-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BeQ3PW1kWaGa0ew+QjajnDlVwUZrVAyuyKbczqGnUOKvpWbUX164/dVl1N3M2/y+ ByWa8xQD2oXr6Vf1d5k/Fg== 0000899140-04-000529.txt : 20040419 0000899140-04-000529.hdr.sgml : 20040419 20040419170345 ACCESSION NUMBER: 0000899140-04-000529 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20040419 GROUP MEMBERS: WARBURG PINCUS & CO. GROUP MEMBERS: WARBURG PINCUS LLC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SCANSOFT INC CENTRAL INDEX KEY: 0001002517 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943156479 STATE OF INCORPORATION: DE FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-49737 FILM NUMBER: 04741090 BUSINESS ADDRESS: STREET 1: 9 CENTENNIAL DRIVE CITY: PEABODY STATE: MA ZIP: 01960 BUSINESS PHONE: 9789772000 MAIL ADDRESS: STREET 1: 2560 W BAYSHORE RD CITY: PALO ALTO STATE: CA ZIP: 94303 FORMER COMPANY: FORMER CONFORMED NAME: VISIONEER INC DATE OF NAME CHANGE: 19951020 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: WARBURG PINCUS PRIVATE EQUITY VIII L P CENTRAL INDEX KEY: 0001157334 IRS NUMBER: 134161869 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 466 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2128780600 MAIL ADDRESS: STREET 1: 466 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 SC 13D 1 w2521264.txt INITIAL FILING ON SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934* SCANSOFT, INC. - -------------------------------------------------------------------------------- (Name of Issuer) Common Stock, $0.001 Par Value - -------------------------------------------------------------------------------- (Title of Class of Securities) 80603P107 - -------------------------------------------------------------------------------- (CUSIP Number) Scott A. Arenare, Esq. Managing Director and General Counsel Warburg Pincus LLC 466 Lexington Avenue New York, New York 10017 (212) 878-0600 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) Copies to: Michael A. Schwartz, Esq. Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, NY 10019-6099 (212) 728-8000 April 8, 2004 - -------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of ss.ss. 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box: [ ] NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 240.13d-7 for other parties to whom copies are to be sent. * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D - ------------------- CUSIP NO. 80603P107 - ------------------- - -------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS I.R.S. IDENTIFICATION Warburg Pincus Private Equity VIII, L.P. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions) (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS (See Instructions) WC - -------------------------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 ----------------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 18,441,572 (see Items 4 and 5) OWNED BY EACH ----------------------------------------------------------------- REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 0 ----------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 18,441,572 (see Item 5) - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 18,441,572 (see Item 5) - -------------------------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (See Instructions) [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 16.6% (see Item 5) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON (See Instructions) PN - -------------------------------------------------------------------------------- SCHEDULE 13D - ------------------- CUSIP NO. 80603P107 - ------------------- - -------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (entities only) Warburg Pincus & Co. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions) (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS (See Instructions) N/A - -------------------------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION New York - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 ----------------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 18,441,572 (see Items 4 and 5) OWNED BY EACH ----------------------------------------------------------------- REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 0 ----------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 18,441,572 (see Item 5) - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 18,441,572 (see Item 5) - -------------------------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (See Instructions) [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 16.6% (see Item 5) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON (See Instructions) PN - -------------------------------------------------------------------------------- SCHEDULE 13D - ------------------- CUSIP NO. 80603P107 - ------------------- - -------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (entities only) Warburg Pincus LLC - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions) (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS (See Instructions) N/A - -------------------------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION New York - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER 0 ----------------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 18,441,572 (see Items 4 and 5) OWNED BY EACH ----------------------------------------------------------------- REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 0 ----------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 18,441,572 (see Item 5) - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 18,441,572 (see Item 5) - -------------------------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (See Instructions) [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 16.6% (see Item 5) - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON (See Instructions) OO - -------------------------------------------------------------------------------- This Schedule 13D is being filed on behalf of Warburg Pincus Private Equity VIII, L.P., a Delaware limited partnership ("WP VIII"), Warburg Pincus LLC, a New York limited liability company ("WP LLC"), and Warburg Pincus & Co., a New York general partnership ("WP" and, together with WP VIII and WP LLC, the "Reporting Persons"). The holdings of the Reporting Persons reported in this Schedule 13D include the holdings of Warburg Pincus Netherlands Private Equity VIII I C.V. ("WPNPE I"), Warburg Pincus Netherlands Private Equity VIII II C.V. ("WPNPE II") and Warburg Pincus Germany Private Equity VIII K.G. ("WPGPE" and, together with WP VIII, WPNPE I and WPNPE II, the "Investors"). WP, WP LLC and the Investors are referred to in this Schedule 13D as the "Group Members". The Group Members are making this single, joint filing because they may be deemed to constitute a "group" within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The agreement among the Group Members to file jointly (the "Joint Filing Agreement") is attached hereto as Exhibit 1. Unless the context otherwise requires, references herein to the "Common Stock" are to shares of common stock, par value $0.001 per share, of ScanSoft, Inc., a Delaware corporation formerly known as Visioneer, Inc. (the "Company"). Each Group Member disclaims beneficial ownership of all shares of Common Stock, other than those reported herein as being owned by it. Item 1. Security and Issuer. This statement on Schedule 13D relates to the Common Stock, and is being filed pursuant to Rule 13d-1 under the Exchange Act. The address of the principal executive offices of the Company is 9 Centennial Drive, Peabody, Massachusetts 01960. Item 2. Identity and Background. (a) This statement is filed by the Group Members. The Group Members may be deemed to be a group within the meaning of Rule 13d-5. The sole general partner of each Investor is WP. WP LLC manages each Investor. The general partners of WP and the members of WP LLC, and their respective business addresses and principal occupations, are set forth on Schedule I hereto. (b) The address of the principal business and principal office of each of the Group Members is c/o Warburg Pincus LLC, 466 Lexington Avenue, New York, New York 10017. (c) The principal business of each Investor is that of making private equity and related investments. The principal business of WP is acting as the general partner of each of the Investors and certain other private equity funds. The principal business of WP LLC is acting as manager of each of the Investors and certain other private equity funds. (d) None of the Group Members, nor, to the best of their knowledge, any of the directors, executive officers, control persons, general partners or members referred to in paragraph (a) above has, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) None of the Group Members, nor, to the best of their knowledge, any of the directors, executive officers, control persons, general partners or members referred to in paragraphs (a) and (d) above has, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and, as a result of such proceeding, was or is subject to a judgment, decree or final order enjoining future -2- violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. (f) Each of WPNPE I and WPNPE II is organized under the laws of the Netherlands. WPGPE is organized under the laws of Germany. Except as otherwise indicated above or on Schedule I hereto, each of the individuals referred to in paragraphs (a) and (d) above is a United States citizen. Item 3. Source and Amount of Funds or Other Consideration. The total amount of funds used by each Investor to purchase the securities of the Company as described herein was furnished from the working capital of such Investor. The total amount of funds used by the Investors to purchase the securities of the Company as described herein was $80,012,163.48. Item 4. Purpose of Transaction. Pursuant to a Securities Purchase Agreement, dated March 19, 2004 (the "Purchase Agreement"), by and among Xerox Imaging Systems, Inc. ("Xerox"), the Investors and, for the purposes of certain provisions thereof, the Company, the Investors agreed to acquire from Xerox 11,853,602 shares of Common Stock, 3,562,238 shares of Series B Preferred Stock, par value $0.001 per share (the "Series B Preferred Stock"), of the Company and a Common Stock Purchase Warrant, dated March 2, 1999 (the "Adjustable Warrant"), issued by the Company to Xerox. The aggregate purchase price for the Common Stock, the Series B Preferred Stock and the Adjustable Warrant was $79,387,163.48. The Investors currently hold all of the issued and outstanding shares of Series B Preferred Stock. Subject to certain conditions contained in the Amended and Restated Certificate of Incorporation of the Company (the "Charter"), the Series B Preferred Stock -3- is convertible by the Investors at any time into shares of Common Stock. The current conversion rate of the Series B Preferred Stock into Common Stock is one-for-one. However, such conversion rate is subject to adjustment pursuant to certain anti-dilution provisions set forth in the Charter. Under the Charter, the holders of Series B Preferred Stock are not be entitled to vote on any matters except as expressly provided in Section 242(b)(2) of the Delaware General Corporation Law. In such event, the holder of each share of Series B Preferred Stock will have the right to one vote for each share of Common Stock into which such Series B Preferred Stock could then be converted. In all cases any fractional share, determined on an aggregate as-converted basis, will be rounded to the nearest whole share (with one-half being rounded upward). The foregoing description of the Series B Preferred Stock is qualified in its entirety by reference to the applicable provisions of the Charter, as filed with the Securities and Exchange Commission (the "Commission") on May 11, 2001 as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2001, which applicable Charter provisions are incorporated by reference in this Schedule 13D. The Adjustable Warrant allows the Investors to acquire a number of shares of Common Stock equal to the number of shares of Common Stock for which certain options are, from time to time, no longer exercisable. For this purpose, these options are the stock options (whether vested or unvested) of ScanSoft, Inc. (as the merger counter-party of the Company) assumed by the Company pursuant to the merger of ScanSoft, Inc. with and into the Company (in which merger the Company was the surviving corporation and changed its name to ScanSoft, Inc.). According to the Company's Annual Report on -4- Form 10-K for the fiscal year ended December 31, 2003, filed with the Commission on March 15, 2004 (the "Form 10-K"), the Adjustable Warrant is currently exercisable for 525,732 shares of Common Stock at an exercise price of $0.61 per share. As described in the Form 10-K, if all of the stock options assumed by the Company in the merger were to expire without being exercised, the Investors would be entitled to purchase, in the aggregate, up to 1,736,630 shares of Common Stock under the Adjustable Warrant. The Adjustable Warrant expires, and will no longer be exercisable, on March 2, 2009. The foregoing description of the Adjustable Warrant is qualified in its entirety by reference to the form of the Adjustable Warrant attached as Exhibit C to Annex A to the Company's Registration Statement on Form S-4, filed with the Commission on January 14, 1999 (the "Form S-4"), which form of the Adjustable Warrant is incorporated in this Schedule 13D. Pursuant to a series of four Warrants to Purchase Common Stock, each dated as of March 15, 2004 (the "March 15 Warrants"), numbers W-16, W-17, W-18 and W-19, issued by the Company to the Investors, the Investors may purchase, in the aggregate, up to 2,500,000 shares of Common Stock at an exercise price of $4.94 per share. The aggregate purchase price for the March 15 Warrants was $625,000. Each of the March 15 Warrants expires upon the earlier to occur of April 8, 2010 or a "Change of Control" of the Company (as defined in the March 15 Warrants). Pursuant to a Stockholders Agreement, dated as of March 19, 2004 (the "Stockholders Agreement"), by and between the Company and the Investors, among other things, the holders of a majority in interest of the Common Stock held by the Investors are entitled to designate one director (the "Warburg Pincus Designee") to the Company's Board of Directors (subject to certain conditions). Under the Stockholders -5- Agreement, any time that a Warburg Pincus Designee is entitled to serve as a director of the Company, the Company is obligated to take such actions as may be necessary to cause such Warburg Pincus Designee to be appointed or elected to its Board of Directors. Neither the Series B Preferred Stock, the Adjustable Warrant, the March 15 Warrants nor the shares of Common Stock issuable upon the conversion or exercise (as applicable) thereof are registered under the Securities Act of 1933, as amended (the "Securities Act"). Accordingly, under the Stockholders Agreement, subject to certain conditions, the Investors have the right to cause the Company to effect a registration under the Securities Act with respect to any such shares of Common Stock, as well as certain other shares of Common Stock that they may then hold. The foregoing descriptions of the Purchase Agreement, the March 15 Warrants and the Stockholders Agreement are qualified in their entirety by reference to the Purchase Agreement, the March 15 Warrants and the Stockholders Agreement, which are incorporated in this Schedule 13D by reference to Exhibits 2, 3, and 4, respectively, to this Schedule 13D. The acquisition by the Investors of beneficial ownership of the securities as described herein was effected because of the Reporting Persons' belief that the Company represents an attractive investment based on the Company's business prospects and strategy. Depending on prevailing market, economic and other conditions, the Reporting Persons may from time to time acquire additional securities of the Company, engage in discussions with the Company concerning further acquisitions of securities of the Company or otherwise invest in the Company or one or more of its subsidiaries. The Reporting Persons intend to review their investment in the Company on a continuing -6- basis and, depending upon the price and availability of the Company's securities, subsequent developments concerning the Company, the Company's business and prospects, other investment and business opportunities available to the Reporting Persons, general stock market and economic conditions, tax considerations and other factors considered relevant, may decide at any time to increase or decrease the size of their investment in the Company or to sell any or all of the securities of the Company that they hold. Except as set forth above in this Item 4, none of the Reporting Persons nor, to the best of their knowledge, any person listed in Schedule I to this Schedule 13D, has any plans or proposals which relate to or would result in: (a) the acquisition by any person of additional securities of the Company, or the disposition of securities of the Company; (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries; (c) a sale or transfer of a material amount of assets of the Company or any of its subsidiaries; (d) any change in the present Board of Directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the Board of Directors; (e) any material change in the present capitalization or dividend policy of the Company; (f) any other material change in the Company's business or corporate structure; (g) changes in the Company's Charter, By-laws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Company by any person; (h) causing a class of securities of the Company to be de-listed from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (i) a class of equity -7- securities of the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or (j) any action similar to any of those enumerated above. Item 5. Interest in Securities of the Issuer. (a) Due to their respective relationships with the Investors and each other, as of April 8, 2004, each of the Reporting Persons may be deemed to beneficially own, in the aggregate, 11,853,602 shares of Common Stock by virtue of the Investors' ownership of such shares as of such date. As of April 8, 2004, the Reporting Persons may also be deemed to own additional shares of Common Stock by virtue of the Investors' ownership of the Series B Preferred Stock, the Adjustable Warrant and the March 15 Warrants (collectively, the "Convertible Securities"). Assuming the full exercise and conversion of the Convertible Securities (accounting only for the 525,732 shares of Common Stock that are presently exercisable under the Adjustable Warrant, according to the Form 10-K), the Reporting Persons are deemed to beneficially own 18,441,572 shares of Common Stock, representing approximately 16.6% of the outstanding class of Common Stock, based on a total of 111,021,112 shares of Common Stock outstanding, which is comprised of: (i) 104,433,142 shares of Common Stock outstanding as of March 1, 2004, as represented by the Company in the Form 10-K, (ii) the 3,562,238 shares of Common Stock issuable upon the conversion of the 3,562,238 shares of Series B Preferred Stock acquired by the Investors, as reported herein, (iii) the 525,732 shares of Common Stock presently issuable upon the exercise of the Adjustable Warrant, as reported herein, and (iv) the 2,500,000 shares of Common Stock issuable upon the exercise of the March 15 Warrants, as reported herein. -8- (b) Each of the Investors shares the power to vote or to direct the vote and to dispose or to direct the disposition of the 18,441,572 shares of Common Stock it may be deemed to beneficially own as of April 8, 2004. Each of WP and WP LLC shares with the Investors the power to vote or to direct the vote and to dispose or to direct the disposition of the 18,441,572 shares of Common Stock it may be deemed to beneficially own as of April 8, 2004. (c) Except for the transactions described in Items 3 and 4 above and this Item 5, other than the grant on April 8, 2004 by the Company to William Janeway, a partner of WP and a Vice Chairman of WP LLC, of options to purchase up to 50,000 shares of Common Stock in connection with his appointment to the Company's Board of Directors (as the initial Warburg Pincus Designee), during the last sixty days there were no transactions with respect to the Common Stock effected by the Reporting Persons or by any of the persons set forth on Schedule I to this Schedule 13D. (d) Except as set forth in this Item 5, no person other than each respective record owner of securities referred to herein is known to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the securities discussed herein. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to the Securities of the Issuer. Pursuant to Rule 13d-1(k) promulgated under the Exchange Act, the Group Members have entered into an agreement, attached hereto as Exhibit 1, with respect to the joint filing of this statement and any amendment or amendments hereto. -9- Pursuant to the Purchase Agreement, the Investors agreed to acquire from Xerox 11,853,602 shares of Common Stock, 3,562,238 shares of Series B Preferred Stock and the Adjustable Warrant for an aggregate purchase price of $79,387,163.48. The Company made certain representations and warranties and has agreed to perform certain covenants under the Purchase Agreement. The foregoing summary is qualified in its entirety by reference to the Purchase Agreement, a copy of which is filed as Exhibit 2 to this Schedule 13D and incorporated in this Schedule 13D by reference. Under the Adjustable Warrant, the Investors are allowed to acquire a number of shares of Common Stock equal to the number of shares of Common Stock for which certain options are, from time to time, no longer exercisable. For this purpose, these options are the stock options (whether vested or unvested) assumed by the Company pursuant to the merger (as described above). According to the Form 10-K the Adjustable Warrant is currently exercisable for 525,732 shares of Common Stock at an exercise price of $0.61 per share, and if all of the assumed stock options were to expire without being exercised, the Investors would be entitled to purchase, in the aggregate, up to 1,736,630 shares of Common Stock under the Adjustable Warrant. The Adjustable Warrant expires, and will no longer be exercisable, on March 2, 2009. The foregoing description of the Adjustable Warrant is qualified in its entirety by reference to the form of the Adjustable Warrant attached as Exhibit C to Annex A to the Form S-4, which form of the Adjustable Warrant is incorporated in this Schedule 13D by reference. Under the March 15 Warrants, the Investors may purchase, in the aggregate, up to 2,500,000 shares of Common Stock at an exercise price of $4.94 per share. The aggregate purchase price for the March 15 Warrants was $625,000. Each of the March -10- 15 Warrants expires upon the earlier to occur of April 8, 2010 or a "Change of Control" of the Company (as defined in the March 15 Warrants). The foregoing summary is qualified in its entirety by reference to the March 15 Warrants, copies of which are filed as Exhibit 3 to this Schedule 13D and incorporated in this Schedule 13D by reference. Pursuant to the Stockholders Agreement, among other things, the holders of a majority in interest of the Common Stock held by the Investors are entitled to nominate the Warburg Pincus Designee to the Company's Board of Directors (subject to certain conditions). In addition, any time that a Warburg Pincus Designee is entitled to serve as a director of the Company, the Company is obligated to take such actions as may be necessary to cause such Warburg Pincus Designee to be appointed or elected to its Board of Directors. The Stockholders Agreement also grants the Investors the right (subject to certain conditions) to cause the Company to effect a registration under the Securities Act with respect to any shares of Common Stock issuable upon the exercise or conversion of the Convertible Securities, as well as certain other shares of Common Stock that they may then hold. The foregoing summary is qualified in its entirety by reference to the Stockholders Agreement, a copy of which is filed as Exhibit 4 to this Schedule 13D and incorporated in this Schedule 13D by reference. The assignment of the Adjustable Warrant by Xerox to the Investors is evidenced by a Warrant Assignment Agreement, dated as of April 8, 2004 (the "Warrant Assignment Agreement"), by and among Xerox, the Investors and, for the purposes of certain provisions thereof, the Company. In addition to acknowledging and agreeing to the effectiveness of such assignment of the Adjustable Warrant to the Investors, the Company agreed to perform certain covenants under the Warrant Assignment Agreement. The foregoing summary is qualified in its entirety by reference to the Warrant Assignment -11- Agreement, a copy of which is filed as Exhibit 5 to this Schedule 13D and incorporated in this Schedule 13D by reference. Item 7. Material to be Filed as Exhibits 1. Joint Filing Agreement 2. Purchase Agreement 3. March 15 Warrants 4. Stockholders Agreement 5. Warrant Assignment Agreement -12- SIGNATURES After reasonable inquiry and to the best of our knowledge and belief, the undersigned certify that the information set forth in this statement is true, complete and correct. Dated: April 19, 2004 WARBURG PINCUS PRIVATE EQUITY VIII, L.P. By: Warburg Pincus & Co., General Partner By: /s/ Scott A. Arenare ------------------------------ Name: Scott A. Arenare Title: Partner Dated: April 19, 2004 WARBURG PINCUS & CO. By: /s/ Scott A. Arenare ------------------------------ Name: Scott A. Arenare Title: Partner Dated: April 19, 2004 WARBURG PINCUS LLC By: /s/ Scott A. Arenare ------------------------------ Name: Scott A. Arenare Title: Partner SCHEDULE I ---------- Set forth below is the name, position and present principal occupation of each of the general partners of Warburg Pincus & Co. ("WP") and members of Warburg Pincus LLC ("WP LLC"). The sole general partner of Warburg Pincus Private Equity VIII, L.P. ("WP VIII") is WP. WP VIII, WP and WP LLC are hereinafter collectively referred to as the "Reporting Persons". Except as otherwise indicated, the business address of each of such persons is c/o Warburg Pincus LLC, 466 Lexington Avenue, New York, New York 10017, and each of such persons is a citizen of the United States. GENERAL PARTNERS OF WP ---------------------- - -------------------------------------------------------------------------------- PRESENT PRINCIPAL OCCUPATION IN ADDITION TO POSITION WITH WP, AND POSITIONS NAME WITH THE REPORTING PERSONS - -------------------------------------------------------------------------------- Joel Ackerman Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Scott A. Arenare Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Gregory Back Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- David Barr Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Larry Bettino Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Harold Brown Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Sean D. Carney Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Mark Colodny Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Timothy J. Curt Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- W. Bowman Cutter Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Cary J. Davis Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Oliver M. Goldstein Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Patrick T. Hackett Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Jeffrey A. Harris Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Stewart J. Hen Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- William H. Janeway Partner of WP; Member and Vice Chairman of WP LLC - -------------------------------------------------------------------------------- Julie A. Johnson Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Peter R. Kagan Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Charles R. Kaye Managing General Partner of WP; Managing Member and Co-President of WP LLC - -------------------------------------------------------------------------------- Henry Kressel Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Joseph P. Landy Managing General Partner of WP; Managing Member and Co-President of WP LLC - -------------------------------------------------------------------------------- Sidney Lapidus Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Kewsong Lee Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Jonathan S. Leff Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Reuben S. Leibowitz Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Nancy Martin Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Rodman W. Moorhead III Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- James Neary Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Howard H. Newman Partner of WP; Member and Vice Chairman of WP LLC - -------------------------------------------------------------------------------- Dalip Pathak Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Lionel I. Pincus Partner of WP; Member and Chairman of WP LLC - -------------------------------------------------------------------------------- Stan Raatz Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- John D. Santoleri Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Steven G. Schneider Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Mimi Strouse Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Barry Taylor Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- John L. Vogelstein Partner of WP; Member and Vice Chairman of WP LLC - -------------------------------------------------------------------------------- John R. Vrolyk Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Elizabeth H. Weatherman Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- David J. Wenstrup Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Rosanne Zimmerman Partner of WP; Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Pincus & Company LLC* - -------------------------------------------------------------------------------- NL & Co.** - -------------------------------------------------------------------------------- _____________________ * New York limited liability company; primary activity is ownership interest in WP and WP LLC. ** New York limited partnership; primary activity is ownership interest in WP. MEMBERS OF WP LLC ----------------- - -------------------------------------------------------------------------------- PRESENT PRINCIPAL OCCUPATION IN ADDITION TO POSITION WITH WP LLC, AND POSITIONS NAME WITH THE REPORTING PERSONS - -------------------------------------------------------------------------------- Joel Ackerman Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Scott A. Arenare Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Gregory Back Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- David Barr Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Larry Bettino Member and Managing Director of WP LLC, Partner of WP - -------------------------------------------------------------------------------- Harold Brown Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Sean D. Carney Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Stephen John Coates (1) Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Mark Colodny Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Timothy J. Curt Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- W. Bowman Cutter Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Cary J. Davis Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Tetsuya Fukagawa (2) Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Oliver M. Goldstein Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Patrick T. Hackett Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Jeffrey A. Harris Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Stewart J. Hen Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Sung-Jin Hwang (3) Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- William H. Janeway Member and Vice Chairman of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Julie A. Johnson Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Peter R. Kagan Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Charles R. Kaye Managing Member and Co-President of WP LLC; Managing General Partner of WP - -------------------------------------------------------------------------------- Rajesh Khanna (4) Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Henry Kressel Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Rajiv B. Lall (4) Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Joseph P. Landy Managing Member and Co-President of WP LLC; Managing General Partner of WP - -------------------------------------------------------------------------------- Sidney Lapidus Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Kewsong Lee Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Jonathan S. Leff Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Reuben S. Leibowitz Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- David Li (5) Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Nicholas J. Lowcock (1) Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- John W. MacIntosh (6) Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Nancy Martin Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Rodman W. Moorhead III Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- James Neary Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Howard H. Newman Member and Vice Chairman of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Bilge Ogut (7) Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Dalip Pathak Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Lionel I. Pincus Member and Chairman of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Pulak Chandan Prasad (4) Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Stan Raatz Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- John D. Santoleri Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Steven G. Schneider Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Joseph C. Schull (6) Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Mimi Strouse Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Chang Q. Sun (5) Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Barry Taylor Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- John L. Vogelstein Member and Vice Chairman of WP LLC; Partner of WP - -------------------------------------------------------------------------------- John R. Vrolyk Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Elizabeth H. Weatherman Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- David J. Wenstrup Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Jeremy S. Young (1) Member and Managing Director of WP LLC - -------------------------------------------------------------------------------- Rosanne Zimmerman Member and Managing Director of WP LLC; Partner of WP - -------------------------------------------------------------------------------- Pincus & Company LLC* - -------------------------------------------------------------------------------- (1) Citizen of United Kingdom (2) Citizen of Japan (3) Citizen of Korea (4) Citizen of India (5) Citizen of Hong Kong (6) Citizen of Canada (7) Citizen of Turkey * New York limited liability company; primary activity is ownership interest in WP and WP LLC. Exhibit Index Exhibit 1. Joint Filing Agreement Exhibit 2. Purchase Agreement Exhibit 3. March 15 Warrants Exhibit 4. Stockholders Agreement Exhibit 5. Warrant Assignment Agreement EX-1 3 wa2528661.txt JOINT FILING AGREEMENT Joint Filing Agreement The undersigned hereby agree that the statement on Schedule 13D filed by the undersigned with respect to the Common Stock of ScanSoft, Inc. is, and any amendment thereto signed by each of the undersigned shall be, filed on behalf of each undersigned pursuant to and in accordance with the provisions of Rule 13d-1(k) under the Securities Exchange Act of 1934, as amended. Dated: April 19, 2004 WARBURG PINCUS PRIVATE EQUITY VIII, L.P. By: Warburg Pincus & Co., General Partner By: /s/ Scott A. Arenare -------------------- Name: Scott A. Arenare Title: Partner Dated: April 19, 2004 WARBURG PINCUS & CO. By: /s/ Scott A. Arenare -------------------- Name: Scott A. Arenare Title: Partner Dated: April 19, 2004 WARBURG PINCUS LLC By: /s/ Scott A. Arenare -------------------- Name: Scott A. Arenare Title: Partner EX-2 4 wa2528582.txt PURCHASE AGREEMENT EXECUTION VERSION SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT, dated March 19, 2004 (this "Agreement"), by and among Xerox Imaging Systems, Inc., a Delaware corporation (the "Seller"), 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"), and, solely for purposes of Sections 5 and 6 of this Agreement, ScanSoft, Inc., a Delaware corporation (the "Company"). WHEREAS, the Seller owns of record and beneficially 11,853,602 shares (the "Common Shares") of the common stock, par value $.001 per share (the "Common Stock"), of the Company; 3,562,238 shares (the "Preferred Shares") of the Series B Preferred Stock, par value $.001 per share (the "Preferred Stock"), of the Company; and a Common Stock Purchase Warrant (the "Warrant") issued by the Company under its former name, Visioneer, Inc., on March 2, 1999; and WHEREAS, the Seller desires to sell, transfer, assign and convey to the Purchasers, and the Purchasers desire to purchase from the Seller, upon the terms and subject to the conditions set forth herein, the Common Shares, the Preferred Shares and the Warrant, together with such additional securities, property or payments which accrue, are paid or payable on, or received or receivable with respect to the Common Shares, the Preferred Shares and the Warrant from and including the date hereof until the Closing Date (collectively, the "Securities"); NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the parties hereto hereby agree as follows: 1. PURCHASE AND SALE OF SECURITIES Upon the terms and subject to the conditions set forth herein, on the Closing Date (as defined in Section 2(a) below), the Seller shall sell, transfer, assign and convey the Securities to the Purchasers, and the Purchasers shall purchase the Securities from the Seller, in the amounts set forth on Schedule I hereto, for an aggregate cash purchase price of $79,387,163.48 (the "Purchase Price"). The obligations of the Purchasers hereunder shall be joint and several. 2. CLOSING; CONDITIONS (a) Closing. Subject to Section 8(a), the closing of the purchase and sale of the Securities (the "Closing") shall take place at the offices of Willkie Farr & Gallagher LLP, 787 Seventh Avenue, New York, New York 10019, as soon as practicable after the conditions described in Section 2(c) and (d) are satisfied (or waived by the parties entitled to waive them), or at such other time or place as may be mutually agreed to by the parties hereto. The actual date on which the Closing shall occur is herein referred to as the "Closing Date." (b) At the Closing, such sale and purchase shall be effected by the Seller's delivering to the Purchasers the original Warrant and duly executed certificates or other instruments evidencing the other Securities to be purchased, in each case with appropriate instruments of transfer attached (duly endorsed or otherwise in form sufficient for transfer), against delivery by the Purchasers to the Seller of the Purchase Price. All such certificates and other instruments shall be satisfactory to counsel to the Purchaser. Subject to Section 9(e), the Purchase Price shall be paid by wire transfer of immediately available funds to such account or accounts as the Seller shall designate in writing no later than the close of business on the second business day immediately preceding the Closing Date. (c) Conditions to the Purchasers' Obligations. The obligations of the Purchasers to purchase the Securities and to pay the Purchase Price are subject to the satisfaction prior to or at the Closing (or the waiver of same by the Purchasers) of each of the following conditions precedent: (i) Each of the representations and warranties made by the Seller in Section 3 shall have been true and correct in all material respects when made and at the Closing Date as though each such representation and warranty were made on and as of the Closing Date immediately prior to the Closing. (ii) The Seller shall have performed and complied in all material respects with all agreements, obligations and conditions required by this Agreement to be performed or complied with by it at or prior to the Closing. (iii) The Seller shall have delivered to the Purchasers a certificate dated the Closing Date and signed by one of its duly authorized officers confirming the matters referred to in subsections (i) and (ii) of this Section 2(c). (iv) In addition to the deliveries required by Section 2(b) above, the Seller shall have delivered to the Purchasers an instrument of assignment of the Warrant, which instrument shall be reasonably satisfactory to counsel to the Purchasers and which shall contain the Company's affirmation of its acknowledgment and agreement (as set forth in Section 6(a)(ix)) to (A) the assignment of the Warrant and (B) treat the Purchasers as the holders of the Warrant so as to purchase such number of shares of Common Stock underlying the Warrant (as equitably adjusted from time to time in the event of any stock dividend, stock split, recapitalization, reclassification, recombination or the like) set forth opposite their respective names on Schedule I hereto for all purposes thereunder (notwithstanding any provision in the Warrant, including but not limited to Sections 5 and 9.2 thereof, to the contrary). (v) No temporary restraining order, preliminary or permanent injunction or other order issued by a court of competent jurisdiction or other legal restraint or legal prohibition preventing the consummation of the Closing shall be in effect. (vi) The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") applicable to the transactions contemplated hereby shall have expired or been terminated. (d) Conditions to the Seller's Obligations. The obligations of the Seller to sell, transfer, assign and convey the Securities to the Purchasers are subject to the satisfaction prior to or at the Closing (or the waiver of same by the Seller) of each of the following conditions precedent: -2- (i) Each of the representations and warranties made by the Purchasers in Section 4 shall have been true and correct in all material respects when made and at the Closing Date as though each such representation and warranty were made on and as of the Closing Date immediately prior to the Closing. (ii) The Purchasers shall have performed and complied in all material respects with all agreements, obligations and conditions required by this Agreement to be performed or complied with by them at or prior to the Closing. (iii) The Purchasers shall have delivered to the Seller a certificate dated the Closing Date and signed by their duly authorized officers confirming the matters referred to in subsections (i) and (ii) of this Section 2(d). (iv) No temporary restraining order, preliminary or permanent injunction or other order issued by a court of competent jurisdiction or other legal restraint or legal prohibition preventing the consummation of the Closing shall be in effect. (v) The waiting period under the HSR Act applicable to the transactions contemplated hereby shall have expired or been terminated. 3. REPRESENTATIONS AND WARRANTIES AND COVENANTS OF THE SELLER The Seller represents and warrants to, and covenants with, the Purchasers and, with respect to Section 3(f), the Company that: (a) The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) The Seller has full legal right, power and authority to execute, deliver, and perform its obligations under this Agreement in accordance with their terms, and the execution, delivery and performance of this Agreement by the Seller and the consummation by the Seller of the transactions contemplated hereby have been duly authorized by all necessary action on behalf of the Seller. This Agreement has been duly executed and delivered by the Seller and constitutes a legally valid and binding agreement of the Seller, enforceable against the Seller in accordance with its terms. (c) The Seller has good and marketable title to the Securities, and the Securities are owned by the Seller free and clear of any security interest, lien, claim or other encumbrance or any restriction on transfer or voting (collectively, "Encumbrances"). Upon delivery of the Securities to the Purchasers at the Closing, against payment therefor as contemplated hereby, the Seller will deliver the Securities to the Purchasers free and clear of any Encumbrance. (d) No consent, approval, authorization or order or permit of any court, governmental agency or body or arbitrator having jurisdiction over the Seller is required for the execution, delivery or performance by the Seller of its obligations hereunder including, without limitation, the sale, transfer, assignment and conveyance of the Securities. -3- (e) Neither execution and delivery of this Agreement nor the sale of the Securities nor the performance of the Seller's other obligations hereunder will violate, conflict with, result in a breach of, or constitute a default (or an event that, with the giving of notice or the lapse of time, or both, would constitute a default) under (i) the certificate of incorporation, bylaws or other organizational documents of the Seller, or (ii) any decree, judgment, order, law, rule, regulation or determination of any court, governmental agency or body or arbitrator having jurisdiction over the Seller or any of its assets or properties. (f) The Seller acknowledges that the Purchasers may be in possession of material non-public information not known to it (the "Excluded Information") and further acknowledges that the Purchasers and the Company (under appropriate nondisclosure agreement) have offered to share with the Seller any Excluded Information that may exist. The Seller agrees that neither the Purchasers nor the Company shall have any liability with respect to any such non-disclosure. The Seller hereby waives any and all claims and causes of action now or hereafter arising against the Purchasers and/or the Company based upon or relating to such non-disclosure and further covenants not to sue either the Purchasers or the Company or any of their respective partners, directors, officers, employees, agents or affiliates for any loss, damage or liability arising from or relating to such non-disclosure. It is understood and agreed that the Purchasers make no representation or warranty whatsoever with respect to the business, condition (financial or otherwise), properties, prospects, creditworthiness, status or affairs of the Company, or with respect to the value of the Securities. (g) There is no investment banker, broker, finder or other intermediary who might be entitled to any fee or commission upon consummation of the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Seller. 4. REPRESENTATIONS AND WARRANTIES AND COVENANTS OF THE PURCHASERS The Purchasers represent and warrant to, and covenant with, the Seller and, with respect to Section 4(e), the Company that: (a) Each of the Purchasers is duly formed, validly existing and in good standing under the laws of its jurisdiction of organization. (b) Each of the Purchasers has full legal right, power and authority to execute, deliver, and perform its obligations under this Agreement in accordance with their terms, and the execution, delivery and performance of this Agreement by the Purchasers and the consummation by the Purchasers of the transactions contemplated hereby have been duly authorized by all necessary action on behalf of the Purchasers. This Agreement has been duly executed and delivered by the Purchasers and constitutes a legally valid and binding agreement of the Purchasers, enforceable against the Purchasers in accordance with its terms. (c) No consent, approval, authorization or order or permit of any court, governmental agency or body or arbitrator having jurisdiction over the Purchasers is required for the execution, delivery or performance by the Purchasers of their obligations hereunder, including without limitation the purchase of the Securities. -4- (d) Neither execution and delivery of this Agreement nor the acquisition of the Securities or the performance of the Purchasers' other obligations hereunder will violate, conflict with, result in a breach of, or constitute a default (or an event that, with the giving of notice or the lapse of time, or both, would constitute a default) under (i) the organizational documents of the Purchasers, or (ii) any decree, judgment, order, law, rule, regulation or determination of any court, governmental agency or body or arbitrator having jurisdiction over the Purchasers or any of their assets or properties. (e) The Purchasers acknowledge that the Seller has not provided Purchasers with any information regarding the Company. The Purchasers agree that neither the Seller nor the Company shall have any liability with respect to any such non-disclosure. The Purchasers hereby waive any and all claims and causes of action now or hereafter arising against the Seller and/or the Company based upon or relating to such non-disclosure and further covenants not to sue either the Company or the Seller or any of their respective partners, directors, officers, employees, agents or affiliates for any loss, damage or liability arising from or relating to such non-disclosure. It is understood and agreed that the Seller makes no representation or warranty whatsoever with respect to the business, condition (financial or otherwise), properties, prospects, creditworthiness, status or affairs of the Company, or with respect to the value of the Securities. (f) To the best of the Purchasers' knowledge, none of the Purchasers or any of their affiliates owns a material amount of the voting securities of any business entity that sells products that compete with the Company's products. (g) There is no investment banker, broker, finder or other intermediary who might be entitled to any fee or commission upon consummation of the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Purchasers. 5. ADDITIONAL COVENANTS OF THE PARTIES (a) Further Assurances. From and after the date hereof, the each party hereto (including the Company) shall execute all certificates, instruments, documents or agreements and shall take any other action which it is reasonably requested to execute or take by any other party hereto to further effectuate the respective rights and obligations of the parties hereto under, and as contemplated by, this Agreement. (b) Commercially Reasonable Efforts. Each of the parties hereto (including the Company) will use commercially reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable consistent with applicable law to consummate and make effective in the most expeditious manner practicable the transactions contemplated hereby, including without limitation, making all required regulatory filings as promptly as practicable after the date hereof. Without limiting the generality of the foregoing, Purchasers and the Company will each, as promptly as practicable following the execution and delivery of this Agreement, file with the United States Federal Trade Commission (the "FTC") and the United States Department of Justice (the "DOJ") the notification and report form required pursuant to the HSR Act for the transactions contemplated hereby, and will provide promptly upon request of the FTC or the DOJ or any other Governmental Authority any supplemental information requested in connection therewith. Purchasers and the Company will -5- use commercially reasonable efforts to obtain early termination of the waiting period under the HSR Act. Purchasers and the Company shall furnish to the each other such necessary information and reasonable assistance as the the other may request in connection with its preparation of any filing or submission which is necessary under the HSR Act or other applicable Law. Purchasers shall keep Seller apprised of the status of any communications with, and inquiries or requests for additional information from, the FTC and the DOJ or any other Governmental Authority and shall comply promptly with any such inquiry or request. In connection with the foregoing, Purchasers and the Company shall use their respective reasonable commercial efforts to resolve objections, if any, as may be asserted with respect to the transactions contemplated hereby under any antitrust or trade or regulatory Laws of any Governmental Authority. In complying with the foregoing, Purchasers and the Company shall use all reasonable commercial measures available to consummate the transactions contemplated hereby. Notwithstanding the foregoing or any other covenant or agreement herein contained, in connection with the receipt of any necessary approvals under the HSR Act or otherwise in respect of the transactions contemplated hereby, neither any party hereto nor any of its respective affiliates shall be required to: (i) divest or hold separate or otherwise take or commit to take any action that limits such party's or affiliate's freedom of action with respect to, or its ability to retain, administer or operate, any of its assets, properties or business; or (ii) commence any litigation against any person or entity in order to facilitate the consummation of any of the transactions contemplated hereby. 6. COMPANY MATTERS (a) The Company hereby represents and warrants to, and covenants with, the Purchasers and the Seller that: (i) the Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (ii) the Company has full legal right, power and authority to execute, deliver, and perform its obligations under this Agreement in accordance with their terms, and the execution, delivery and performance of its obligations under this Agreement by the Company have been duly authorized by all necessary action on behalf of the Company; (iii) this Agreement has been duly executed and delivered by the Company and constitutes a legally valid and binding agreement of the Company, enforceable against the Company in accordance with its terms; (iv) no consent, approval, authorization or order or permit of any court, governmental agency or body or arbitrator having jurisdiction over the Company is required for the execution, delivery or performance by the Company of its obligations hereunder, except for any such consents, approvals, authorizations, orders or permits which the failure to obtain would not have or is not reasonably likely to have a material adverse effect on the Company; (v) neither the execution and delivery of this Agreement by the Company nor the performance of the Company's obligations hereunder will violate, conflict with, result -6- in a breach of, or constitute a default (or an event that, with the giving of notice or the lapse of time, or both, would constitute a default) under (A) the certificate of incorporation, bylaws or other organizational documents of the Company, or (B) any decree, judgment, order, law, rule, regulation or determination of any court, governmental agency or body or arbitrator having jurisdiction over the Company or any of its assets or properties, except for such violations, conflicts, breaches or defaults that would not have or are not reasonably likely to have a material adverse effect on the Company; (vi) as of the date hereof, the Warrant is exercisable for 525,732 shares of Common Stock (the "Warrant Shares"); (vii) the per share exercise price for each of the Warrant Shares is $0.61, for an aggregate exercise price for the Warrant Shares of $320,696.48; (viii) the Board of Directors of the Company has heretofore taken all necessary action to approve, and has approved, for purposes of Section 203 of the Delaware General Corporation Law (including any successor statute thereto "Section 203") the Purchasers' becoming, together with their affiliates and associates, an "interested stockholder" within the meaning of Section 203 by virtue of the execution, delivery and performance of this Agreement, such that, as of the date hereof and from and after the Closing, Section 203 will not be applicable to any "business combination" within the meaning of Section 203 that may take place between one or more of the Purchasers and/or their respective affiliates and associates, on the one hand, and the Company, on the other, as a result of the transactions contemplated by this Agreement or otherwise; (ix) the Company hereby acknowledges and agrees to the assignment of the Warrant to the Purchasers as contemplated by this Agreement and, upon the effectuation of such assignment, the Company shall treat the Purchasers as the holders of the Warrant so as to purchase such number of shares of Common Stock underlying the Warrant (as equitably adjusted from time to time in the event of any stock dividend, stock split, recapitalization, reclassification, recombination or the like) set forth opposite their respective names on Schedule I hereto for all purposes thereunder (notwithstanding any provision in the Warrant, including but not limited to Sections 5 and 9.2 thereof, to the contrary); (x) the Company hereby acknowledges and agrees that this Agreement is the Securities Purchase Agreement by and among the Company, Seller and the Purchasers described in Section 1 of each of the warrants (the "Purchaser Warrants"), numbers W-16, W-17, W-18 and W-19, each dated as of March 15, 2004, issued by the Company to the Purchasers; (xi) as of the time that the Purchaser Warrants were issued to the Purchasers, (A) the Company had full legal right, power and authority to execute, deliver and perform its obligations under the Purchaser Warrants in accordance with their respective terms, (B) the execution, delivery and performance of its obligations under the Purchaser Warrants by the Company were duly authorized by all necessary action on behalf of the -7- Company and (C) no consent, approval, authorization or order or permit of any court, governmental agency or body or arbitrator having jurisdiction over the Company was required for the execution, delivery or performance by the Company of its obligations under the Purchaser Warrants; (xii) the Purchaser Warrants have been duly executed and delivered by the Company and constitute legally valid and binding agreements of the Company, enforceable against the Company in accordance with their respective terms; and (xiii) neither the execution and delivery of the Purchaser Warrants by the Company nor the performance of the Company's obligations thereunder violate or will violate, conflict or will conflict with, resulted or will result in a breach of, or constituted or will constitute a default (or an event that, with the giving of notice or the lapse of time, or both, constituted or would constitute a default) under (1) the certificate of incorporation, bylaws or other organizational documents of the Company, or (2) any decree, judgment, order, law, rule, regulation or determination of any court, governmental agency or body or arbitrator having jurisdiction over the Company or any of its assets or properties. (b) The Company acknowledges the receipt of adequate consideration for the performance of its obligations under this Agreement. 7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES The respective agreements, representations, warranties, covenants and other statements made by or on behalf each party hereto pursuant to this Agreement shall remain in full force and effect, regardless of any investigation made by or on behalf of any party, and shall survive delivery of and payment for the Securities. 8. TERMINATION (a) This Agreement may be terminated at any time prior to the Closing: (i) by the Purchasers, by notice to the Seller, if the Seller has materially breached any of its agreements or obligations hereunder or if any of the representations and warranties of the Seller was not true and correct in all material respects when made; (ii) by the Seller, by notice to the Purchasers, if the Purchasers have materially breached any of their agreements or obligations hereunder or if any of the representations and warranties of the Purchasers was not true and correct in all material respects when made; (iii) by either the Seller or the Purchasers, if the FTC or the DOJ issues to any Purchaser a request for additional information or documentary material pursuant to Section 7A(e) of the Clayton Act (15 U.S.C. ss. 18a(e)); or (iv) by either the Seller or the Purchasers, by notice to the other, if the Closing shall not have occurred by April 30, 2004; -8- provided that no party who has materially breached any of its covenants, or any of whose representations and warranties was not true and correct when made, shall be permitted to terminate this Agreement pursuant to this Section 8(a). (b) In the event of the termination of this Agreement pursuant to Section 8(a) above, this Agreement shall thereafter cease to be of any force or effect; provided that such termination shall not relieve a party from liability for any breach of this Agreement. 9. GENERAL PROVISIONS (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State. (b) Jurisdiction; Service of Process; No Jury Trial. With respect to any claim arising out of this Agreement, the Seller and the Purchasers each irrevocably submit to the exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City and agree that any disputes that may arise out of this Agreement shall be litigated in such courts. The Seller and the Purchasers each irrevocably waive any objection which they may have at any time to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement brought in any such court, irrevocably waive any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum and further irrevocably waive the right to object, with respect to any such suit, action or proceeding brought in any such court, that such court does not have jurisdiction over such party. The Seller and the Purchasers agree that service of process upon them in any such suit, action or proceeding shall be deemed in every respect effective service of process upon them if given in the manner set forth in Section 8(d). The Seller and the Purchasers waive the right to a trial by jury in connection with any dispute arising out of this Agreement. (c) Interpretation. The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part thereof. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. (d) Notices. All communications under this Agreement shall be in writing and shall be delivered by hand or facsimile or mailed by overnight courier or by registered or certified mail, postage prepaid, as follows: -9- (i) if to the Purchasers: 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. Warburg Pincus Germany Private Equity VIII K.G. c/o Warburg Pincus LLC 466 Lexington Avenue New York, NY 10017 Attention: Jeffrey A. Harris Fax No. 212-878-6139 with a copy to: Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, NY 10019 Attention: Michael A. Schwartz, Esq. Fax No. 212-728-9267 (ii) if to the Seller: Xerox Imaging Services, Inc. c/o Xerox Corporation 800 Long Ridge Road Stamford, CT 06904 Attention: Chief Financial Officer Fax No. 203-968-3991 with a copy to: Xerox Corporation 800 Long Ridge Road Stamford, CT 06904 Attention: General Counsel Fax No. 203-968-3446 (iii) if to the Company: ScanSoft, Inc. 9 Centennial Drive Peabody, MA 01960 Attention: General Counsel Fax No. 203-968-3991 -10- with a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road, Palo Alto, CA 94304 Attention: Robert D. Sanchez, Esq. Fax No. 650-493-6811 Any party hereto may from time to time change its address or fax number for notices under this Section 8(d) by giving notice of such changed address to the other parties hereto. Any notice addressed in accordance with this Section 8(d) shall be deemed to be given: if delivered by hand or facsimile, on the date of such delivery; if mailed by courier, on the first business day following the date of such mailing; and if mailed by registered or certified mail, on the third business day after the date of such mailing. (e) Expenses and Taxes. All fees, costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such fees, costs or expenses, provided that the Seller shall reimburse the Purchasers for $22,500 of the total HSR Act filing fee, and the Purchasers shall be entitled to retain $22,500 of the Purchase Price in satisfaction of such reimbursement. The Purchasers will pay, and hold the Seller harmless from any and all liabilities (including interest and penalties) with respect to, or resulting from any delay or failure in paying, stamp and other taxes (other than income taxes), if any, which may be payable or determined to be payable on the execution and delivery of this Agreement. (f) Publicity. Between the date hereof and the Closing Date, the parties agree to consult with each other to coordinate the issuance of any press release or similar public announcement or communication relating to the execution or performance of this Agreement or to the transactions contemplated hereby. (g) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties. (h) Entire Agreement; Amendment. This Agreement constitutes the entire understanding of the parties hereto and supersedes all prior understandings among such parties, provided that nothing contained herein shall be deemed to alter or modify the rights and obligations of the Company and the Purchasers under the Purchaser Warrants. This Agreement may be amended with (and only with) the written consent of the Seller and the Purchasers. (i) Severability. If any term or provision of this Agreement or the application of any such term or provision to any person or circumstance shall be held invalid, illegal, void or unenforceable in any respect by a court of competent jurisdiction, the remaining terms and provisions of this Agreement shall remain in full force and effect, unless such invalidity, illegality, voidness or unenforceability would substantially impair the benefits of such remaining provisions of any party hereto. -11- (j) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement. [remainder of page intentionally left blank] -12- IN WITNESS WHEREOF, the parties hereto have caused this agreement to be duly executed as of the date first written above. SELLER ------ XEROX IMAGING SYSTEMS, INC. By: /s/ Lawrence Zimmerman -------------------------- Name: Lawrence Zimmerman Title: Vice President PURCHASERS ---------- WARBURG PINCUS PRIVATE EQUITY VIII, L.P. By: WARBURG PINCUS & CO., its General Partner By: /s/ Jeffrey A. Harris ------------------------- Name: Jeffrey A. Harris Title: Partner WARBURG PINCUS NETHERLANDS PRIVATE EQUITY VIII I C.V. By: WARBURG PINCUS & CO., its General Partner By: /s/ Jeffrey A. Harris ------------------------- Name: Jeffrey A. Harris Title: Partner WARBURG PINCUS NETHERLANDS PRIVATE EQUITY VIII II C.V. By: WARBURG PINCUS & CO., its General Partner By: /s/ Jeffrey A. Harris ------------------------- Name: Jeffrey A. Harris Title: Partner WARBURG PINCUS GERMANY PRIVATE EQUITY VIII, K.G. By: WARBURG PINCUS & CO., its General Partner By: /s/ Jeffrey A. Harris ------------------------- Name: Jeffrey A. Harris Title: Partner COMPANY ------- SCANSOFT, INC. By: /s/ Paul Ricci ------------------------------- Name: Paul Ricci Title: Chief Executive Officer SCHEDULE I Number of Number of Preferred Number of Purchaser Common Shares Shares Warrant Shares --------- ------------- ------ -------------- Warburg Pincus Private Equity VIII, L.P. 11,487,326 3,452,165 509,487 Warburg Pincus Netherlands Private Equity VIII I C.V. 195,347 58,706 8,664 Warburg Pincus Netherlands Private Equity VIII II C.V. 137,620 41,357 6,104 Warburg Pincus Germany Private Equity VIII K.G. 33,309 10,010 1,477 ------ ------ ----- TOTALS 11,853,602 3,562,238 525,732 EX-3 5 wa2528638.txt MARCH 15 WARRANTS W-16 THIS WARRANT AND THE WARRANT SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SO REGISTERED OR AN EXEMPTION THEREFROM IS AVAILABLE. WARRANT TO PURCHASE COMMON STOCK OF SCANSOFT, INC. Date of Approval and Grant: March 15, 2004 In consideration for the payment by Warburg Pincus Private Equity VIII, L.P. to Scansoft, Inc., a Delaware corporation (the "Company"), of $605,687.50 in cash, by certified check, or by wire transfer (the "Purchase Price"), the Company agrees to the provisions set forth herein. The Company certifies that Warburg Pincus Private Equity VIII, L.P. and its permitted assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, up to 2,422,750 fully-paid and nonassessable shares of Common Stock (the "Warrant Shares") at a purchase price per share equal to the Warrant Price (defined below). The number of shares of Common Stock purchasable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as provided herein. The initial Warrant Price (the "Warrant Price") per share of Common Stock shall equal $4.94. This Warrant is one in a series of warrants approved and granted by the Board of Directors of the Company on March 15, 2004 (the "Grant Date") with substantially similar terms and conditions that (x) as of the Grant Date and subject to the provisions of this Warrant and such other warrants (as applicable), allow for the purchase of up to an aggregate of 2,500,000 shares of Common Stock and (y) as of the Grant Date, are represented by warrant certificate numbers W-16, W-17, W-18 and W-19. Such warrants and any warrants issued upon assignment or replacement thereof are referred to herein as the "Warrants," and the holders thereof and their permitted assigns are referred to herein as the "Holders." For the purpose of this Warrant, the term "Common Stock" shall mean (i) the Common Stock, par value $0.001 per share, of the Company as of the Grant Date, or (ii) any other class or classes of stock resulting from successive changes or reclassifications of such class of stock, and the term "Business Day" shall mean any day other than a Saturday or Sunday or a day on which commercial banks in New York, New York are required or authorized to be closed. Section 1. Term of Warrant, Exercise of Warrant. (a) Subject to the terms of this Warrant, the Holder shall have the right, at its option, which may be exercised in whole or in part, at any time, and from time to time, commencing at the time immediately following the later to occur of (i) the time the Purchase Price has been paid and (ii) the Closing (as such time is defined in that certain Securities Purchase Agreement by and among the Company, Xerox Imaging Systems, Inc., a Delaware corporation, 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. dated on or about the Grant Date) has occurred, and until the earlier of (x) 5:00 p.m. Eastern Time on the six year anniversary of the date Closing occurs and (y) the closing of a Change of Control (as defined below) (the "Warrant Expiration Date") to purchase from the Company the Warrant Shares. "Change of Control" shall mean the sale, conveyance or disposal of all or substantially all of the Company's property or business or the Company's merger with or into or consolidation with any other corporation (other than a wholly-owned subsidiary of the Company) or any other transaction or series of related transactions in which the stockholders of the Company immediately prior to the transaction or transactions own less than a majority of the voting power of the surviving corporation following the transaction or transactions. If the Closing does not occur by April 30, 2004 or if the Purchase Price is not paid by April 30, 2004, this Warrant will be void, and any previously paid Purchase Price shall be refunded. After the Warrant Expiration Date, this Warrant will be void. (b) The purchase rights evidenced by this Warrant shall be exercised by the Holder surrendering this Warrant, with the form of subscription at the end hereof duly executed by the Holder, to the Company at its office in Peabody, Massachusetts (or, in the event the Company's principal office is no longer in Peabody, Massachusetts its then principal office in the United States (the "Principal Office")), accompanied by payment, of an amount (the "Exercise Payment") equal to the Warrant Price multiplied by the number of Warrant Shares being purchased pursuant to such exercise, payable as follows: (i) by payment to the Company in cash, by certified check, or by wire transfer of the Exercise Payment, (ii) by surrender to the Company for cancellation of securities of the Company having a Market Price (as hereinafter defined) on the date of exercise equal to the Exercise Payment; or (iii) by a combination of the methods described in clauses (i) and (ii) above. In lieu of exercising the Warrant as set forth in the foregoing sentence, the Holder may elect to perform a net exercise and receive a payment equal to the difference between (i) the Market Price on the date of exercise multiplied by the number of Warrant Shares as to which the payment is then being elected and (ii) the aggregate Warrant Price with respect to such Warrant Shares, payable by the Company to the Holder only in shares of Common Stock valued at the Market Price on the date of exercise. For purposes hereof, the term "Market Price" shall mean, with respect to any day, the average closing price of a share of Common Stock or other security for the 5 consecutive trading days preceding such day on the principal national securities exchange on which the shares of Common Stock or securities are listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, the average of the reported high and low prices during such 5 trading day period on Nasdaq or, if the shares are not listed on Nasdaq, in the over-the-counter market or, if the shares of Common Stock or securities are not publicly traded, the Market Price for such day shall be the fair market value thereof determined in good faith jointly by the Company and the Holders of a majority in interest of the shares of Common Stock then purchasable pursuant to outstanding Warrants (a "Holder Majority"); provided, however, that if such parties are unable to reach agreement within a reasonable period of time, the Market Price shall be determined in good faith by an independent investment banking firm selected jointly by the Company and a Holder Majority 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 Holders, pro rata based on the number of Warrant Shares then held by each. Notwithstanding anything herein to the contrary, in no event may this Warrant be 2 exercised for fewer than the lesser of 250,000 Warrant Shares (as adjusted for stock splits, stock dividends, stock combinations and the like) and the total number of Warrant Shares remaining under this Warrant. (c) Upon any exercise of this Warrant, the Company shall issue and cause to be delivered with all reasonable dispatch, but in any event within 10 Business Days, to or upon the written order of the Holder and, subject to Section 3, in such name or names as the Holder may designate (provided that such names other than the Holder may include only affiliates of the Holder), a certificate or certificates for the number of full Warrant Shares issuable upon such exercise together with such other property, including cash (if necessary pursuant to Section 5.3 hereof), which may be deliverable upon such exercise. If fewer than all of the Warrant Shares represented by this Warrant are purchased, a new Warrant of the same tenor as this Warrant, evidencing the Warrant Shares not purchased will be issued and delivered by the Company at the Company's expense, to the Holder together with the issue of the certificates representing the Warrant Shares then being purchased. All Warrant certificates surrendered upon exercise of Warrants shall be canceled by the Company. Section 2. Warrant Register, Registration of Transfers. ------------------------------------------- Section 2.1. Warrant Register. The Company shall keep at its Principal Office, a register (the "Warrant Register") in which the Company shall record the name and address of the Holder from time to time and all transfers and exchanges of this Warrant. The Company shall give the Holder prior written notice of any change of the address at which such register is kept. Section 2.2. Registration of Transfers, Exchanges or Assignment of Warrants. The Holder shall be entitled to assign its interest in this Warrant in whole or in part to any affiliate of Holder upon surrender thereof accompanied by a written instrument or instruments of transfer in the form of assignment at the end hereof duly executed by the Holder. Except as set forth in the preceding sentence, this Warrant may not be assigned by the Holder. This Warrant may also be exchanged or combined with warrants of like tenor at the option of the Holder for another Warrant or Warrants of like tenor and representing in the aggregate the right to purchase a like number of Warrant Shares upon presentation thereof to the Company as its Principal Office together with a written notice signed by the Holder specifying the denominations in which the new Warrant is or the new Warrants are to be issued. Upon surrender for transfer or exchange of this Warrant to the Company at its Principal Office for transfer or exchange, in accordance with this Section 2, the Company shall, without charge (subject to Section 3), execute and deliver a new Warrant or Warrants of like tenor and of a like aggregate amount of Warrant Shares in the name of the assignee named in such instrument of assignment and, if the Holder's entire interest is not being assigned, in the name of the Holder with respect to that portion not transferred, and this Warrant shall promptly be canceled. Notwithstanding the foregoing, the Holder acknowledges that this Warrant and the Warrant Shares have not been registered under the Securities Act of 1933, as amended (the "Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant and Warrant Shares in the absence of (i) registration or qualification of this Warrant and such Warrant Shares under any applicable U.S. federal or state securities law then in effect, 3 or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. Section 3. Payment of Taxes. The Company shall pay all documentary stamp taxes, if any, attributable to the initial issuance of any Warrant Shares upon the exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue or delivery of any Warrant or certificate for Warrant Shares in a name other than that of the Holder as such name is then shown on the books of the Company. Section 4. Certain Covenants. ----------------- Section 4.1. Reservation of Warrant Shares. There have been reserved and the Company shall at all times keep reserved, out of its authorized but unissued Common Stock, free from any preemptive rights, rights of first refusal or other restrictions (other than pursuant to the Act and applicable state securities laws) a number of shares of Common Stock sufficient to provide for the exercise of the rights of purchase represented by this Warrant. Section 4.2. No Impairment. The Company shall not by any action including, without limitation, amending its Restated Certificate of Incorporation, any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such action, as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company shall take all such action as may be necessary or appropriate in order that the Company may validly issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant at the then Warrant Price therefor. Section 4.3. Notice of Certain Corporate Action. In case the Company shall propose (a) to offer to the holders of its Common Stock rights to subscribe for or to purchase any shares of Common Stock or shares of stock of any class or any other securities, rights or options, or (b) to effect any reclassification of its Common Stock (other than a reclassification involving only the subdivision, or combination, of outstanding shares of Common Stock), or (c) to effect any capital reorganization, or (d) to effect any Change of Control, or (e) to effect the liquidation, dissolution or winding up of the Company or (f) to offer to the holders of its Common Stock the right to have their shares of Common Stock repurchased or redeemed or otherwise acquired by the Company, or (g) to take any other action which would require the adjustment of the Warrant Price and/or the number of Warrant Shares issuable upon exercise of this Warrant, then in each such case (but without limiting the provisions of Section 5), the Company shall give to the Holder, a notice of such proposed action, which shall specify the date on which a record is to be taken for purposes of such dividend, distribution of offer of rights, or the date on which such reclassification, reorganization, Change of Control, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of Common Stock, if any such date is to be fixed and shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action on the Common Stock. Such notice shall be so given at least ten (10) Business Days prior to the record date for determining holders of the 4 Common Stock for purposes of participating in or voting on such action, or at least ten (10) Business Days prior to the date of the taking of such proposed action or the date of participation therein by the holders of Common Stock, whichever shall be the earlier. Such notice shall specify, in the case of any subscription or repurchase rights, the date on which the holders of Common Stock shall be entitled thereto, or the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon any reorganization, reclassification, Change of Control or other action, as the case may be. Such notice shall also state whether the action in question or the record date is subject to the effectiveness of a registration statement under the Act or to a favorable vote of security holders, if either is required, and the adjustment in Warrant Price and/or number of Warrant Shares issuable upon exercise of this Warrant as a result of such reorganization, reclassification, Change of Control or other action, to the extent then determinable. No such notice shall be given if the Company reasonably determines that the giving of such notice would require disclosure of material information which the Company has a bona fide purpose for preserving as confidential or the disclosure of which would not be in the best interests of the Company. Section 4.4. Purchase Entirely for Own Account. The Holder acknowledges that this Warrant is given to the Holder in reliance upon the Holder's representation to the Company, which by its acceptance of this Warrant the Holder hereby confirms, that the Warrant, the Warrant Shares, and the Common Stock issuable upon conversion of the Warrant Shares (collectively, the "Securities") being acquired by the Holder are being acquired for investment for the Holder's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Warrant, the Holder further represents that the Holder does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. The Holder represents that it has full power and authority to enter into this Warrant. The Holder has not been formed for the specific purpose of acquiring any of the Securities. Section 4.5. Disclosure of Information. The Holder has had an opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Securities with the Company's management and has had an opportunity to review the Company's facilities, and has had an opportunity to read all of the Company's filings with the Securities and Exchange Commission. Section 4.6. Restricted Securities. The Holder understands that the Securities have not been, and will not be, registered under the Act, by reason of a specific exemption from the registration provisions of the Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Holder's representations as expressed herein. The Holder understands that the Securities are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Holder must hold the Securities indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Holder further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, 5 and on requirements relating to the Company which are outside of the Holder's control, and which the Company is under no obligation and may not be able to satisfy. Section 4.7. Accredited Investor. The Holder is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Act. Section 5. Adjustment of Warrant Price. --------------------------- Section 5.1. Subdivision or Combination of Stock. In case the Company shall at any time (i) issue a dividend payable in Common Stock or any rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or (ii) subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares, then (x) in the case of a dividend or subdivision, the Warrant Price in effect immediately prior to such dividend or subdivision shall be proportionately decreased and the number of shares of Common Stock purchasable upon the exercise of the Warrant immediately prior to such adjustment shall be proportionately increased, and (y) in the case of a combination, the Warrant Price in effect immediately prior to such combination shall be proportionately increased and the number of shares of Common Stock purchasable upon the exercise of the Warrant immediately prior to such adjustment shall be proportionately decreased. Section 5.2. Reorganization, Reclassification, Consolidation, Merger or Sale. (a) If any capital reorganization or reclassification of the capital stock of the Company or any consolidation or merger of the Company with another corporation, other than a Change of Control, shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, exercise, merger or sale, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon the exercise of this Warrant, that number of shares of stock, securities or assets (including cash) as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of Warrant Shares for which this Warrant could have been exercised immediately prior to such reorganization, reclassification, consolidation, merger or sale, and in any such case appropriate provision shall be made with respect to the rights and interests of such Holder to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets (including cash) thereafter deliverable upon the exercise of this Warrant. The Company will not effect any such consolidation, merger or sale, unless prior to the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume, by written instrument executed and mailed or delivered to the Holder at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets (including cash) as, in accordance with the foregoing provisions, the Holder may be entitled to receive. Section 5.3. Fractional Shares. The Company shall not issue fractions of shares of Common Stock upon exercise of this Warrant or scrip in lieu thereof. If any fraction of a share 6 of Common Stock would, except for the provisions of this Section 5.3, be issuable upon exercise of this Warrant, the Company shall in lieu thereof pay to the person entitled thereto an amount in cash equal to the current value of such fraction, calculated to the nearest one-hundredth (1/100) of a share, to be computed on the basis of the Market Price for a share of Common Stock as of the date of exercise. Section 5.4. Notice of Adjustment. Upon any adjustment of the Warrant Price, and from time to time upon the request of the Holder the Company shall furnish to the Holder the Warrant Price resulting from such adjustment or otherwise in effect and the number of Warrant Shares then available for purchase under this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Section 5.5. Certain Events. If any event occurs as to which, in the good faith judgment of the Board of Directors of the Company the other provisions of this Section 5 are not strictly applicable or if strictly applicable would not fairly protect the exercise rights of the Holder in accordance with the essential intent and principles of such provisions, then the Board of Directors of the Company in the good faith, reasonable exercise of its business judgment shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles so as to protect such exercise rights as aforesaid. Section 6. No Rights as a Stockholder; Notice to Holder. Nothing contained in this Warrant shall be construed as conferring upon the Holder the right to vote or to consent or to receive notice as a stockholder in respect of any meeting of stockholders for the election of directors of the Company or any other matter, or any rights whatsoever as a stockholder of the Company. Section 7. Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with, in the case of a Holder which is not a qualified institutional buyer within the meaning of Rule 144A under the Act, surety) in an amount reasonably satisfactory to it, or (in the case of mutilation) upon surrender and cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of like tenor. Section 8. Notices. All notices and other written communications provided for hereunder shall be given in writing and delivered in person or sent by overnight delivery service (with charges prepaid) or by facsimile transmission, if the original of such facsimile transmission is sent by overnight delivery service (with charges prepaid) by the next succeeding Business Day and (i) if to the Holder addressed to it at the address or fax number specified for such Holder in the Warrant Register or at such other address or fax number as the Holder shall have specified to the Company in writing in accordance with this Section 8, and (ii) if to the Company, addressed to it at 9 Centennial Drive, Peabody, Massachusetts 01960, Attention General Counsel Fax No: (978) 977-2412 or at such other address or fax number as the Company shall have specified to the Holder in writing in accordance with this Section 8. Notice given in accordance with this Section 8 shall be effective upon the earlier of the date of delivery or the second Business Day at the place of delivery after dispatch. 7 Section 9. Applicable Law. This Warrant shall be governed by and construed in accordance with the laws of the State of New York without giving effect to principles of conflict of laws. Section 10. Warrant Share Legend. Each certificate representing Warrant Shares, until such Warrant Shares have been distributed pursuant to a registration statement effective under the Act or sold to the public through a broker, dealer or market maker in compliance with Rule 144 under the Act (or any similar rule then in force) shall bear one or all of the following legends: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933." Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended. Section 11. Captions. The captions of the Sections and subsections of this Warrant have been inserted for convenience only and shall have no substantive effect. Section 12. Amendment or Waiver. Any term of the Warrants may be amended or waived only by an instrument in writing signed by the Company and a Holder Majority, and any such amendment or waiver (and any other action taken or decision made by a Holder Majority) shall be binding upon all Holders. 8 IN WITNESS WHEREOF, the undersigned have executed this Warrant as of the 15th day of March, 2004. SCANSOFT, INC. By: /s/ Paul Ricci -------------- Name: Paul Ricci Title: Chief Executive Officer Warburg Pincus Private Equity VIII, L.P. By: WARBURG PINCUS & CO., its General Partner By: /s/ Jeffrey A. Harris --------------------- Name: Jeffrey A. Harris Title: Partner [To be signed only upon exercise of Warrant] TO SCANSOFT, INC.: The undersigned, the holder of the within Warrant (the "Holder"), hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ____ shares of Common Stock of Scansoft, Inc. and herewith [makes payment of $ ____ therefor in full payment of the Exercise Payment][tenders securities having a Market Price of $_____ in full payment of the Exercise Payment] or [elects to receive a payment equal to the difference between (i) the Market Price (as defined in the Warrant) multiplied by ________ (the number of Warrant Shares as to which the payment is being elected) and (ii) ___________, which is the exercise price with respect to such Warrant Shares, in full payment of the Exercise Payment, payable by the Company to the Holder only in shares of Common Stock valued at the Market Price in accordance with the terms of the Warrant], and requests that the certificates for such shares be issued in the name of, and be delivered to _____, whose address is __________. Dated: - ----------------------------- ----------------------------- (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) ----------------------------- Address [To be signed only upon transfer of Warrant] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers _______________ unto the right represented by the within Warrant to purchase ____ shares of the Common Stock of Scansoft, Inc. to which the within Warrant relates, and appoints __________ attorney to transfer said right on the books of Scansoft, Inc. with full power of substitution in the premises. Dated: - ----------------------------- (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) ----------------------------- Address In the presence of: - ----------------------------- -2- W-17 THIS WARRANT AND THE WARRANT SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SO REGISTERED OR AN EXEMPTION THEREFROM IS AVAILABLE. WARRANT TO PURCHASE COMMON STOCK OF SCANSOFT, INC. Date of Approval and Grant: March 15, 2004 In consideration for the payment by Warburg Pincus Netherlands Private Equity VIII I C.V. to Scansoft, Inc., a Delaware corporation (the "Company"), of $10,300.00 in cash, by certified check, or by wire transfer (the "Purchase Price"), the Company agrees to the provisions set forth herein. The Company certifies that Warburg Pincus Netherlands Private Equity VIII I C.V. and its permitted assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, up to 41,200 fully-paid and nonassessable shares of Common Stock (the "Warrant Shares") at a purchase price per share equal to the Warrant Price (defined below). The number of shares of Common Stock purchasable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as provided herein. The initial Warrant Price (the "Warrant Price") per share of Common Stock shall equal $4.94. This Warrant is one in a series of warrants approved and granted by the Board of Directors of the Company on March 15, 2004 (the "Grant Date") with substantially similar terms and conditions that (x) as of the Grant Date and subject to the provisions of this Warrant and such other warrants (as applicable), allow for the purchase of up to an aggregate of 2,500,000 shares of Common Stock and (y) as of the Grant Date, are represented by warrant certificate numbers W-16, W-17, W-18 and W-19. Such warrants and any warrants issued upon assignment or replacement thereof are referred to herein as the "Warrants," and the holders thereof and their permitted assigns are referred to herein as the "Holders." For the purpose of this Warrant, the term "Common Stock" shall mean (i) the Common Stock, par value $0.001 per share, of the Company as of the Grant Date, or (ii) any other class or classes of stock resulting from successive changes or reclassifications of such class of stock, and the term "Business Day" shall mean any day other than a Saturday or Sunday or a day on which commercial banks in New York, New York are required or authorized to be closed. Section 1. Term of Warrant, Exercise of Warrant. (a) Subject to the terms of this Warrant, the Holder shall have the right, at its option, which may be exercised in whole or in part, at any time, and from time to time, commencing at the time immediately following the later to occur of (i) the time the Purchase Price has been paid and (ii) the Closing (as such time is defined in that certain Securities Purchase Agreement by and among the Company, Xerox Imaging Systems, Inc., a Delaware corporation, 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. dated on or about the Grant Date) has occurred, and until the earlier of (x) 5:00 p.m. Eastern Time on the six year anniversary of the date Closing occurs and (y) the closing of a Change of Control (as defined below) (the "Warrant Expiration Date") to purchase from the Company the Warrant Shares. "Change of Control" shall mean the sale, conveyance or disposal of all or substantially all of the Company's property or business or the Company's merger with or into or consolidation with any other corporation (other than a wholly-owned subsidiary of the Company) or any other transaction or series of related transactions in which the stockholders of the Company immediately prior to the transaction or transactions own less than a majority of the voting power of the surviving corporation following the transaction or transactions. If the Closing does not occur by April 30, 2004 or if the Purchase Price is not paid by April 30, 2004, this Warrant will be void, and any previously paid Purchase Price shall be refunded. After the Warrant Expiration Date, this Warrant will be void. (b) The purchase rights evidenced by this Warrant shall be exercised by the Holder surrendering this Warrant, with the form of subscription at the end hereof duly executed by the Holder, to the Company at its office in Peabody, Massachusetts (or, in the event the Company's principal office is no longer in Peabody, Massachusetts its then principal office in the United States (the "Principal Office")), accompanied by payment, of an amount (the "Exercise Payment") equal to the Warrant Price multiplied by the number of Warrant Shares being purchased pursuant to such exercise, payable as follows: (i) by payment to the Company in cash, by certified check, or by wire transfer of the Exercise Payment, (ii) by surrender to the Company for cancellation of securities of the Company having a Market Price (as hereinafter defined) on the date of exercise equal to the Exercise Payment; or (iii) by a combination of the methods described in clauses (i) and (ii) above. In lieu of exercising the Warrant as set forth in the foregoing sentence, the Holder may elect to perform a net exercise and receive a payment equal to the difference between (i) the Market Price on the date of exercise multiplied by the number of Warrant Shares as to which the payment is then being elected and (ii) the aggregate Warrant Price with respect to such Warrant Shares, payable by the Company to the Holder only in shares of Common Stock valued at the Market Price on the date of exercise. For purposes hereof, the term "Market Price" shall mean, with respect to any day, the average closing price of a share of Common Stock or other security for the 5 consecutive trading days preceding such day on the principal national securities exchange on which the shares of Common Stock or securities are listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, the average of the reported high and low prices during such 5 trading day period on Nasdaq or, if the shares are not listed on Nasdaq, in the over-the-counter market or, if the shares of Common Stock or securities are not publicly traded, the Market Price for such day shall be the fair market value thereof determined in good faith jointly by the Company and the Holders of a majority in interest of the shares of Common Stock then purchasable pursuant to outstanding Warrants (a "Holder Majority"); provided, however, that if such parties are unable to reach agreement within a reasonable period of time, the Market Price shall be determined in good faith by an independent investment banking firm selected jointly by the Company and a Holder Majority 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 Holders, pro rata based on the number of Warrant Shares then held by each. 2 (c) Upon any exercise of this Warrant, the Company shall issue and cause to be delivered with all reasonable dispatch, but in any event within 10 Business Days, to or upon the written order of the Holder and, subject to Section 3, in such name or names as the Holder may designate (provided that such names other than the Holder may include only affiliates of the Holder), a certificate or certificates for the number of full Warrant Shares issuable upon such exercise together with such other property, including cash (if necessary pursuant to Section 5.3 hereof), which may be deliverable upon such exercise. If fewer than all of the Warrant Shares represented by this Warrant are purchased, a new Warrant of the same tenor as this Warrant, evidencing the Warrant Shares not purchased will be issued and delivered by the Company at the Company's expense, to the Holder together with the issue of the certificates representing the Warrant Shares then being purchased. All Warrant certificates surrendered upon exercise of Warrants shall be canceled by the Company. Section 2. Warrant Register, Registration of Transfers. ------------------------------------------- Section 2.1. Warrant Register. The Company shall keep at its Principal Office, a register (the "Warrant Register") in which the Company shall record the name and address of the Holder from time to time and all transfers and exchanges of this Warrant. The Company shall give the Holder prior written notice of any change of the address at which such register is kept. Section 2.2. Registration of Transfers, Exchanges or Assignment of Warrants. The Holder shall be entitled to assign its interest in this Warrant in whole or in part to any affiliate of Holder upon surrender thereof accompanied by a written instrument or instruments of transfer in the form of assignment at the end hereof duly executed by the Holder. Except as set forth in the preceding sentence, this Warrant may not be assigned by the Holder. This Warrant may also be exchanged or combined with warrants of like tenor at the option of the Holder for another Warrant or Warrants of like tenor and representing in the aggregate the right to purchase a like number of Warrant Shares upon presentation thereof to the Company as its Principal Office together with a written notice signed by the Holder specifying the denominations in which the new Warrant is or the new Warrants are to be issued. Upon surrender for transfer or exchange of this Warrant to the Company at its Principal Office for transfer or exchange, in accordance with this Section 2, the Company shall, without charge (subject to Section 3), execute and deliver a new Warrant or Warrants of like tenor and of a like aggregate amount of Warrant Shares in the name of the assignee named in such instrument of assignment and, if the Holder's entire interest is not being assigned, in the name of the Holder with respect to that portion not transferred, and this Warrant shall promptly be canceled. Notwithstanding the foregoing, the Holder acknowledges that this Warrant and the Warrant Shares have not been registered under the Securities Act of 1933, as amended (the "Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant and Warrant Shares in the absence of (i) registration or qualification of this Warrant and such Warrant Shares under any applicable U.S. federal or state securities law then in effect, or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. 3 Section 3. Payment of Taxes. The Company shall pay all documentary stamp taxes, if any, attributable to the initial issuance of any Warrant Shares upon the exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue or delivery of any Warrant or certificate for Warrant Shares in a name other than that of the Holder as such name is then shown on the books of the Company. Section 4. Certain Covenants. ----------------- Section 4.1. Reservation of Warrant Shares. There have been reserved and the Company shall at all times keep reserved, out of its authorized but unissued Common Stock, free from any preemptive rights, rights of first refusal or other restrictions (other than pursuant to the Act and applicable state securities laws) a number of shares of Common Stock sufficient to provide for the exercise of the rights of purchase represented by this Warrant. Section 4.2. No Impairment. The Company shall not by any action including, without limitation, amending its Restated Certificate of Incorporation, any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such action, as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company shall take all such action as may be necessary or appropriate in order that the Company may validly issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant at the then Warrant Price therefor. Section 4.3. Notice of Certain Corporate Action. In case the Company shall propose (a) to offer to the holders of its Common Stock rights to subscribe for or to purchase any shares of Common Stock or shares of stock of any class or any other securities, rights or options, or (b) to effect any reclassification of its Common Stock (other than a reclassification involving only the subdivision, or combination, of outstanding shares of Common Stock), or (c) to effect any capital reorganization, or (d) to effect any Change of Control, or (e) to effect the liquidation, dissolution or winding up of the Company or (f) to offer to the holders of its Common Stock the right to have their shares of Common Stock repurchased or redeemed or otherwise acquired by the Company, or (g) to take any other action which would require the adjustment of the Warrant Price and/or the number of Warrant Shares issuable upon exercise of this Warrant, then in each such case (but without limiting the provisions of Section 5), the Company shall give to the Holder, a notice of such proposed action, which shall specify the date on which a record is to be taken for purposes of such dividend, distribution of offer of rights, or the date on which such reclassification, reorganization, Change of Control, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of Common Stock, if any such date is to be fixed and shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action on the Common Stock. Such notice shall be so given at least ten (10) Business Days prior to the record date for determining holders of the Common Stock for purposes of participating in or voting on such action, or at least ten (10) Business Days prior to the date of the taking of such proposed action or the date of participation therein by the holders of Common Stock, whichever shall be the earlier. Such notice shall 4 specify, in the case of any subscription or repurchase rights, the date on which the holders of Common Stock shall be entitled thereto, or the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon any reorganization, reclassification, Change of Control or other action, as the case may be. Such notice shall also state whether the action in question or the record date is subject to the effectiveness of a registration statement under the Act or to a favorable vote of security holders, if either is required, and the adjustment in Warrant Price and/or number of Warrant Shares issuable upon exercise of this Warrant as a result of such reorganization, reclassification, Change of Control or other action, to the extent then determinable. No such notice shall be given if the Company reasonably determines that the giving of such notice would require disclosure of material information which the Company has a bona fide purpose for preserving as confidential or the disclosure of which would not be in the best interests of the Company. Section 4.4. Purchase Entirely for Own Account. The Holder acknowledges that this Warrant is given to the Holder in reliance upon the Holder's representation to the Company, which by its acceptance of this Warrant the Holder hereby confirms, that the Warrant, the Warrant Shares, and the Common Stock issuable upon conversion of the Warrant Shares (collectively, the "Securities") being acquired by the Holder are being acquired for investment for the Holder's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Warrant, the Holder further represents that the Holder does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. The Holder represents that it has full power and authority to enter into this Warrant. The Holder has not been formed for the specific purpose of acquiring any of the Securities. Section 4.5. Disclosure of Information. The Holder has had an opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Securities with the Company's management and has had an opportunity to review the Company's facilities, and has had an opportunity to read all of the Company's filings with the Securities and Exchange Commission. Section 4.6. Restricted Securities. The Holder understands that the Securities have not been, and will not be, registered under the Act, by reason of a specific exemption from the registration provisions of the Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Holder's representations as expressed herein. The Holder understands that the Securities are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Holder must hold the Securities indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Holder further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, and on requirements relating to the Company which are outside of the Holder's control, and which the Company is under no obligation and may not be able to satisfy. 5 Section 4.7. Accredited Investor. The Holder is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Act. Section 5. Adjustment of Warrant Price. --------------------------- Section 5.1. Subdivision or Combination of Stock. In case the Company shall at any time (i) issue a dividend payable in Common Stock or any rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or (ii) subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares, then (x) in the case of a dividend or subdivision, the Warrant Price in effect immediately prior to such dividend or subdivision shall be proportionately decreased and the number of shares of Common Stock purchasable upon the exercise of the Warrant immediately prior to such adjustment shall be proportionately increased, and (y) in the case of a combination, the Warrant Price in effect immediately prior to such combination shall be proportionately increased and the number of shares of Common Stock purchasable upon the exercise of the Warrant immediately prior to such adjustment shall be proportionately decreased. Section 5.2. Reorganization, Reclassification, Consolidation, Merger or Sale. (a) If any capital reorganization or reclassification of the capital stock of the Company or any consolidation or merger of the Company with another corporation, other than a Change of Control, shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, exercise, merger or sale, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon the exercise of this Warrant, that number of shares of stock, securities or assets (including cash) as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of Warrant Shares for which this Warrant could have been exercised immediately prior to such reorganization, reclassification, consolidation, merger or sale, and in any such case appropriate provision shall be made with respect to the rights and interests of such Holder to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets (including cash) thereafter deliverable upon the exercise of this Warrant. The Company will not effect any such consolidation, merger or sale, unless prior to the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume, by written instrument executed and mailed or delivered to the Holder at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets (including cash) as, in accordance with the foregoing provisions, the Holder may be entitled to receive. Section 5.3. Fractional Shares. The Company shall not issue fractions of shares of Common Stock upon exercise of this Warrant or scrip in lieu thereof. If any fraction of a share of Common Stock would, except for the provisions of this Section 5.3, be issuable upon exercise of this Warrant, the Company shall in lieu thereof pay to the person entitled thereto an amount in cash equal to the current value of such fraction, calculated to the nearest one-hundredth (1/100) 6 of a share, to be computed on the basis of the Market Price for a share of Common Stock as of the date of exercise. Section 5.4. Notice of Adjustment. Upon any adjustment of the Warrant Price, and from time to time upon the request of the Holder the Company shall furnish to the Holder the Warrant Price resulting from such adjustment or otherwise in effect and the number of Warrant Shares then available for purchase under this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Section 5.5. Certain Events. If any event occurs as to which, in the good faith judgment of the Board of Directors of the Company the other provisions of this Section 5 are not strictly applicable or if strictly applicable would not fairly protect the exercise rights of the Holder in accordance with the essential intent and principles of such provisions, then the Board of Directors of the Company in the good faith, reasonable exercise of its business judgment shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles so as to protect such exercise rights as aforesaid. Section 6. No Rights as a Stockholder; Notice to Holder. Nothing contained in this Warrant shall be construed as conferring upon the Holder the right to vote or to consent or to receive notice as a stockholder in respect of any meeting of stockholders for the election of directors of the Company or any other matter, or any rights whatsoever as a stockholder of the Company. Section 7. Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with, in the case of a Holder which is not a qualified institutional buyer within the meaning of Rule 144A under the Act, surety) in an amount reasonably satisfactory to it, or (in the case of mutilation) upon surrender and cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of like tenor. Section 8. Notices. All notices and other written communications provided for hereunder shall be given in writing and delivered in person or sent by overnight delivery service (with charges prepaid) or by facsimile transmission, if the original of such facsimile transmission is sent by overnight delivery service (with charges prepaid) by the next succeeding Business Day and (i) if to the Holder addressed to it at the address or fax number specified for such Holder in the Warrant Register or at such other address or fax number as the Holder shall have specified to the Company in writing in accordance with this Section 8, and (ii) if to the Company, addressed to it at 9 Centennial Drive, Peabody, Massachusetts 01960, Attention General Counsel Fax No: (978) 977-2412 or at such other address or fax number as the Company shall have specified to the Holder in writing in accordance with this Section 8. Notice given in accordance with this Section 8 shall be effective upon the earlier of the date of delivery or the second Business Day at the place of delivery after dispatch. Section 9. Applicable Law. This Warrant shall be governed by and construed in accordance with the laws of the State of New York without giving effect to principles of conflict of laws. 7 Section 10. Warrant Share Legend. Each certificate representing Warrant Shares, until such Warrant Shares have been distributed pursuant to a registration statement effective under the Act or sold to the public through a broker, dealer or market maker in compliance with Rule 144 under the Act (or any similar rule then in force) shall bear one or all of the following legends: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933." Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended. Section 11. Captions. The captions of the Sections and subsections of this Warrant have been inserted for convenience only and shall have no substantive effect. Section 12. Amendment or Waiver. Any term of the Warrants may be amended or waived only by an instrument in writing signed by the Company and a Holder Majority, and any such amendment or waiver (and any other action taken or decision made by a Holder Majority) shall be binding upon all Holders. 8 IN WITNESS WHEREOF, the undersigned have executed this Warrant as of the 15th day of March, 2004. SCANSOFT, INC. By: /s/ Paul Ricci -------------- Name: Paul Ricci Title: Chief Executive Officer Warburg Pincus Netherlands Private Equity VIII I C.V. By: WARBURG PINCUS & CO., its General Partner By: /s/ Jeffrey A. Harris --------------------- Name: Jeffrey A. Harris Title: Partner [To be signed only upon exercise of Warrant] TO SCANSOFT, INC.: The undersigned, the holder of the within Warrant (the "Holder"), hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ____shares of Common Stock of Scansoft, Inc. and herewith [makes payment of $____ therefor in full payment of the Exercise Payment][tenders securities having a Market Price of $_____ in full payment of the Exercise Payment] or [elects to receive a payment equal to the difference between (i) the Market Price (as defined in the Warrant) multiplied by ________ (the number of Warrant Shares as to which the payment is being elected) and (ii) ___________, which is the exercise price with respect to such Warrant Shares, in full payment of the Exercise Payment, payable by the Company to the Holder only in shares of Common Stock valued at the Market Price in accordance with the terms of the Warrant], and requests that the certificates for such shares be issued in the name of, and be delivered to __________, whose address is _______________. Dated: - ----------------------------- ----------------------------- (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) ----------------------------- Address [To be signed only upon transfer of Warrant] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto __________ the right represented by the within Warrant to purchase ____ shares of the Common Stock of Scansoft, Inc. to which the within Warrant relates, and appoints __________ attorney to transfer said right on the books of Scansoft, Inc. with full power of substitution in the premises. Dated: - ----------------------------- (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) ----------------------------- Address In the presence of: - ----------------------------- -2- W-18 THIS WARRANT AND THE WARRANT SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SO REGISTERED OR AN EXEMPTION THEREFROM IS AVAILABLE. WARRANT TO PURCHASE COMMON STOCK OF SCANSOFT, INC. Date of Approval and Grant: March 15, 2004 In consideration for the payment by Warburg Pincus Netherlands Private Equity VIII II C.V. to Scansoft, Inc., a Delaware corporation (the "Company"), of $7,256.25 in cash, by certified check, or by wire transfer (the "Purchase Price"), the Company agrees to the provisions set forth herein. The Company certifies that Warburg Pincus Netherlands Private Equity VIII II C.V. and its permitted assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, up to 29,025 fully-paid and nonassessable shares of Common Stock (the "Warrant Shares") at a purchase price per share equal to the Warrant Price (defined below). The number of shares of Common Stock purchasable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as provided herein. The initial Warrant Price (the "Warrant Price") per share of Common Stock shall equal $4.94. This Warrant is one in a series of warrants approved and granted by the Board of Directors of the Company on March 15, 2004 (the "Grant Date") with substantially similar terms and conditions that (x) as of the Grant Date and subject to the provisions of this Warrant and such other warrants (as applicable), allow for the purchase of up to an aggregate of 2,500,000 shares of Common Stock and (y) as of the Grant Date, are represented by warrant certificate numbers W-16, W-17, W-18 and W-19. Such warrants and any warrants issued upon assignment or replacement thereof are referred to herein as the "Warrants," and the holders thereof and their permitted assigns are referred to herein as the "Holders." For the purpose of this Warrant, the term "Common Stock" shall mean (i) the Common Stock, par value $0.001 per share, of the Company as of the Grant Date, or (ii) any other class or classes of stock resulting from successive changes or reclassifications of such class of stock, and the term "Business Day" shall mean any day other than a Saturday or Sunday or a day on which commercial banks in New York, New York are required or authorized to be closed. Section 1. Term of Warrant, Exercise of Warrant. (a) Subject to the terms of this Warrant, the Holder shall have the right, at its option, which may be exercised in whole or in part, at any time, and from time to time, commencing at the time immediately following the later to occur of (i) the time the Purchase Price has been paid and (ii) the Closing (as such time is defined in that certain Securities Purchase Agreement by and among the Company, Xerox Imaging Systems, Inc., a Delaware corporation, 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. dated on or about the Grant Date) has occurred, and until the earlier of (x) 5:00 p.m. Eastern Time on the six year anniversary of the date Closing occurs and (y) the closing of a Change of Control (as defined below) (the "Warrant Expiration Date") to purchase from the Company the Warrant Shares. "Change of Control" shall mean the sale, conveyance or disposal of all or substantially all of the Company's property or business or the Company's merger with or into or consolidation with any other corporation (other than a wholly-owned subsidiary of the Company) or any other transaction or series of related transactions in which the stockholders of the Company immediately prior to the transaction or transactions own less than a majority of the voting power of the surviving corporation following the transaction or transactions. If the Closing does not occur by April 30, 2004 or if the Purchase Price is not paid by April 30, 2004, this Warrant will be void, and any previously paid Purchase Price shall be refunded. After the Warrant Expiration Date, this Warrant will be void. (b) The purchase rights evidenced by this Warrant shall be exercised by the Holder surrendering this Warrant, with the form of subscription at the end hereof duly executed by the Holder, to the Company at its office in Peabody, Massachusetts (or, in the event the Company's principal office is no longer in Peabody, Massachusetts its then principal office in the United States (the "Principal Office")), accompanied by payment, of an amount (the "Exercise Payment") equal to the Warrant Price multiplied by the number of Warrant Shares being purchased pursuant to such exercise, payable as follows: (i) by payment to the Company in cash, by certified check, or by wire transfer of the Exercise Payment, (ii) by surrender to the Company for cancellation of securities of the Company having a Market Price (as hereinafter defined) on the date of exercise equal to the Exercise Payment; or (iii) by a combination of the methods described in clauses (i) and (ii) above. In lieu of exercising the Warrant as set forth in the foregoing sentence, the Holder may elect to perform a net exercise and receive a payment equal to the difference between (i) the Market Price on the date of exercise multiplied by the number of Warrant Shares as to which the payment is then being elected and (ii) the aggregate Warrant Price with respect to such Warrant Shares, payable by the Company to the Holder only in shares of Common Stock valued at the Market Price on the date of exercise. For purposes hereof, the term "Market Price" shall mean, with respect to any day, the average closing price of a share of Common Stock or other security for the 5 consecutive trading days preceding such day on the principal national securities exchange on which the shares of Common Stock or securities are listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, the average of the reported high and low prices during such 5 trading day period on Nasdaq or, if the shares are not listed on Nasdaq, in the over-the-counter market or, if the shares of Common Stock or securities are not publicly traded, the Market Price for such day shall be the fair market value thereof determined in good faith jointly by the Company and the Holders of a majority in interest of the shares of Common Stock then purchasable pursuant to outstanding Warrants (a "Holder Majority"); provided, however, that if such parties are unable to reach agreement within a reasonable period of time, the Market Price shall be determined in good faith by an independent investment banking firm selected jointly by the Company and a Holder Majority 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 Holders, pro rata based on the number of Warrant Shares then held by each. 2 (c) Upon any exercise of this Warrant, the Company shall issue and cause to be delivered with all reasonable dispatch, but in any event within 10 Business Days, to or upon the written order of the Holder and, subject to Section 3, in such name or names as the Holder may designate (provided that such names other than the Holder may include only affiliates of the Holder), a certificate or certificates for the number of full Warrant Shares issuable upon such exercise together with such other property, including cash (if necessary pursuant to Section 5.3 hereof), which may be deliverable upon such exercise. If fewer than all of the Warrant Shares represented by this Warrant are purchased, a new Warrant of the same tenor as this Warrant, evidencing the Warrant Shares not purchased will be issued and delivered by the Company at the Company's expense, to the Holder together with the issue of the certificates representing the Warrant Shares then being purchased. All Warrant certificates surrendered upon exercise of Warrants shall be canceled by the Company. Section 2. Warrant Register, Registration of Transfers ------------------------------------------- Section 2.1. Warrant Register. The Company shall keep at its Principal Office, a register (the "Warrant Register") in which the Company shall record the name and address of the Holder from time to time and all transfers and exchanges of this Warrant. The Company shall give the Holder prior written notice of any change of the address at which such register is kept. Section 2.2. Registration of Transfers, Exchanges or Assignment of Warrants. The Holder shall be entitled to assign its interest in this Warrant in whole or in part to any affiliate of Holder upon surrender thereof accompanied by a written instrument or instruments of transfer in the form of assignment at the end hereof duly executed by the Holder. Except as set forth in the preceding sentence, this Warrant may not be assigned by the Holder. This Warrant may also be exchanged or combined with warrants of like tenor at the option of the Holder for another Warrant or Warrants of like tenor and representing in the aggregate the right to purchase a like number of Warrant Shares upon presentation thereof to the Company as its Principal Office together with a written notice signed by the Holder specifying the denominations in which the new Warrant is or the new Warrants are to be issued. Upon surrender for transfer or exchange of this Warrant to the Company at its Principal Office for transfer or exchange, in accordance with this Section 2, the Company shall, without charge (subject to Section 3), execute and deliver a new Warrant or Warrants of like tenor and of a like aggregate amount of Warrant Shares in the name of the assignee named in such instrument of assignment and, if the Holder's entire interest is not being assigned, in the name of the Holder with respect to that portion not transferred, and this Warrant shall promptly be canceled. Notwithstanding the foregoing, the Holder acknowledges that this Warrant and the Warrant Shares have not been registered under the Securities Act of 1933, as amended (the "Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant and Warrant Shares in the absence of (i) registration or qualification of this Warrant and such Warrant Shares under any applicable U.S. federal or state securities law then in effect, or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. 3 Section 3. Payment of Taxes. The Company shall pay all documentary stamp taxes, if any, attributable to the initial issuance of any Warrant Shares upon the exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue or delivery of any Warrant or certificate for Warrant Shares in a name other than that of the Holder as such name is then shown on the books of the Company. Section 4. Certain Covenants. ----------------- Section 4.1. Reservation of Warrant Shares. There have been reserved and the Company shall at all times keep reserved, out of its authorized but unissued Common Stock, free from any preemptive rights, rights of first refusal or other restrictions (other than pursuant to the Act and applicable state securities laws) a number of shares of Common Stock sufficient to provide for the exercise of the rights of purchase represented by this Warrant. Section 4.2. No Impairment. The Company shall not by any action including, without limitation, amending its Restated Certificate of Incorporation, any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such action, as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company shall take all such action as may be necessary or appropriate in order that the Company may validly issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant at the then Warrant Price therefor. Section 4.3. Notice of Certain Corporate Action. In case the Company shall propose (a) to offer to the holders of its Common Stock rights to subscribe for or to purchase any shares of Common Stock or shares of stock of any class or any other securities, rights or options, or (b) to effect any reclassification of its Common Stock (other than a reclassification involving only the subdivision, or combination, of outstanding shares of Common Stock), or (c) to effect any capital reorganization, or (d) to effect any Change of Control, or (e) to effect the liquidation, dissolution or winding up of the Company or (f) to offer to the holders of its Common Stock the right to have their shares of Common Stock repurchased or redeemed or otherwise acquired by the Company, or (g) to take any other action which would require the adjustment of the Warrant Price and/or the number of Warrant Shares issuable upon exercise of this Warrant, then in each such case (but without limiting the provisions of Section 5), the Company shall give to the Holder, a notice of such proposed action, which shall specify the date on which a record is to be taken for purposes of such dividend, distribution of offer of rights, or the date on which such reclassification, reorganization, Change of Control, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of Common Stock, if any such date is to be fixed and shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action on the Common Stock. Such notice shall be so given at least ten (10) Business Days prior to the record date for determining holders of the Common Stock for purposes of participating in or voting on such action, or at least ten (10) Business Days prior to the date of the taking of such proposed action or the date of participation therein by the holders of Common Stock, whichever shall be the earlier. Such notice shall 4 specify, in the case of any subscription or repurchase rights, the date on which the holders of Common Stock shall be entitled thereto, or the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon any reorganization, reclassification, Change of Control or other action, as the case may be. Such notice shall also state whether the action in question or the record date is subject to the effectiveness of a registration statement under the Act or to a favorable vote of security holders, if either is required, and the adjustment in Warrant Price and/or number of Warrant Shares issuable upon exercise of this Warrant as a result of such reorganization, reclassification, Change of Control or other action, to the extent then determinable. No such notice shall be given if the Company reasonably determines that the giving of such notice would require disclosure of material information which the Company has a bona fide purpose for preserving as confidential or the disclosure of which would not be in the best interests of the Company. Section 4.4. Purchase Entirely for Own Account. The Holder acknowledges that this Warrant is given to the Holder in reliance upon the Holder's representation to the Company, which by its acceptance of this Warrant the Holder hereby confirms, that the Warrant, the Warrant Shares, and the Common Stock issuable upon conversion of the Warrant Shares (collectively, the "Securities") being acquired by the Holder are being acquired for investment for the Holder's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Warrant, the Holder further represents that the Holder does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. The Holder represents that it has full power and authority to enter into this Warrant. The Holder has not been formed for the specific purpose of acquiring any of the Securities. Section 4.5. Disclosure of Information. The Holder has had an opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Securities with the Company's management and has had an opportunity to review the Company's facilities, and has had an opportunity to read all of the Company's filings with the Securities and Exchange Commission. Section 4.6. Restricted Securities. The Holder understands that the Securities have not been, and will not be, registered under the Act, by reason of a specific exemption from the registration provisions of the Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Holder's representations as expressed herein. The Holder understands that the Securities are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Holder must hold the Securities indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Holder further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, and on requirements relating to the Company which are outside of the Holder's control, and which the Company is under no obligation and may not be able to satisfy. 5 Section 4.7. Accredited Investor. The Holder is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Act. Section 5. Adjustment of Warrant Price. --------------------------- Section 5.1. Subdivision or Combination of Stock. In case the Company shall at any time (i) issue a dividend payable in Common Stock or any rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or (ii) subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares, then (x) in the case of a dividend or subdivision, the Warrant Price in effect immediately prior to such dividend or subdivision shall be proportionately decreased and the number of shares of Common Stock purchasable upon the exercise of the Warrant immediately prior to such adjustment shall be proportionately increased, and (y) in the case of a combination, the Warrant Price in effect immediately prior to such combination shall be proportionately increased and the number of shares of Common Stock purchasable upon the exercise of the Warrant immediately prior to such adjustment shall be proportionately decreased. Section 5.2. Reorganization, Reclassification, Consolidation, Merger or Sale. (a) If any capital reorganization or reclassification of the capital stock of the Company or any consolidation or merger of the Company with another corporation, other than a Change of Control, shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, exercise, merger or sale, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon the exercise of this Warrant, that number of shares of stock, securities or assets (including cash) as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of Warrant Shares for which this Warrant could have been exercised immediately prior to such reorganization, reclassification, consolidation, merger or sale, and in any such case appropriate provision shall be made with respect to the rights and interests of such Holder to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets (including cash) thereafter deliverable upon the exercise of this Warrant. The Company will not effect any such consolidation, merger or sale, unless prior to the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume, by written instrument executed and mailed or delivered to the Holder at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets (including cash) as, in accordance with the foregoing provisions, the Holder may be entitled to receive. Section 5.3. Fractional Shares. The Company shall not issue fractions of shares of Common Stock upon exercise of this Warrant or scrip in lieu thereof. If any fraction of a share of Common Stock would, except for the provisions of this Section 5.3, be issuable upon exercise of this Warrant, the Company shall in lieu thereof pay to the person entitled thereto an amount in cash equal to the current value of such fraction, calculated to the nearest one-hundredth (1/100) 6 of a share, to be computed on the basis of the Market Price for a share of Common Stock as of the date of exercise. Section 5.4. Notice of Adjustment. Upon any adjustment of the Warrant Price, and from time to time upon the request of the Holder the Company shall furnish to the Holder the Warrant Price resulting from such adjustment or otherwise in effect and the number of Warrant Shares then available for purchase under this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Section 5.5. Certain Events. If any event occurs as to which, in the good faith judgment of the Board of Directors of the Company the other provisions of this Section 5 are not strictly applicable or if strictly applicable would not fairly protect the exercise rights of the Holder in accordance with the essential intent and principles of such provisions, then the Board of Directors of the Company in the good faith, reasonable exercise of its business judgment shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles so as to protect such exercise rights as aforesaid. Section 6. No Rights as a Stockholder; Notice to Holder. Nothing contained in this Warrant shall be construed as conferring upon the Holder the right to vote or to consent or to receive notice as a stockholder in respect of any meeting of stockholders for the election of directors of the Company or any other matter, or any rights whatsoever as a stockholder of the Company. Section 7. Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with, in the case of a Holder which is not a qualified institutional buyer within the meaning of Rule 144A under the Act, surety) in an amount reasonably satisfactory to it, or (in the case of mutilation) upon surrender and cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of like tenor. Section 8. Notices. All notices and other written communications provided for hereunder shall be given in writing and delivered in person or sent by overnight delivery service (with charges prepaid) or by facsimile transmission, if the original of such facsimile transmission is sent by overnight delivery service (with charges prepaid) by the next succeeding Business Day and (i) if to the Holder addressed to it at the address or fax number specified for such Holder in the Warrant Register or at such other address or fax number as the Holder shall have specified to the Company in writing in accordance with this Section 8, and (ii) if to the Company, addressed to it at 9 Centennial Drive, Peabody, Massachusetts 01960, Attention General Counsel Fax No: (978) 977-2412 or at such other address or fax number as the Company shall have specified to the Holder in writing in accordance with this Section 8. Notice given in accordance with this Section 8 shall be effective upon the earlier of the date of delivery or the second Business Day at the place of delivery after dispatch. Section 9. Applicable Law. This Warrant shall be governed by and construed in accordance with the laws of the State of New York without giving effect to principles of conflict of laws. 7 Section 10. Warrant Share Legend. Each certificate representing Warrant Shares, until such Warrant Shares have been distributed pursuant to a registration statement effective under the Act or sold to the public through a broker, dealer or market maker in compliance with Rule 144 under the Act (or any similar rule then in force) shall bear one or all of the following legends: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933." Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended. Section 11. Captions. The captions of the Sections and subsections of this Warrant have been inserted for convenience only and shall have no substantive effect. Section 12. Amendment or Waiver. Any term of the Warrants may be amended or waived only by an instrument in writing signed by the Company and a Holder Majority, and any such amendment or waiver (and any other action taken or decision made by a Holder Majority) shall be binding upon all Holders. 8 IN WITNESS WHEREOF, the undersigned have executed this Warrant as of the 15th day of March, 2004. SCANSOFT, INC. By: /s/ Paul Ricci -------------- Name: Paul Ricci Title: Chief Executive Officer Warburg Pincus Netherlands Private Equity VIII II C.V. By: WARBURG PINCUS & CO., its General Partner By: /s/ Jeffrey A. Harris --------------------- Name: Jeffrey A. Harris Title: Partner [To be signed only upon exercise of Warrant] TO SCANSOFT, INC.: The undersigned, the holder of the within Warrant (the "Holder"), hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ____ shares of Common Stock of Scansoft, Inc. and herewith [makes payment of $ ____ therefor in full payment of the Exercise Payment][tenders securities having a Market Price of $_____ in full payment of the Exercise Payment] or [elects to receive a payment equal to the difference between (i) the Market Price (as defined in the Warrant) multiplied by ________ (the number of Warrant Shares as to which the payment is being elected) and (ii) ___________, which is the exercise price with respect to such Warrant Shares, in full payment of the Exercise Payment, payable by the Company to the Holder only in shares of Common Stock valued at the Market Price in accordance with the terms of the Warrant], and requests that the certificates for such shares be issued in the name of, and be delivered to _____, whose address is __________. Dated: - ----------------------------- ----------------------------- (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) ----------------------------- Address [To be signed only upon transfer of Warrant] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _______________ the right represented by the within Warrant to purchase ____ shares of the Common Stock of Scansoft, Inc. to which the within Warrant relates, and appoints ________ attorney to transfer said right on the books of Scansoft, Inc. with full power of substitution in the premises. Dated: - ----------------------------- (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) ----------------------------- Address In the presence of: - ----------------------------- -2- W-19 THIS WARRANT AND THE WARRANT SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SO REGISTERED OR AN EXEMPTION THEREFROM IS AVAILABLE. WARRANT TO PURCHASE COMMON STOCK OF SCANSOFT, INC. Date of Approval and Grant: March 15, 2004 In consideration for the payment by Warburg Pincus Germany Private Equity VIII, K.G. to Scansoft, Inc., a Delaware corporation (the "Company"), of $1,756.25 in cash, by certified check, or by wire transfer (the "Purchase Price"), the Company agrees to the provisions set forth herein. The Company certifies that Warburg Pincus Germany Private Equity VIII, K.G. and its permitted assigns (the "Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, up to 7,025 fully-paid and nonassessable shares of Common Stock (the "Warrant Shares") at a purchase price per share equal to the Warrant Price (defined below). The number of shares of Common Stock purchasable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as provided herein. The initial Warrant Price (the "Warrant Price") per share of Common Stock shall equal $4.94. This Warrant is one in a series of warrants approved and granted by the Board of Directors of the Company on March 15, 2004 (the "Grant Date") with substantially similar terms and conditions that (x) as of the Grant Date and subject to the provisions of this Warrant and such other warrants (as applicable), allow for the purchase of up to an aggregate of 2,500,000 shares of Common Stock and (y) as of the Grant Date, are represented by warrant certificate numbers W-16, W-17, W-18 and W-19. Such warrants and any warrants issued upon assignment or replacement thereof are referred to herein as the "Warrants," and the holders thereof and their permitted assigns are referred to herein as the "Holders." For the purpose of this Warrant, the term "Common Stock" shall mean (i) the Common Stock, par value $0.001 per share, of the Company as of the Grant Date, or (ii) any other class or classes of stock resulting from successive changes or reclassifications of such class of stock, and the term "Business Day" shall mean any day other than a Saturday or Sunday or a day on which commercial banks in New York, New York are required or authorized to be closed. Section 1. Term of Warrant, Exercise of Warrant. (a) Subject to the terms of this Warrant, the Holder shall have the right, at its option, which may be exercised in whole or in part, at any time, and from time to time, commencing at the time immediately following the later to occur of (i) the time the Purchase Price has been paid and (ii) the Closing (as such time is defined in that certain Securities Purchase Agreement by and among the Company, Xerox Imaging Systems, Inc., a Delaware corporation, 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. dated on or about the Grant Date) has occurred, and until the earlier of (x) 5:00 p.m. Eastern Time on the six year anniversary of the date Closing occurs and (y) the closing of a Change of Control (as defined below) (the "Warrant Expiration Date") to purchase from the Company the Warrant Shares. "Change of Control" shall mean the sale, conveyance or disposal of all or substantially all of the Company's property or business or the Company's merger with or into or consolidation with any other corporation (other than a wholly-owned subsidiary of the Company) or any other transaction or series of related transactions in which the stockholders of the Company immediately prior to the transaction or transactions own less than a majority of the voting power of the surviving corporation following the transaction or transactions. If the Closing does not occur by April 30, 2004 or if the Purchase Price is not paid by April 30, 2004, this Warrant will be void, and any previously paid Purchase Price shall be refunded. After the Warrant Expiration Date, this Warrant will be void. (b) The purchase rights evidenced by this Warrant shall be exercised by the Holder surrendering this Warrant, with the form of subscription at the end hereof duly executed by the Holder, to the Company at its office in Peabody, Massachusetts (or, in the event the Company's principal office is no longer in Peabody, Massachusetts its then principal office in the United States (the "Principal Office")), accompanied by payment, of an amount (the "Exercise Payment") equal to the Warrant Price multiplied by the number of Warrant Shares being purchased pursuant to such exercise, payable as follows: (i) by payment to the Company in cash, by certified check, or by wire transfer of the Exercise Payment, (ii) by surrender to the Company for cancellation of securities of the Company having a Market Price (as hereinafter defined) on the date of exercise equal to the Exercise Payment; or (iii) by a combination of the methods described in clauses (i) and (ii) above. In lieu of exercising the Warrant as set forth in the foregoing sentence, the Holder may elect to perform a net exercise and receive a payment equal to the difference between (i) the Market Price on the date of exercise multiplied by the number of Warrant Shares as to which the payment is then being elected and (ii) the aggregate Warrant Price with respect to such Warrant Shares, payable by the Company to the Holder only in shares of Common Stock valued at the Market Price on the date of exercise. For purposes hereof, the term "Market Price" shall mean, with respect to any day, the average closing price of a share of Common Stock or other security for the 5 consecutive trading days preceding such day on the principal national securities exchange on which the shares of Common Stock or securities are listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, the average of the reported high and low prices during such 5 trading day period on Nasdaq or, if the shares are not listed on Nasdaq, in the over-the-counter market or, if the shares of Common Stock or securities are not publicly traded, the Market Price for such day shall be the fair market value thereof determined in good faith jointly by the Company and the Holders of a majority in interest of the shares of Common Stock then purchasable pursuant to outstanding Warrants (a "Holder Majority"); provided, however, that if such parties are unable to reach agreement within a reasonable period of time, the Market Price shall be determined in good faith by an independent investment banking firm selected jointly by the Company and a Holder Majority 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 Holders, pro rata based on the number of Warrant Shares then held by each. 2 (c) Upon any exercise of this Warrant, the Company shall issue and cause to be delivered with all reasonable dispatch, but in any event within 10 Business Days, to or upon the written order of the Holder and, subject to Section 3, in such name or names as the Holder may designate (provided that such names other than the Holder may include only affiliates of the Holder), a certificate or certificates for the number of full Warrant Shares issuable upon such exercise together with such other property, including cash (if necessary pursuant to Section 5.3 hereof), which may be deliverable upon such exercise. If fewer than all of the Warrant Shares represented by this Warrant are purchased, a new Warrant of the same tenor as this Warrant, evidencing the Warrant Shares not purchased will be issued and delivered by the Company at the Company's expense, to the Holder together with the issue of the certificates representing the Warrant Shares then being purchased. All Warrant certificates surrendered upon exercise of Warrants shall be canceled by the Company. Section 2. Warrant Register, Registration of Transfers ------------------------------------------- Section 2.1. Warrant Register. The Company shall keep at its Principal Office, a register (the "Warrant Register") in which the Company shall record the name and address of the Holder from time to time and all transfers and exchanges of this Warrant. The Company shall give the Holder prior written notice of any change of the address at which such register is kept. Section 2.2. Registration of Transfers, Exchanges or Assignment of Warrants. The Holder shall be entitled to assign its interest in this Warrant in whole or in part to any affiliate of Holder upon surrender thereof accompanied by a written instrument or instruments of transfer in the form of assignment at the end hereof duly executed by the Holder. Except as set forth in the preceding sentence, this Warrant may not be assigned by the Holder. This Warrant may also be exchanged or combined with warrants of like tenor at the option of the Holder for another Warrant or Warrants of like tenor and representing in the aggregate the right to purchase a like number of Warrant Shares upon presentation thereof to the Company as its Principal Office together with a written notice signed by the Holder specifying the denominations in which the new Warrant is or the new Warrants are to be issued. Upon surrender for transfer or exchange of this Warrant to the Company at its Principal Office for transfer or exchange, in accordance with this Section 2, the Company shall, without charge (subject to Section 3), execute and deliver a new Warrant or Warrants of like tenor and of a like aggregate amount of Warrant Shares in the name of the assignee named in such instrument of assignment and, if the Holder's entire interest is not being assigned, in the name of the Holder with respect to that portion not transferred, and this Warrant shall promptly be canceled. Notwithstanding the foregoing, the Holder acknowledges that this Warrant and the Warrant Shares have not been registered under the Securities Act of 1933, as amended (the "Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant and Warrant Shares in the absence of (i) registration or qualification of this Warrant and such Warrant Shares under any applicable U.S. federal or state securities law then in effect, or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. 3 Section 3. Payment of Taxes. The Company shall pay all documentary stamp taxes, if any, attributable to the initial issuance of any Warrant Shares upon the exercise of this Warrant; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue or delivery of any Warrant or certificate for Warrant Shares in a name other than that of the Holder as such name is then shown on the books of the Company. Section 4. Certain Covenants. ----------------- Section 4.1. Reservation of Warrant Shares. There have been reserved and the Company shall at all times keep reserved, out of its authorized but unissued Common Stock, free from any preemptive rights, rights of first refusal or other restrictions (other than pursuant to the Act and applicable state securities laws) a number of shares of Common Stock sufficient to provide for the exercise of the rights of purchase represented by this Warrant. Section 4.2. No Impairment. The Company shall not by any action including, without limitation, amending its Restated Certificate of Incorporation, any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such action, as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company shall take all such action as may be necessary or appropriate in order that the Company may validly issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant at the then Warrant Price therefor. Section 4.3. Notice of Certain Corporate Action. In case the Company shall propose (a) to offer to the holders of its Common Stock rights to subscribe for or to purchase any shares of Common Stock or shares of stock of any class or any other securities, rights or options, or (b) to effect any reclassification of its Common Stock (other than a reclassification involving only the subdivision, or combination, of outstanding shares of Common Stock), or (c) to effect any capital reorganization, or (d) to effect any Change of Control, or (e) to effect the liquidation, dissolution or winding up of the Company or (f) to offer to the holders of its Common Stock the right to have their shares of Common Stock repurchased or redeemed or otherwise acquired by the Company, or (g) to take any other action which would require the adjustment of the Warrant Price and/or the number of Warrant Shares issuable upon exercise of this Warrant, then in each such case (but without limiting the provisions of Section 5), the Company shall give to the Holder, a notice of such proposed action, which shall specify the date on which a record is to be taken for purposes of such dividend, distribution of offer of rights, or the date on which such reclassification, reorganization, Change of Control, liquidation, dissolution, or winding up is to take place and the date of participation therein by the holders of Common Stock, if any such date is to be fixed and shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action on the Common Stock. Such notice shall be so given at least ten (10) Business Days prior to the record date for determining holders of the Common Stock for purposes of participating in or voting on such action, or at least ten (10) Business Days prior to the date of the taking of such proposed action or the date of participation therein by the holders of Common Stock, whichever shall be the earlier. Such notice shall 4 specify, in the case of any subscription or repurchase rights, the date on which the holders of Common Stock shall be entitled thereto, or the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon any reorganization, reclassification, Change of Control or other action, as the case may be. Such notice shall also state whether the action in question or the record date is subject to the effectiveness of a registration statement under the Act or to a favorable vote of security holders, if either is required, and the adjustment in Warrant Price and/or number of Warrant Shares issuable upon exercise of this Warrant as a result of such reorganization, reclassification, Change of Control or other action, to the extent then determinable. No such notice shall be given if the Company reasonably determines that the giving of such notice would require disclosure of material information which the Company has a bona fide purpose for preserving as confidential or the disclosure of which would not be in the best interests of the Company. Section 4.4. Purchase Entirely for Own Account. The Holder acknowledges that this Warrant is given to the Holder in reliance upon the Holder's representation to the Company, which by its acceptance of this Warrant the Holder hereby confirms, that the Warrant, the Warrant Shares, and the Common Stock issuable upon conversion of the Warrant Shares (collectively, the "Securities") being acquired by the Holder are being acquired for investment for the Holder's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Warrant, the Holder further represents that the Holder does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. The Holder represents that it has full power and authority to enter into this Warrant. The Holder has not been formed for the specific purpose of acquiring any of the Securities. Section 4.5. Disclosure of Information. The Holder has had an opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Securities with the Company's management and has had an opportunity to review the Company's facilities, and has had an opportunity to read all of the Company's filings with the Securities and Exchange Commission. Section 4.6. Restricted Securities. The Holder understands that the Securities have not been, and will not be, registered under the Act, by reason of a specific exemption from the registration provisions of the Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Holder's representations as expressed herein. The Holder understands that the Securities are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Holder must hold the Securities indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Holder further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, and on requirements relating to the Company which are outside of the Holder's control, and which the Company is under no obligation and may not be able to satisfy. 5 Section 4.7. Accredited Investor. The Holder is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Act. Section 5. Adjustment of Warrant Price. --------------------------- Section 5.1. Subdivision or Combination of Stock. In case the Company shall at any time (i) issue a dividend payable in Common Stock or any rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or (ii) subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares of Common Stock into a smaller number of shares, then (x) in the case of a dividend or subdivision, the Warrant Price in effect immediately prior to such dividend or subdivision shall be proportionately decreased and the number of shares of Common Stock purchasable upon the exercise of the Warrant immediately prior to such adjustment shall be proportionately increased, and (y) in the case of a combination, the Warrant Price in effect immediately prior to such combination shall be proportionately increased and the number of shares of Common Stock purchasable upon the exercise of the Warrant immediately prior to such adjustment shall be proportionately decreased. Section 5.2. Reorganization, Reclassification, Consolidation, Merger or Sale. (a) If any capital reorganization or reclassification of the capital stock of the Company or any consolidation or merger of the Company with another corporation, other than a Change of Control, shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, consolidation, exercise, merger or sale, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon the exercise of this Warrant, that number of shares of stock, securities or assets (including cash) as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of Warrant Shares for which this Warrant could have been exercised immediately prior to such reorganization, reclassification, consolidation, merger or sale, and in any such case appropriate provision shall be made with respect to the rights and interests of such Holder to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets (including cash) thereafter deliverable upon the exercise of this Warrant. The Company will not effect any such consolidation, merger or sale, unless prior to the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume, by written instrument executed and mailed or delivered to the Holder at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets (including cash) as, in accordance with the foregoing provisions, the Holder may be entitled to receive. Section 5.3. Fractional Shares. The Company shall not issue fractions of shares of Common Stock upon exercise of this Warrant or scrip in lieu thereof. If any fraction of a share of Common Stock would, except for the provisions of this Section 5.3, be issuable upon exercise of this Warrant, the Company shall in lieu thereof pay to the person entitled thereto an amount in cash equal to the current value of such fraction, calculated to the nearest one-hundredth (1/100) 6 of a share, to be computed on the basis of the Market Price for a share of Common Stock as of the date of exercise. Section 5.4. Notice of Adjustment. Upon any adjustment of the Warrant Price, and from time to time upon the request of the Holder the Company shall furnish to the Holder the Warrant Price resulting from such adjustment or otherwise in effect and the number of Warrant Shares then available for purchase under this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Section 5.5. Certain Events. If any event occurs as to which, in the good faith judgment of the Board of Directors of the Company the other provisions of this Section 5 are not strictly applicable or if strictly applicable would not fairly protect the exercise rights of the Holder in accordance with the essential intent and principles of such provisions, then the Board of Directors of the Company in the good faith, reasonable exercise of its business judgment shall make an adjustment in the application of such provisions, in accordance with such essential intent and principles so as to protect such exercise rights as aforesaid. Section 6. No Rights as a Stockholder; Notice to Holder. Nothing contained in this Warrant shall be construed as conferring upon the Holder the right to vote or to consent or to receive notice as a stockholder in respect of any meeting of stockholders for the election of directors of the Company or any other matter, or any rights whatsoever as a stockholder of the Company. Section 7. Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with, in the case of a Holder which is not a qualified institutional buyer within the meaning of Rule 144A under the Act, surety) in an amount reasonably satisfactory to it, or (in the case of mutilation) upon surrender and cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of like tenor. Section 8. Notices. All notices and other written communications provided for hereunder shall be given in writing and delivered in person or sent by overnight delivery service (with charges prepaid) or by facsimile transmission, if the original of such facsimile transmission is sent by overnight delivery service (with charges prepaid) by the next succeeding Business Day and (i) if to the Holder addressed to it at the address or fax number specified for such Holder in the Warrant Register or at such other address or fax number as the Holder shall have specified to the Company in writing in accordance with this Section 8, and (ii) if to the Company, addressed to it at 9 Centennial Drive, Peabody, Massachusetts 01960, Attention General Counsel Fax No: (978) 977-2412 or at such other address or fax number as the Company shall have specified to the Holder in writing in accordance with this Section 8. Notice given in accordance with this Section 8 shall be effective upon the earlier of the date of delivery or the second Business Day at the place of delivery after dispatch. Section 9. Applicable Law. This Warrant shall be governed by and construed in accordance with the laws of the State of New York without giving effect to principles of conflict of laws. 7 Section 10. Warrant Share Legend. Each certificate representing Warrant Shares, until such Warrant Shares have been distributed pursuant to a registration statement effective under the Act or sold to the public through a broker, dealer or market maker in compliance with Rule 144 under the Act (or any similar rule then in force) shall bear one or all of the following legends: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933." Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended. Section 11. Captions. The captions of the Sections and subsections of this Warrant have been inserted for convenience only and shall have no substantive effect. Section 12. Amendment or Waiver. Any term of the Warrants may be amended or waived only by an instrument in writing signed by the Company and a Holder Majority, and any such amendment or waiver (and any other action taken or decision made by a Holder Majority) shall be binding upon all Holders. 8 IN WITNESS WHEREOF, the undersigned have executed this Warrant as of the 15th day of March, 2004. SCANSOFT, INC. By: /s/ Paul Ricci -------------- Name: Paul Ricci Title: Chief Executive Officer Warburg Pincus Germany Private Equity VIII, K.G. By: WARBURG PINCUS & CO., its General Partner By: /s/ Jeffrey A. Harris ---------------------- Name: Jeffrey A. Harris Title: Partner [To be signed only upon exercise of Warrant] TO SCANSOFT, INC.: The undersigned, the holder of the within Warrant (the "Holder"), hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ____ shares of Common Stock of Scansoft, Inc. and herewith [makes payment of $____ therefor in full payment of the Exercise Payment][tenders securities having a Market Price of $_____ in full payment of the Exercise Payment] or [elects to receive a payment equal to the difference between (i) the Market Price (as defined in the Warrant) multiplied by ________ (the number of Warrant Shares as to which the payment is being elected) and (ii) ___________, which is the exercise price with respect to such Warrant Shares, in full payment of the Exercise Payment, payable by the Company to the Holder only in shares of Common Stock valued at the Market Price in accordance with the terms of the Warrant], and requests that the certificates for such shares be issued in the name of, and be delivered to _____, whose address is __________. Dated: - ----------------------------- ----------------------------- (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) ----------------------------- Address [To be signed only upon transfer of Warrant] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _______________ the right represented by the within Warrant to purchase ____ shares of the Common Stock of Scansoft, Inc. to which the within Warrant relates, and appoints ________ attorney to transfer said right on the books of Scansoft, Inc. with full power of substitution in the premises. Dated: - ----------------------------- (Signature must conform in all respects to name of Holder as specified on the face of the Warrant) ----------------------------- Address In the presence of: - ----------------------------- -2- EX-4 6 wa2528599.txt STOCKHOLDERS AGREEMENT Execution Version ----------------- 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 --------------- 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 ----------------- 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. 2 "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 3 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" 4 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 William Janeway. 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. --------------------------- 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 5 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 6 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 7 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 8 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 9 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. 10 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, L.P. Warburg Pincus Netherlands Private Equity VIII I C.V. Warburg Pincus Netherlands Private Equity VIII II C.V. Warburg Pincus Germany Private Equity VIII K.G. c/o Warburg Pincus LLC 466 Lexington Avenue New York, NY 10017 Attention: Jeffrey A. Harris Fax No. 212-878-6139 14 with a copy to: Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, NY 10019 Attention: Michael A. Schwartz, Esq. Fax No. 212-728-9267 (b) If to the Company, to: ScanSoft, Inc. 9 Centennial Drive Peabody, MA 01960 Attention: Chief Executive Officer Phone: (978) 977-2000 Fax: (978) 977-2436 with a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road, Palo Alto, CA 94304 Attention: Robert D. Sanchez, Esq. Fax No. 650-493-6811 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/ Paul Ricci -------------- Name: Paul Ricci Title: Chief Executive Officer PURCHASERS WARBURG PINCUS PRIVATE EQUITY VIII, L.P. By: WARBURG PINCUS & CO., its General Partner By: /s/ Jeffrey A. Harris --------------------- Name: Jeffrey A. Harris Title: Partner WARBURG PINCUS NETHERLANDS PRIVATE EQUITY VIII I C.V. By: WARBURG PINCUS & CO., its General Partner By: /s/ Jeffrey A. Harris --------------------- Name: Jeffrey A. Harris Title: Partner WARBURG PINCUS NETHERLANDS PRIVATE EQUITY VIII II C.V. By: WARBURG PINCUS & CO., its General Partner By: /s/ Jeffrey A. Harris --------------------- Name: Jeffrey A. Harris Title: Partner WARBURG PINCUS GERMANY PRIVATE EQUITY VIII, K.G. By: WARBURG PINCUS & CO., its General Partner By: /s/ Jeffrey A. Harris --------------------- Name: Jeffrey A. Harris Title: Partner EX-5 7 wa2528640.txt WARRANT ASSIGNMENT AGREEMENT EXECUTION VERSION WARRANT ASSIGNMENT AGREEMENT ---------------------------- WARRANT ASSIGNMENT AGREEMENT, dated as of April 8, 2004 (this "Assignment"), by and among Xerox Imaging Systems, Inc., a Delaware corporation ("Assignor"); 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, "Assignees"); and, solely for purposes of Sections 3(a) and 4 of this Assignment, ScanSoft, Inc., a Delaware corporation formerly known as Visioneer, Inc. (the "Company"). R E C I T A L S: ---------------- WHEREAS, on March 2, 1999, the Company issued to Xerox Corporation, a Delaware corporation ("Xerox"), a warrant (the "Warrant") to purchase shares of common stock, par value $.001 per share (the "Common Stock"), of the Company as provided in such Warrant; WHEREAS, Assignor is a wholly-owned subsidiary of Xerox; WHEREAS, pursuant to that certain Warrant Assignment, dated as of March 18, 2004, Xerox assigned to Assignor all of Xerox's right, title and interest in, to and under the Warrant; WHEREAS, Assignor, Assignees and the Company are parties to that certain Securities Purchase Agreement, dated March 19, 2004 (the "Purchase Agreement"), pursuant to which, among other things, Assignor agreed to sell, transfer, convey and assign to Assignees, and Assignees agreed to purchase from Assignor, the Warrant; and WHEREAS, in connection with the Purchase Agreement, Assignor desires to assign to Assignees all of Assignor's right, title and interest in, to and under the Warrant; NOW THEREFORE, in consideration of the foregoing premises and the covenants and promises set forth in this Assignment, and for other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby expressly acknowledged, the parties hereto hereby agree as follows: 1. Assignment of Warrant. Assignor hereby assigns, transfers, conveys and delivers absolutely unto Assignees all of Assignor's right, title and interest in, to and under the Warrant. 2. Certain Representations and Warranties of Assignor. Assignor hereby represents and warrants to each Assignee that Assignor: (a) has full legal right, power and authority to execute, deliver, and perform its obligations under this Assignment in accordance with their terms, and the execution, delivery and performance of this Assignment by Assignor and the consummation by Assignor of the transactions contemplated hereby have been duly authorized by all necessary action on behalf of Assignor, and this Assignment has been duly executed and delivered by Assignor and constitutes a legally valid and binding agreement of Assignor, enforceable against Assignor in accordance with its terms; and (b) from and after the date of the Purchase Agreement, has not, directly or indirectly, exercised or permitted the exercise (in whole or in part) of the Warrant. 3. Certain Acknowledgements and Agreements. (a) Company. The Company: (i) hereby acknowledges and agrees to the assignment of the Warrant to Assignees as contemplated by this Assignment and, from and after the date hereof, the Company shall treat Assignees as the holders of the Warrant so as to purchase such number of shares of Common Stock underlying the Warrant set forth opposite their respective names on Schedule I to the Purchase Agreement for all purposes thereunder (notwithstanding any provision in the Warrant, including but not limited to Sections 5 and 9.2 thereof, to the contrary); and (ii) upon the request of Assignees, together with their delivery to the Company of the Warrant, shall cancel the Warrant and, in replacement thereof, issue to Assignors one or more warrants (of like tenor to the Warrant) to purchase such number of shares of Common Stock for which the Warrant is then exercisable. (b) Assignor. Assignor hereby acknowledges and agrees that, from and after the date hereof, the Company shall treat Assignees as the holders of the Warrant so as to purchase such number of shares of Common Stock underlying the Warrant set forth opposite their respective names on Schedule I to the Purchase Agreement for all purposes thereunder (notwithstanding any provision in the Warrant, including but not limited to Sections 5 and 9.2 thereof, to the contrary). 4. Miscellaneous. (a) Further Assurances. At any time and from time to time after the date hereof, at the request of Assignees, and without further consideration, each of Assignor and the Company shall execute and deliver such other instruments of transfer, conveyance, assignment and confirmation and take such other action as Assignees may reasonably request in order to more effectively transfer, convey and assign to Assignees, or to recognize the transfer, conveyance and assignment to Assignees of, all of Assignor's right, title and interest in, to and under the Warrant as provided herein. (b) Binding Agreement. This Assignment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. (c) Severability. Whenever possible, each provision of this Assignment shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Assignment is held by a court of competent jurisdiction to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such -2- prohibition or invalidity, without invalidating or otherwise affecting any other provision of this Assignment. (d) Captions; Headings. The captions and headings used in this Assignment are for convenience of reference only and do not constitute a part of this Assignment and shall not be deemed to limit, characterize or in any way affect any provision of this Assignment, and all provisions of this Assignment shall be enforced and construed as if no caption or heading had been used herein. (e) Entire Agreement. This Assignment and the Purchase Agreement constitute the entire agreement, and supercede any prior understandings, agreements or arrangements (whether written or oral), by or between the parties hereto with respect to the subject matter hereof. (f) Governing Law. This Assignment shall be governed by and construed in accordance with the laws of the State of New York (without giving effect to any choice of law or conflict of law provision thereof). (g) Counterparts. This Assignment may be executed in multiple counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument. [Remainder of Page Intentionally Left Blank] -3- IN WITNESS WHEREOF, the parties hereto have caused this Warrant Assignment Agreement to be duly and properly executed as of the date and year first written above. ASSIGNOR -------- XEROX IMAGING SYSTEMS, INC. By: /s/ Michael Johnston -------------------- Name: Michael Johnston Title: Chairman, President and Treasurer ASSIGNEES --------- WARBURG PINCUS PRIVATE EQUITY VIII, L.P. By: WARBURG PINCUS & CO., its General Partner By: /s/ Scott A. Arenare -------------------- Name: Scott A. Arenare Title: Partner WARBURG PINCUS NETHERLANDS PRIVATE EQUITY VIII I C.V. By: WARBURG PINCUS & CO., its General Partner By: /s/ Scott A. Arenare -------------------- Name: Scott A. Arenare Title: Partner WARBURG PINCUS NETHERLANDS PRIVATE EQUITY VIII II C.V. By: WARBURG PINCUS & CO., its General Partner By: /s/ Scott A. Arenare -------------------- Name: Scott A. Arenare Title: Partner WARBURG PINCUS GERMANY PRIVATE EQUITY VIII, K.G. By: WARBURG PINCUS & CO., its General Partner By: /s/ Scott A. Arenare -------------------- Name: Scott A. Arenare Title: Partner COMPANY ------- SCANSOFT, INC. By: /s/ David A. Gerth ------------------ Name: David A. Gerth Title: Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----