lennig........................... 62,500 1.86% 11.78 7/25/11 463,024 1,173,393
Senior Vice President, Engineering
Graham Smith(1).......................... 50,000 1.49% 11.78 4/4/02 370,419 938,714
Vice President and
Chief Financial Officer
Stephen Milton........................... 100,000 2.98% 11.78 7/25/11 740,838 1,877,429
Vice President, Professional Services 32,000 0.95% 37.25 2/13/11 749,642 1,899,741
Steven Ehrlich(2)........................ 20,000 0.60% 11.78 2/28/02 148,168 375,486
Vice President, Marketing
Donna Allen Taylor....................... 30,000 0.90% 11.78 7/25/11 222,251 563,229
Vice President, Human Resources and
Chief People Officer
--------
(1) Mr. Smith ceased to be an executive officer of the Company in January 2002.
(2) Mr. Ehrlich ceased to be an executive officer of the Company in November
2001.
15
The following table shows, as to each Named Executive Officer, information
concerning stock options exercised during the Last Fiscal Year.
AGGREGATE OPTION EXERCISES IN 2001 AND YEAR-END OPTION VALUES
Number of Underlying Value of Unexercised
Unexercised Options at In-The-Money Options at
Shares December 31, 2001 December 31, 2001
Acquired Value ------------------------- -------------------------------
Name on Exercise Realized($) Exercisable Unexercisable Exercisable($) Unexercisable($)
---- ----------- ----------- ----------- ------------- -------------- ----------------
Ronald Croen.................. -- -- 209,070 379,166 116,067 146,875
President and
Chief Executive Officer
Paul Scott.................... 80,000 2,274,775 68,958 201,042 -- --
Senior Vice President,
Worldwide Sales
Matthew Lennig................ 61,200 1,730,988 16,300 100,000 9,780 22,500
Senior Vice President,
Engineering
Graham Smith(2)............... 15,000 531,062 37,500 87,500 22,500 22,500
Vice President and
Chief Financial Officer
Stephen Milton................ -- -- 40,583 191,417 -- --
Vice President,
Professional Services
Steven Ehrlich(3)............. 34,375 39,810 1,562 -- 937 --
Vice President, Marketing
Donna Allen Taylor............ 13,750 378,034 60,833 85,417 -- --
Vice President,
Human Resources and
Chief People Officer
--------
(1) The value of an "In-The-Money" stock option represents the difference
between the aggregate estimated fair market value of the underlying
securities, based on the closing price of $9.10 per share of the Company's
Common Stock on The Nasdaq National Market on December 31, 2001 and the
aggregate exercise price of the subject stock option. No value is given for
a stock option that is not an "In-The-Money" Stock Option.
(2) Mr. Smith ceased to be an executive officer of the Company in January 2002.
(3) Mr. Ehrlich ceased to be an executive officer of the Company in November
2001.
Change in Control Arrangements
The Company has entered into stock option agreements with all of its
executive officers which provide that, in the event the executive officer is
constructively terminated or terminated without cause within one year following
a change of control, the officer will receive accelerated vesting of 50% of all
of the officer's then unvested options, provided that the officer has also been
employed with the Company for at least one year prior to any change of control.
In addition, the stock option agreements entered into with Paul Scott, the
Company's Senior Vice President, Worldwide Sales, and Donna Allen Taylor, the
Company's Vice President, Human Resources and Chief People Officer, also
provide that, even if these officers are not employed for one year prior to any
change of control and are involuntarily terminated following a change of
control, the vesting schedule of these options will be changed from 25% after
one year and 1/48 per month thereafter to 1/48 per month from the original
vesting commencement date.
16
CERTAIN TRANSACTIONS
The following is a description of transactions since the beginning of the
Last Fiscal Year to which the Company has been a party, in which the amount
involved in the transaction exceeds $60,000 and in which any director,
executive officer, or holder of more than 5% of the Company's capital stock had
or will have a direct or indirect material interest.
During the Last Fiscal Year, the Company granted options to its executive
officers and directors. The Company intends to grant options to its executive
officers and directors in the future. See "Proposal One--Director Compensation"
and "Executive Officer Compensation--Stock Option Grants and Exercises."
The Company has entered into indemnification agreements with certain
executive officers and directors and plans to enter into an indemnification
agreement with each of its executive officers and directors.
The Company has entered into change-in-control agreements with key officers
providing for the acceleration of vesting of the officers' options upon a
change-in-control.
17
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors establishes the general
compensation policies and programs of the Company as well as the compensation
plans and specific compensation levels for substantially all of the Company's
executive officers, including the Company's Chief Executive Officer (which is
subject to the additional approval of the Company's Board of Directors). It
also administers the Company's employee stock benefit plan for substantially
all of the Company's executive officers, including the Chief Executive Officer,
and administers the Company's employee stock benefit plan with respect to
grants of securities in excess of 50,000 shares. The Compensation Committee is
currently composed of independent, non-employee directors who have no
interlocking relationships as defined by the Securities and Exchange Commission.
The Compensation Committee believes that the compensation of the executive
officers, including that of the Chief Executive Officer (collectively, the
"Executive Officers"), should be influenced by the Company's performance. The
Compensation Committee establishes the salaries and bonuses of all of the
Executive Officers by considering (i) the Company's financial performance for
the past year, (ii) the achievement of certain objectives related to the
particular Executive Officer's area of responsibility, (iii) the salaries and
bonuses of executive officers in similar positions of comparably-sized
companies and (iv) the relationship between revenue and executive officer
compensation. The Compensation Committee believes that the Company's executive
officer salaries and bonuses in the Last Fiscal Year were comparable in the
industry for similarly-sized businesses.
In addition to salary and bonus, the Compensation Committee, from time to
time, grants options to purchase Company common stock to Executive Officers.
The Compensation Committee thus views option grants as an important component
of its long-term, performance-based compensation philosophy. Since the value of
an option bears a direct relationship to the Company's stock price, the
Compensation Committee believes that options motivate Executive Officers to
manage the Company in a manner which will also benefit stockholders. As such,
options are granted at the current market price. And one of the principal
factors considered in granting options to an Executive Officer is the Executive
Officer's ability to influence the Company's long-term growth and profitability.
Compensation Committee of the Board
of Directors
Yogen Dalal
Gary Morgenthaler
THE FOREGOING COMPENSATION COMMITTEE REPORT SHALL NOT BE DEEMED TO BE
"SOLICITING MATERIAL" OR TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, NOR SHALL SUCH INFORMATION BE INCORPORATED BY REFERENCE INTO ANY
PAST OR FUTURE FILING UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR THE
EXCHANGE ACT, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY INCORPORATES IT BY
REFERENCE INTO SUCH FILING.
18
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Board is responsible for providing an
independent, objective review of the Company's accounting functions and
internal controls. The Audit Committee is comprised of independent directors,
and is governed by a written charter first adopted and approved by the Board of
Directors in January 2000. Each of the members of the Audit Committee is
independent as defined by Company policy and Rule 4200(a)(14) of the National
Association of Securities Dealers' listing standards. A copy of the Audit
Committee Charter is attached to this Proxy Statement as Appendix A.
The responsibilities of the Audit Committee include recommending to the
Board an accounting firm to serve as the Company's independent accountants. The
Audit Committee also, as appropriate, reviews and evaluates, and discusses and
consults with Company management and the independent accountants regarding the
following:
. the plan for, and the independent accountant's report on, each audit of
the Company's financial statements
. the Company's financial disclosure documents, including all financial
statements and reports filed with the SEC or sent to stockholders, as
well as the adequacy of the Company's internal accounting controls, and
accounting, financial and auditing personnel
. changes in the Company's accounting practices, principles, controls or
methodologies, or in the Company's financial statements, and recent
developments in accounting rules
. the establishment and maintenance of an environment at the Company that
promotes ethical behavior
This year, the Audit Committee reviewed the Audit Committee Charter and,
after appropriate review and discussion, the Audit Committee determined that
the Committee had fulfilled its responsibilities under the Audit Committee
Charter.
The Audit Committee is responsible for recommending to the Board of
Directors that the Company's financial statements be included in the Company's
annual report. The Audit Committee took a number of steps in making this
recommendation for the Last Fiscal Year. First, the Audit Committee discussed
throughout the Last Fiscal Year with Arthur Andersen LLP, the Company's
independent auditors for the Last Fiscal Year, those matters Arthur Andersen
LLP communicated to and discussed with the Audit Committee under applicable
auditing standards, including information concerning the audit. These
communications and discussions are intended to assist the Audit Committee in
overseeing the financial reporting and disclosure process. Second, the Audit
Committee discussed Arthur Andersen LLP's independence with Arthur Andersen LLP
and received a letter from Arthur Andersen LLP regarding independence as
required under applicable independence standards for auditors of public
companies. This discussion and disclosure informed the Audit Committee of
Arthur Andersen LLP's independence, and assisted the Audit Committee in
evaluating such independence. Finally, the Audit Committee reviewed and
discussed, with Company's management and Arthur Andersen LLP, as appropriate,
the Company's audited consolidated balance sheets at December 31, 2001 and
2000, and consolidated statements of income, cash flows and stockholders'
equity for the three years ended December 31, 2001. Based on the discussions
with Arthur Andersen LLP concerning the audit, the independence discussions,
and the financial statement review, and additional matters deemed relevant and
appropriate by the Audit Committee, the Audit Committee recommends to the Board
of Directors that the Company's Annual Report on Form 10-K include these
financial statements.
Audit Committee
Irwin Federman
Alan Herzig
Gary Morgenthaler
THE FOREGOING AUDIT COMMITTEE REPORT SHALL NOT BE DEEMED TO BE "SOLICITING
MATERIAL" OR TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, NOR SHALL
SUCH INFORMATION BE INCORPORATED BY REFERENCE INTO ANY PAST OR FUTURE FILING
UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR THE EXCHANGE ACT, EXCEPT TO THE
EXTENT THE COMPANY SPECIFICALLY INCORPORATES IT BY REFERENCE INTO SUCH FILING.
19
PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders on
the Company's common stock with the cumulative total return of the Nasdaq Stock
Market Index ("Nasdaq Index") and the SIC Code Index for the Prepackaged
Software Industry (the "SIC Code Index"). The graph assumes that $100 was
invested on April 13, 2000, the date of the Company's initial public offering,
in the Company's common stock, the Nasdaq Index and the SIC Code Index,
including reinvestment of dividends. No dividends have been declared or paid on
the Company's common stock. Historic stock price performance is not necessarily
indicative of future stock price performance.
COMPARE CUMULATIVE TOTAL RETURN AMONG NUANCE COMMUNICATIONS, INC., NASDAQ
MARKET INDEX AND SIC CODE INDEX
[CHART]
4/13/00 12/31/00 12/31/01
------- -------- --------
NUANCE COMMUNICATIONS, INC............................ 100 127.06 26.81
SIC CODE INDEX........................................ 100 71.76 60.71
NASDAQ MARKET INDEX................................... 100 66.98 53.15
THE INFORMATION CONTAINED IN THE STOCK PERFORMANCE GRAPH SHALL NOT BE DEEMED
TO BE "SOLICITING MATERIAL" OR TO BE FILED WITH THE SEC, NOR SHALL SUCH
INFORMATION BE INCORPORATED BY REFERENCE INTO ANY FUTURE FILING UNDER THE
SECURITIES ACT OR THE EXCHANGE ACT, EXCEPT TO THE EXTENT THE COMPANY
SPECIFICALLY INCORPORATES IT BY REFERENCE INTO SUCH FILING.
20
OTHER MATTERS
The Board of Directors does not know of any other matters to be presented at
the Meeting. If any other matters properly come before the Meeting, it is the
intention of the persons named in the enclosed form of Proxy to vote the shares
they represent as the Board of Directors may recommend.
It is important that your shares be represented at the meeting, regardless
of the number of shares which you hold. You are, therefore, urged to execute
and return, at your earliest convenience, the accompanying Proxy in the
envelope which has been enclosed or vote by telephone or via the Internet as
instructed on the enclosed proxy card.
THE BOARD OF DIRECTORS
Menlo Park, California
Dated: April 22, 2002
21
APPENDIX A
NUANCE COMMUNICATIONS, INC., A DELAWARE CORPORATION
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
AS ADOPTED ON JANUARY 19, 2000
PURPOSES
The purpose of the Audit Committee of the Board of Directors of Nuance
Communications, Inc., a Delaware Corporation (the "Company"), shall be to make
such examinations as are necessary to monitor the Company's system of internal
controls, to provide the Company's Board of Directors with the results of its
examinations and recommendations derived therefrom, to outline to the Board of
Directors improvements made, or to be made, in internal accounting controls, to
nominate independent auditors and to provide to the Board of Directors such
additional information and materials as it may deem necessary to make the Board
of Directors aware of significant financial matters which require the Board of
Director's attention.
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.
MEMBERSHIP
The Audit Committee members will be appointed by, and will serve at the
discretion of, the Board of Directors and will consist of at least three
members of the Board of Directors, each of whom:
1. Will be an independent director as the term is used by the National
Association of Securities Dealers, Inc. (the "NASD") Rule 4200(a)(15);
2. Will be able to read and understand fundamental financial statements, in
accordance with the Nasdaq National Market Audit Committee requirements;
and
3. At least one of whom 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 chief executive or financial officer with financial
oversight responsibilities.
RESPONSIBILITIES
The responsibilities of the Audit Committee shall include:
1. Reviewing on a continuing basis the adequacy of the Company's system of
internal controls;
2. Reviewing on a continuing basis the activities, organizational structure
and qualifications of the Company's internal audit function;
3. Reviewing the independent auditors' proposed audit scope, approach and
independence;
4. 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;
5. Reviewing the performance of the independent auditors, who shall be
accountable to the Board of Directors and the Audit Committee;
6. Recommending the appointment of independent auditors to the Board of
Directors;
7. Reviewing fee arrangements with the independent auditors;
A-1
8. Reviewing before release the audited financial statements and
Management's Discussion and Analysis in the Company's annual report on
Form 10-K;
9. Reviewing before release the unaudited quarterly operating results in
the Company's quarterly earnings release;
10. Overseeing compliance with rule 10-01(d) of Regulation S-X and Item
310(b) of Regulation S-B to assure that the Company's interim financial
statements have been reviewed by an independent public accountant prior
to the Company's filing its Form 10-Q or 10QSB;
11. Overseeing compliance with the requirements of the Securities and
Exchange Commission for disclosure of independent auditor's services and
audit committee members and activities;
12. Overseeing of compliance with the Company's Standards of Business
Conduct and with the Foreign Corrupt Practices Act;
13. Reviewing, in conjunction with counsel, any legal matters that could
have a significant impact on the Company's financial statements;
14. Providing oversight and review of the Company's asset management
policies, including an annual review of the Company's investment
policies and performance for cash and short-term investments;
15. If necessary, instituting special investigations and, if appropriate,
hiring special counsel or experts to assist;
16. Reviewing related party transactions for potential conflicts of interest;
17. Providing a report in the Company's proxy statement in accordance with
the requirements of Item 306 of Regulations S-K and S-B and Item 7(e)(3)
of Schedule 14A; and
18. Performing other oversight functions as requested by the full Board of
Directors.
In addition to the above responsibilities, the Audit Committee will
undertake such other duties as the Board of Directors may delegate to it and
will report, at least annually, to the Board of Directors regarding the
Committee's examinations and recommendations.
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MEETINGS
The Audit Committee will meet at least two times each year. The Audit
Committee may establish its own schedule and shall provide such schedule to the
Board of Directors in advance.
The Audit Committee will meet separately with the Company's president and
separately with the Company's chief financial officer at least annually to
review the financial controls of the Company. The Audit Committee will meet
with the independent auditors of the Company at such times as it deems
appropriate to review the independent auditor's examination and management
report.
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.
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APPENDIX B
NUANCE COMMUNICATIONS, INC.
Annual Meeting of Stockholders--May 23, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned stockholder of Nuance Communications, Inc., a Delaware
Corporation (the "Company") acknowledges receipt of the Notice of Annual
Meeting of Stockholders and Proxy Statement, each dated April 22, 2002, and the
2001 Annual Report to Stockholders (which has been provided in the form of the
Company's Form 10-K for the fiscal year ended December 31, 2001), and appoints
Ronald Croen and William Dewes, or either of them, as the proxies and
attorneys-in-fact, with full power to each of substitution on behalf and in the
name of the undersigned to vote and otherwise represent all of the shares
registered in the name of the undersigned at the 2002 Annual Meeting of
Stockholders of the Company to be held on Thursday, May 23, 2002 at 8:30 a.m.
(local time) at the Westin Palo Alto Hotel, 675 El Camino Real, Palo Alto, CA
94301, and any adjournment thereof with the same effect as if the undersigned
were present and voting such shares, on the following matters and in the
following manner:
TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING,
PLEASE MARK, SIGN AND DATE THIS PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
VOTE BY INTERNET--www.proxyvote.com
Use the Internet to transmit your voting
instructions and for electronic delivery of
information up until 11:59 P.M. Eastern Time the
date before the cut-off date or meeting date.
Have your proxy card in hand when you access the
web site. You will be prompted to enter your
12-digit Control Number which is located below to
obtain your records and to create an electronic
voting instruction form.
VOTE BY PHONE--1-800-690-6903
Use any touch-tone telephone to transmit your
voting instructions up until 11:59 P.M. Eastern
Time the day before the cut-off date or meeting
date. Have your proxy card in hand when you call.
You will be prompted to enter your 12-digit
Control Number which is located below and than
follow the simple instructions the Vote Voice
provides you.
VOTE BY MAIL--Mark, sign, and date your proxy
card and return in the postage-paid envelope we
have provided or return it to Nuance
Communications, Inc., c/o ADP, 51 Mercedes Way,
Edgewood, NY 11717.
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TO VOTE, MARK VOTES IN BLUE OR BLACK INK AS FOLLOWS.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
NUANCE COMMUNICATIONS, INC.
The Directors recommend a vote "FOR" items 1 and 2.
Vote On Directors
1. The election of the following FOR ALL EXCEPT TO
persons as Class II directors of withhold authority to
the Company to serve for a term of vote, mark "FOR ALL
three years and until their EXCEPT" and write the
successors shall be duly elected nominee number on the
and qualified--Nominees:(01) Curtis line below.
Carlson, (02) Alan Herzig, and (03) WITHHOLD _____________________
Philip Quigley. FOR ALL ALL
[_] [_] [_]
2. To ratify the appointment of FOR ALL AGAINST ABSTAIN
Deloitte & Touche LLP as [_] [_] [_]
independent auditors for the
Company for the fiscal year ending
December 31, 2002.
The shares represented by this proxy, when properly executed, will be voted in
accordance with the specification made by the undersigned stockholder(s). If no
specification is made, the shares represented by this proxy will be voted for
each of the above persons and proposals, and for or against such other matters
as may properly come before the meeting as the proxyholders deem advisable.
Sign exactly as your name(s) appear on the stock certificate. A corporation is
requested to sign its name by its President or other authorized officer, with
the office held designated. Executors, administrators, trustees, etc., are
requested to so indicate when signing. If stock is registered in two names,
both should sign.
_________________________________________________ _______________________________________________
Signature (Please sign within box) Date Signature (Joint Owners) Date
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