(RULE 14a-101)

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

Filed by the Registrant     þ

Filed by a Party other than the Registrant     o

Check the appropriate box:

	o		Preliminary Proxy Statement
	þ		Definitive Proxy Statement
	o		Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2))
	o		Definitive Additional Materials
	o		Soliciting Material Pursuant to § 240.14a-12

NUANCE COMMUNICATIONS, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

     Payment of Filing Fee (Check the appropriate box):

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o		Fee computed on table below per Exchange Act rules 14a-6(i)(1) and 0-11.

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NUANCE COMMUNICATIONS, INC.
1 Wayside Road
Burlington, MA 01803
(781) 565-5000

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

Dear Stockholders:

 

The Annual Meeting of Stockholders of Nuance Communications, Inc. (the “Company”) will be held at the Company’s office located at 1198 East Arques Avenue, Sunnyvale, CA 94085, on January 29, 2010 at 9:00 a.m., local time, for the purpose of considering and acting upon the following proposals:

 

 

We will be utilizing the U.S. Securities and Exchange Commission rules that allow issuers to furnish proxy materials to their stockholders via the Internet. Pursuant to these rules, instead of mailing a printed copy of the Company’s proxy materials to each stockholder we have elected to provide access to our proxy materials over the Internet. Accordingly, with the exception of certain requesting stockholders who will receive printed copies of the Company’s proxy materials by mail, stockholders of record will receive a Notice of Internet Availability of Proxy Materials and may vote at the Annual Meeting and any postponements or adjournments of the meeting. We expect to mail the Notice of Internet Availability of Proxy Materials by December 18, 2009, at least 40 calendar days prior to the Annual Meeting date.

 

The Board of Directors has fixed the close of business on December 4, 2009 as the record date for determination of stockholders entitled to notice of, and to vote at, the Annual Meeting and at any postponements or adjournments thereof. A list of stockholders entitled to vote at the Annual Meeting will be available at 1 Wayside Road, Burlington, MA 01803 for ten days prior to the Annual Meeting.

 

The Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2009 accompanies this Notice of Annual Meeting of Stockholders and Proxy Statement. These documents may also be accessed on the Broadridge Financial hosted site www.proxyvote.com.

 

Please refer to the Proxy Statement, which forms a part of this Notice and is incorporated herein by reference, for further information with respect to the business to be transacted at the annual meeting.

 

By Order of the Board of Directors

 

 

Jo-Anne Sinclair

Secretary

Burlington, Massachusetts

December 18, 2009

YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE.

 

Important Notice Regarding the Availability of Proxy Materials for
the Meeting of Stockholders to be Held on January 29, 2010

 

 

1) By Internet: www.proxyvote.com

 

2) By Telephone: 1-800-579-1639

 

3) By E-Mail*: sendmaterials@proxyvote.com

 

 

      * If requesting materials by e-mail, please send a blank e-mail with the 12-Digit Control Number (located on the Notice or Proxy Card) in the subject line.

 

NUANCE COMMUNICATIONS, INC.

1 Wayside Road

Burlington, MA 01803

(781) 565-5000

 

 

PROXY STATEMENT

 

 

ANNUAL MEETING OF STOCKHOLDERS
January 29, 2010

 

This Proxy Statement is furnished in connection with the solicitation by Nuance Communications, Inc. (the “Company”) on behalf of the Board of Directors (the “Board” or the “Board of Directors”) of proxies for use at the Annual Meeting of Stockholders of the Company to be held on January 29, 2010 at 9:00 a.m., local time, at the Company’s office located at 1198 East Arques Avenue, Sunnyvale, CA 94085 (the “Annual Meeting”). We intend to mail and make available this Proxy Statement and the accompanying form of proxy to stockholders on or about December 18, 2009.

 

VOTING RIGHTS

 

Each share of the Company’s common stock (the “Common Stock”) entitles the holder thereof to one vote on matters to be acted upon at the Annual Meeting, including the election of directors. The Company’s Series B Preferred Stock is not entitled to vote on matters to be acted upon at the Annual Meeting. Votes cast in person or by proxy at the Annual Meeting will be tabulated by Broadridge Financial Solutions, Inc., the Inspector of Elections. Any proxy that is returned using the form of proxy enclosed or voted by Internet according to the instructions included on the proxy card will be voted in accordance with the instructions thereon, and if no instructions are given, will be voted (i) FOR the election of the director nominees as provided under Proposal 1 herein, (ii) FOR the Company’s amendment to the Amended and Restated 2000 Stock Plan under Proposal 2 herein, (iii) FOR the Company’s amendment to the Amended and Restated 1995 Employee Stock Purchase Plan under Proposal 3 herein, (iv) FOR ratification of the appointment of BDO Seidman, LLP as the Company’s independent registered public accounting firm under Proposal 4 herein, and (v) as the proxy holders deem advisable in their sole discretion on any other matters that may properly come before the Annual Meeting. A stockholder may indicate on the enclosed proxy or its substitute that it is abstaining from voting on a particular matter (an “abstention”). A broker may indicate on the enclosed proxy or its substitute that it does not have discretionary authority as to certain shares to vote on a particular matter (a “broker non-vote”). Abstentions and broker non-votes are each tabulated separately.

 

The Inspector of Elections will determine whether or not a quorum is present at the Annual Meeting. In general, Delaware law and our bylaws provide that a majority of the shares issued and outstanding and, entitled to vote present in person or represented by proxy, constitutes a quorum. Abstentions and broker non-votes of shares that are entitled to vote are treated as shares that are present in person or represented by proxy for purposes of determining the presence of a quorum.

 

In determining whether a proposal has been approved, abstentions are treated as present in person or represented by proxy and entitled to vote, but not as voting for such proposal, and hence have the same effect as votes against such proposal, while broker non-votes are not treated as present in person or represented by proxy, and hence have no effect on the vote for such proposal.

 

RECORD DATE AND SHARE OWNERSHIP

 

Holders of record of Common Stock as of the close of business on December 4, 2009 have the right to receive notice of and to vote at the Annual Meeting. On December 4, 2009, the Company had issued and outstanding 279,768,209 shares of Common Stock.

 

PROXIES

 

Proxies for use at the Annual Meeting are being solicited by the Company on behalf of the Board of Directors from its stockholders. Any person giving a proxy in the form accompanying this Proxy Statement has the power to revoke it at any time before its exercise by (i) filing with the Secretary of the Company a signed written statement revoking his or her proxy or (ii) submitting an executed proxy bearing a date later than that of the proxy being revoked. A proxy may also be revoked by attendance at the Annual Meeting and the election to vote in person. Attendance at the Annual Meeting will not by itself constitute the revocation of a proxy.

 

STOCKHOLDER PROPOSALS

 

Proposals of stockholders that are intended to be presented at the Company’s 2011 Annual Meeting of Stockholders must comply with the requirements of SEC Rule 14a-8 and must be received by the Company no later than August 20, 2010, in order to be included in the Company’s proxy statement and form of proxy relating to the meeting. A stockholder proposal or a nomination for director for the Company’s 2011 Annual Meeting of Stockholders that is not to be included in the Company’s proxy statement and form of proxy relating to the meeting must be received by the Company no later than October 31, 2010. The Company’s bylaws require that certain information and acknowledgements with respect to the proposal be set forth in the stockholder’s notice. A copy of the relevant bylaw provision is available upon written request to Nuance Communications, Inc., 1 Wayside Road, Burlington, MA 01803, Attention: Investor Relations. Further, our bylaws were filed as an exhibit to our Current Report on Form 8-K, filed with the Securities and Exchange Commission (the “SEC”) on November 13, 2007.

 

PROXY SOLICITATION COSTS

 

The expense of solicitation of proxies will be borne by the Company. In addition to solicitation of proxies by mail, certain officers, directors and Company employees, who will receive no additional compensation for their services, may solicit proxies by telephone, telegraph or in person. The Company is required to request brokers and nominees who hold stock in their name to furnish this proxy material to beneficial owners of the stock and will reimburse such brokers and nominees for their reasonable out-of-pocket expenses in so doing. In addition, we have engaged The Altman Group, Inc. to assist in the solicitation of proxies and provide related advice and informational support for a services fee of $8,500 plus reimbursement of out-of-pocket expenses.

 

PROPOSAL NUMBER 1

 

ELECTION OF DIRECTORS

 

The Nominating Committee of the Board of Directors recommended, and the Board of Directors approved, Paul A. Ricci, Robert J. Frankenberg, Patrick T. Hackett, William H. Janeway, Katharine A. Martin, Mark B. Myers, Philip J. Quigley and Robert G. Teresi as nominees for election at the Annual Meeting. At the Annual Meeting, eight directors will be elected to the Board. Except as set forth below, unless otherwise instructed, the persons appointed in the accompanying form of proxy will vote the proxies received by them for the nominees named below, who are all presently directors of the Company. Messrs. Hackett and Janeway are being nominated for election to our Board by Warburg Pincus LLC pursuant to the terms of a Stockholders Agreement described herein under “Transactions with Related Persons.” In the event that any nominee becomes unavailable, the proxy holders will vote in their discretion for a substitute nominee. The term of office of each person elected as a director will continue until the next Annual Meeting of Stockholders or until a successor has been elected and qualified.

 

Information Regarding the Nominees for Election as Directors

 

The following information with respect to the principal occupation or employment, other affiliations and business experience during the last five years of the nominees has been furnished to the Company by such nominees. Except as indicated, the nominees have had the same principal occupation during the last five years.

 

Paul A. Ricci, 53, has served as our Chairman since March 2, 1999 and our Chief Executive Officer since August 21, 2000. From May 1992 to August 2000, Mr. Ricci held several positions at Xerox, including, President, Desktop Systems Division, President, Software Solutions Division, and Vice President, Corporate Business Development. Between June 1997 and March 1999, Mr. Ricci served as Chairman of the Board of Directors of Nuance Communications, Inc. (formerly, ScanSoft Inc.), which was then operating as an indirect wholly-owned subsidiary of Xerox.

 

Robert J. Frankenberg, 62, has served as a director since March 13, 2000. Mr. Frankenberg is owner of NetVentures, a management consulting firm. From December 1999 to July 2006, Mr. Frankenberg served as Chairman of Kinzan, Inc., an Internet Services software platform provider. From May 1997 to July 2000, Mr. Frankenberg served as Chairman, President and Chief Executive Officer of Encanto Networks, Inc., a developer of hardware and software designed to enable the creation of businesses on the Internet. From April 1994 to August 1996, Mr. Frankenberg was Chairman, President and Chief Executive Officer of Novell, Inc., a producer of network and office software. Mr. Frankenberg is a director of National Semiconductor and Secure Computing Corporation. Mr. Frankenberg also serves on several boards of privately held companies. Mr. Frankenberg serves as Chairman of our Audit and Compensation Committees and also serves on our Governance and Nominating Committees.

 

Patrick T. Hackett, 48, has served as a director since January 30, 2009 and was appointed to the Board pursuant to the terms of a Stockholders Agreement between the Company and Warburg Pincus & Co. Mr. Hackett is a Managing Director and co-head of the Technology, Media and Telecommunications group at Warburg Pincus LLC, which he joined in 1990. Mr. Hackett serves as a director of Bridgepoint Education, Inc. and several privately-held companies. Mr. Hackett earned a B.A. from the University of Pennsylvania and a B.S. from the Wharton School of Business at the University of Pennsylvania.

 

William H. Janeway, 66, has served as a director since April 2004 and was appointed to the Board pursuant to the terms of a Stockholders Agreement between the Company and Warburg Pincus & Co. Mr. Janeway is a Senior Advisor of Warburg Pincus LLC and has been employed by Warburg Pincus LLC since July 1988. Prior to joining Warburg Pincus LLC, Mr. Janeway served as Executive Vice President and a director at Eberstadt Fleming Inc. from 1979 to July 1988. Mr. Janeway is a director of several privately held companies. Mr. Janeway holds a B.A. from Princeton University and a Ph.D. from Cambridge University, where he studied as a Marshall Scholar.

 

Katharine A. Martin, 47, has served as a director since December 17, 1999. Since September 1999, Ms. Martin has served as a Member of Wilson Sonsini Goodrich & Rosati, Professional Corporation. Ms. Martin currently serves on the firm’s Board of Directors. Wilson Sonsini Goodrich & Rosati serves as the Company’s primary outside corporate and securities counsel. Prior thereto, Ms. Martin was a Partner of Pillsbury Madison & Sutro LLP.

Ms. Martin also serves on the board of directors of the Wilson Sonsini Goodrich & Rosati Foundation, a nonprofit organization, and The Ronald McDonald House at Stanford, a nonprofit organization. Ms. Martin serves as Chairman of our Governance Committee.

 

Mark B. Myers, 71, has served as a director since March 2, 1999. Dr. Myers served as Senior Vice President, Xerox Research and Technology, responsible for worldwide research and technology from February 1992 until April 2000. From 2000 to 2005, Dr. Myers was a Senior Fellow, and from 2002 to 2005 was a visiting Executive Professor, at the Wharton School, University of Pennsylvania. Dr. Myers serves as Chairman of our Nominating Committee and also serves on our Audit and Compensation Committees.

 

Philip J. Quigley, 67, has served as a director since the consummation of the acquisition of the former Nuance Communications, Inc. in September 2005, and was originally appointed to the Board in accordance with the terms of the Merger Agreement pursuant to which the Company acquired the former Nuance Communications, Inc. Mr. Quigley served as Chairman, President, and Chief Executive Officer of Pacific Telesis Group, a telecommunications holding company in San Francisco, California, from April 1994 until his retirement in December 1997. He also serves as a director of Wells Fargo & Company and as an advisor or director to several private organizations. Mr. Quigley serves on our Audit Committee.

 

Robert G. Teresi, 68, has served as a director since March 13, 2000. Mr. Teresi served as Chairman of the Board, Chief Executive Officer and President of Caere Corporation from May 1985 until March 2000. Mr. Teresi serves on our Governance Committee.

 

Required Vote

 

The eight nominees receiving the highest number of affirmative votes of the shares of the Company’s Common Stock present at the Annual Meeting in person or by proxy and entitled to vote shall be elected as directors. Unless marked to the contrary, proxies received will be voted “FOR” management’s nominees.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE “FOR” THE ELECTION OF THE FOREGOING NOMINEES TO SERVE AS DIRECTORS UNTIL THE NEXT ANNUAL MEETING OF STOCKHOLDERS.

 

CORPORATE GOVERNANCE

 

Board of Director Meetings and Committees

 

The Board of Directors held a total of 9 meetings during the fiscal year ended September 30, 2009. Each director attended at least 75% of the aggregate number of meetings of: (i) the Board of Directors and (ii) the committees of the Board of Directors on which he or she served.

 

Board Independence

 

The Board of Directors has determined that Ms. Martin and each of Messrs. Frankenberg, Hackett, Janeway, Myers, Quigley and Teresi are independent within the meaning of the listing standards of the NASDAQ Stock Market.

 

Committees of the Board of Directors

 

The Board of Directors has Audit, Nominating, Governance and Compensation Committees. Each of these committees has adopted a written charter. All members of the committees are appointed by the Board of Directors, and are non-employee directors. The following describes each committee, its current membership, the number of meetings held during the fiscal year ended September 30, 2009 and its function.

Audit Committee

 

The Audit Committee consists of Messrs. Frankenberg, Myers and Quigley, each of whom is independent within the meaning of the listing standards of the NASDAQ Stock Market. The Audit Committee held 6 meetings during the fiscal year ended September 30, 2009. Mr. Frankenberg serves as Chairman of the Audit Committee.

 

The Board of Directors has determined that Mr. Frankenberg is an audit committee financial expert as defined by Item 407(d)(5)(ii) of Regulation S-K of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Mr. Frankenberg’s relevant experience includes services as the Chief Executive Officer of Novell, Inc., where he actively supervised that company’s principal financial officer, and as a member of several other audit committees.

 

The Audit Committee reviews the engagement of the Company’s independent registered public accounting firm, reviews annual financial statements, considers matters relating to accounting policy and internal controls, reviews whether non-audit services provided by the independent registered public accounting firm affect the accountants’ independence and reviews the scope of annual audits in accordance with a written Audit Committee Charter.

 

The Audit Committee Report is included in this Proxy Statement. In addition, the Board of Directors adopted an Amended and Restated Charter for the Audit Committee in February 2004, a copy of which is available on the Company’s Web site at http://www.nuance.com/company/governance.

 

Nominating Committee

 

The Nominating Committee consists of Messrs. Frankenberg and Myers, each of whom is independent within the meaning of the listing standards of the NASDAQ Stock Market. Mr. Myers serves as the Chairman of the Nominating Committee.

 

The mandate of the Nominating Committee is to ensure that the Board of Directors is properly constituted to meet its fiduciary obligations to stockholders and the Company. The Nominating Committee was formed to consider and periodically report on matters relating to the identification, selection and qualification of the Board of Directors and candidates nominated to the Board of Directors and its committees.

 

The Nominating Committee held 1 meeting during the fiscal year ended September 30, 2009. The Board of Directors adopted a written charter for the Nominating Committee in February 2004, a copy of which is available on the Company’s Web site at http://www.nuance.com/company/governance.

 

Governance Committee

 

The Governance Committee consists of Ms. Martin and Messrs. Frankenberg and Teresi, each of whom is independent within the meaning of the listing standards of the NASDAQ Stock Market. Ms. Martin serves as the Chairman of the Governance Committee.

 

The mandate of the Governance Committee is to ensure that the Board of Directors and the Company have and follow appropriate governance standards. To carry out this purpose, the Governance Committee develops and recommends to the Board the governance principles applicable to the Company and oversees the evaluation of the Board.

 

The Governance Committee held no meetings during the fiscal year ended September 30, 2009. The Board of Directors adopted a written charter for the Governance Committee in February 2004, a copy of which is available on the Company’s Web site at http://www.nuance.com/company/governance.

 

Compensation Committee

 

The Compensation Committee consists of Messrs. Frankenberg and Myers, each of whom is independent within the meaning of the listing standards of the NASDAQ Stock Market and an outside director within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. Mr. Frankenberg serves as the Chairman of the Compensation Committee. The mandate of the Compensation Committee is to review and

recommend to the Board of Directors the Company’s compensation and benefit policies, and oversee, evaluate and approve compensation plans, policies and programs for the Company’s executive officers.

 

The Compensation Committee held 5 meetings during the fiscal year ended September 30, 2009. The Board of Directors adopted a written charter for the Compensation Committee in February 2004, a copy of which is available on the Company’s Web site at http://www.nuance.com/company/governance.

 

The Compensation Committee Report and Compensation Discussion and Analysis are included in this Proxy Statement.

 

Consideration of Director Nominees

 

Stockholder Nominees

 

The Nominating Committee will consider properly submitted stockholder nominations for candidates for membership on the Board of Directors as well as candidates recommended for consideration by the Nominating Committee as described below under “Identifying and Evaluating Nominees for Directors.” Any stockholder nominations must comply with the requirements of the Company’s amended and restated bylaws and should include all information relating to such nominee as would be required to be disclosed in solicitations of proxies for the election of such nominee as a director pursuant to Regulation 14A under the Exchange Act, such nominee’s written consent to be named in the proxy statement as a nominee and to serve as a director if elected, as well as a written statement executed by such nominee acknowledging that as a director of the Company, such nominee will owe a fiduciary duty under the General Corporation Law of the State of Delaware exclusively to the Company and its stockholders. In addition, stockholder nominations should be submitted within the time frame as specified under “Stockholder Proposals” above and addressed to: Nuance Communications, Inc., Attention: General Counsel, 1 Wayside Road, Burlington, MA 01803.

 

A stockholder that instead desires to merely recommend a candidate for consideration by the Nominating Committee shall direct the recommendation in writing to Nuance Communications, Inc., Attention: General Counsel, 1 Wayside Road, Burlington, MA 01803, and must include the candidate’s name, home and business contact information, detailed biographical data and qualifications, information regarding any relationships between the candidate and the Company within the last three years and evidence of the nominating person’s ownership of Company stock.

 

Director Qualifications

 

In discharging its responsibilities to nominate candidates for election to the Board of Directors, the Nominating Committee has not specified any minimum qualifications for serving on the Board of Directors. However, the Nominating Committee endeavors to evaluate, propose and approve candidates with business experience and personal skills in technology, finance, marketing, financial reporting and other areas that may be expected to contribute to an effective Board of Directors. The Nominating Committee seeks to ensure that the Board of Directors is composed of individuals who have experience relevant to the needs of the Company and who have the highest professional and personal ethics, consistent with the Company’s values and standards. Candidates should be committed to enhancing stockholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience.

 

Identifying and Evaluating Nominees for Directors

 

The Nominating Committee utilizes a variety of methods for identifying and evaluating nominees for director. Candidates may come to the attention of the Nominating Committee through current members of the Board of Directors, professional search firms, stockholders or other persons. These candidates are evaluated at regular or special meetings of the Nominating Committee and may be considered at any point during the year. As described above, the Nominating Committee considers properly submitted stockholder nominations and recommendations for candidates for the Board of Directors. Following verification of the stockholder status of persons proposing candidates, nominations and recommendations are aggregated and considered by the Nominating Committee. If any materials are provided by a stockholder in connection with the nomination or recommendation of a director

candidate, such materials are forwarded to the Nominating Committee. The Nominating Committee also reviews materials provided by professional search firms or other parties in connection with a nominee who is not proposed by a stockholder. Historically, many of our directors have served on the boards of directors of companies we have acquired.

 

Compensation Committee Interlocks and Insider Participation

 

The Compensation Committee consists of Messrs. Frankenberg and Myers. None of the members of the Compensation Committee has been or is an officer or employee of the Company. None of the Company’s executive officers serve on the board of directors or compensation committee of a company that has an executive officer that serves on the Company’s Board or Compensation Committee.

 

Annual Meeting Attendance

 

Although we do not have a formal policy regarding attendance by members of the Board of Directors at our annual meetings of stockholders, directors are encouraged to attend annual meetings of the Company. Five directors attended the 2009 annual meeting of stockholders.

 

Communication with the Board of Directors

 

Although we do not have a formal policy regarding communications with the Board of Directors, stockholders who are interested in communicating with the Board of Directors are encouraged to do so by submitting an email to generalcounsel@nuance.com or by writing to us at Nuance Communications, Inc., Attention: General Counsel, 1 Wayside Road, Burlington, MA 01803. Stockholders who would like their submission directed to a member of the Board of Directors may so specify. Communications will be reviewed by the General Counsel and forwarded to the Board, or the individual, if so specified, as appropriate.

 

Code of Ethics

 

Our Board of Directors adopted a Code of Business Conduct and Ethics for all of our directors, officers and employees on February 24, 2004. Our Code of Business Conduct and Ethics can be found on our website: http://www.nuance.com/company/governance. We will provide to any person without charge, upon request, a copy of our Code of Business Conduct and Ethics. Such a request should be made in writing and addressed to Nuance Communications, Inc., Attention: Investor Relations, 1 Wayside Road, Burlington, MA 01803. Further, our Code of Business Conduct and Ethics was filed as an exhibit to our Annual Report on Form 10-K, filed with the SEC on March 15, 2004.

 

Stock Ownership Guidelines

 

On August 11, 2006, our Board of Directors adopted stock ownership guidelines for our non-employee directors and executive officers. The guidelines were adopted to further align the interests of our non-employee directors and our executive officers with the interests of the stockholders. Under our guidelines, the target share ownership levels are five times base salary for our chief executive officer, three times base salary for executive officers, and three times the annual cash retainer for non-employee directors. Shares subject to unexercised options, whether or not vested, will not be counted for purposes of satisfying these guidelines. We have not specified a time period during which individuals must be in compliance with the guidelines, however, until an individual has reached the target level, he or she will be required to retain twenty-five percent of the net shares received as a result of the exercise of stock options or vesting of restricted stock or restricted stock units until the guidelines are met. Ownership guidelines are calculated based on the closing price of Nuance Common Stock on a quarterly basis.

Corporate Governance Guidelines

 

Our corporate governance principles are set forth in our “Corporate Governance Guidelines”. These guidelines cover the following significant topics:

 

Board Selection Process.  It is expected that all directors will be alert to potential Board candidates with appropriate skills and characteristics and communicate information regarding Board selection matters to the Nominating Committee. The Nominating Committee is expected to exercise initiative in recommending to the Board candidates for directorships and Board committee assignments. The Board endorses the value of seeking qualified directors from diverse backgrounds otherwise relevant to the Company’s mission, strategy and business operations and perceived needs of the Board at a given time.

 

Board Leadership.  The leadership of the Board includes a Chairman of the Board and a lead independent director selected by the Governance Committee. Mr. Frankenberg is the lead independent director. The lead independent director serves as the focal point for independent directors regarding resolving conflicts with the CEO, or other independent directors, and coordinating feedback to the CEO on behalf of independent directors regarding business issues and board management. The lead independent director and the other independent directors meet regularly without the CEO present.

 

Director’s Eligibility, Education, and Term of Office.  Directors may not serve on the board of directors of more than five other public companies. Directors are reimbursed for costs incurred in connection with participating in director education programs. Each director is required to notify the Chairman upon a job change. The Governance Committee may consider such change of status in recommending to the Board whether the director should continue serving as a member of the Board. Directors must retire from the Board at the conclusion of any term during which the director reaches the age of seventy-five years, unless waived by the Board.

 

Committees.  The current committee structure of the Board includes the following committees: Audit, Compensation, Nominating and Governance. The charters of each standing committee are reviewed periodically with a view to delegating committees with the authority of the Board concerning specified matters appropriate to such committee.

 

Compensation of Non-Employee Directors

 

Each non-employee director receives an annual retainer of $30,000. The Chairman of the Audit Committee receives an annual retainer of $15,000 and the other members of the Audit Committee receive an annual retainer of $7,500. The Chairman of the Compensation Committee receives an annual retainer of $7,500 and the other members of the Compensation Committee receive an annual retainer of $5,000. The Chairmen of the Nominating and Governance Committees receive annual retainers of $5,000 and the additional members of the Nominating and Governance Committees receive an annual retainer of $2,500. In addition to the annual retainer, each non-employee director receives $2,000 for each Board meeting attended in person, $1,500 for each Committee meeting attended in person and $750 for each Board or Committee meeting attended telephonically. The Company also reimburses directors for expenses in connection with attendance at meetings.

 

Non-employee directors are also entitled to participate in the 1995 Directors’ Stock Option Plan (the “Directors’ Plan”). The Directors’ Plan, as amended, provides for an initial grant of 30,000 Restricted Stock Units to non-employee directors upon first joining the Board of Directors as a non-employee director, with a purchase price equal to $0.001. In addition, non-employee directors will be eligible to automatically receive annual grants of 15,000 Restricted Stock Units on January 1 of each year, provided that, on such date, he or she shall have served on the Board of Directors for at least six months, with a purchase price equal to $0.001 per share. All Restricted Stock Units granted to the non-employee directors will vest annually over a three-year period, subject to the non-employee director’s remaining a member of the Board of Directors on such vesting date.

The following table provides information regarding the actual cash and stock compensation paid to our non-employee directors during the 2009 fiscal year:

 

DIRECTOR COMPENSATION

 

 

 

 

Name		Grant Date				Shares				Value
Mr. Frankenberg			January 1, 2007				15,000			$	173,835
Mr. Frankenberg			January 1, 2008				15,000			$	280,185
Mr. Frankenberg			January 1, 2009				15,000			$	151,935
Patrick T. Hackett			January 30, 2009				30,000			$	295,770
Mr. Harris(3)			January 1, 2007				15,000			$	173,835
Mr. Harris(3)			January 1, 2008				15,000			$	280,185
Mr. Janeway			January 1, 2007				15,000			$	173,835
Mr. Janeway			January 1, 2008				15,000			$	280,185
Mr. Janeway			January 1, 2009				15,000			$	151,935
Ms. Martin			January 1, 2007				15,000			$	173,835
Ms. Martin			January 1, 2008				15,000			$	280,185
Ms. Martin			January 1, 2009				15,000			$	151,935
Mr. Myers			January 1, 2007				15,000			$	173,835
Mr. Myers			January 1, 2008				15,000			$	280,185
Mr. Myers			January 1, 2009				15,000			$	151,935
Mr. Quigley			January 1, 2007				15,000			$	173,835
Mr. Quigley			January 1, 2008				15,000			$	280,185
Mr. Quigley			January 1, 2009				15,000			$	151,935
Mr. Teresi			January 1, 2007				15,000			$	173,835
Mr. Teresi			January 1, 2008				15,000			$	280,185
Mr. Teresi			January 1, 2009				15,000			$	151,935

 

The aggregate number of Stock Awards held by each director as of September 30, 2009 is set forth in the following table:

 

Name		Stock Awards
Mr. Frankenberg			30,000
Mr. Hackett			30,000
Mr. Harris(3)			0
Mr. Janeway			30,000
Ms. Martin			30,000
Mr. Myers			30,000
Mr. Quigley			30,000
Mr. Teresi			30,000

 

 

The grant date fair value of each option award expensed during fiscal 2009 is set forth in the following table:

 

Name		Grant Date				Options (#)				Value ($)
Mr. Harris(3)			September 15, 2005				50,000			$	2.1980
Mr. Quigley			September 15, 2005				50,000			$	2.1980

 

The aggregate number of stock options held by each director as of September 30, 2009 is set forth in the following table:

 

Name		Stock Options
Mr. Frankenberg			140,000
Mr. Hackett			0
Mr. Harris(3)			0
Mr. Janeway			80,000
Ms. Martin			120,000
Mr. Myers			—
Mr. Quigley			184,189
Mr. Teresi			120,000

 

 

EXECUTIVE COMPENSATION, MANAGEMENT AND OTHER INFORMATION

 

Information Concerning Current Executive Officers Who Are Not Directors

 

Steven G. Chambers, 47, currently serves as Executive Vice President, Worldwide Sales, and Chief Marketing Officer. Mr. Chambers served as President of our Mobility and Consumer Services Division from October 2007 to November 2008 and President of our Enterprises Division from November 2008 to November 2009. Mr. Chambers served as our President of our SpeechWorks Solutions Business Unit from March 2004 to October 2007. Mr. Chambers joined Nuance in August 2003 as General Manager of our Networks Business Unit in connection with our acquisition of SpeechWorks International, Inc. From September 1999 to August 2003, Mr. Chambers served as the Chief Marketing Officer of SpeechWorks International, Inc.

 

Richard L. Green, 54, currently serves as our Executive Vice President of our Mobility and Enterprise Division. From 1989 to 2004 and 2006 to 2008, Mr. Green was employed in varying level management positions most recently being the Executive Vice President for Sun Microsystems. From 2004 to 2006, Mr. Green held the position of Executive Vice President, Products & Strategy for Cassatt Corporation.

 

Donald W. Hunt, 54, currently serves as our Executive Vice President, Strategic Accounts. Mr. Hunt served as our President of Global Sales from October 2007 through November 2009 and served as our Senior Vice President of Worldwide Sales from September 2006 to October 2007. Mr. Hunt was elected an executive officer effective November 2006 and remained an executive officer through November 2009. From June 2004 until July 2006, Mr. Hunt was employed as the Senior Vice President of Worldwide Sales for Macromedia, Inc., which was acquired by Adobe Systems Incorporated. Prior to joining Macromedia, from December 2001 to May 2003, Mr. Hunt served as Senior Vice President of Worldwide Field Operations for MatrixOne, Inc. From January 1999 to April 2001, Mr. Hunt served as Senior Vice President of Worldwide Field Operations at Genesys Telecommunications Laboratories, Inc. a subsidiary of Alcatel.

 

John D. Shagoury, 51, currently serves as our Executive Vice President and General Manager of our Healthcare Division. Mr. Shagoury served as President of our Imaging Division since October 2007 and Co-President of our Imaging and Healthcare Divisions from November 2008 through November 2009. From March 2004 to October 2007, Mr. Shagoury served as President of our Productivity Business Applications Business Unit. From January 2003 to December 2003, Mr. Shagoury held the position of President of Kubi Software, Inc. From June 2000 to April 2002, Mr. Shagoury served as President of Lernout & Hauspie Holdings USA. From June 1998 to June 2000, Mr. Shagoury served as President of Dragon Systems, Inc.

 

Thomas L. Beaudoin, 56, joined the Company in July 2008 as our Executive Vice President of Finance and has served as our Executive Vice President and Chief Financial Officer since August 2008. Mr. Beaudoin was employed by Polaroid Corporation from February 2004 to June 2008, during which time he served as President, Chief Financial Officer and Chief Operating Officer from July 2005 to June 2008 and Vice President and Controller from February 2004 to June 2005. Prior to joining Polaroid, Mr. Beaudoin served as a financial consultant to Sycamore Networks, Inc. from October 2003 to February 2004. From November 2002 to May 2003, Mr. Beaudoin served as acting Chief Financial Officer and from October 2000 to October 2002 was Senior Vice President of Finance for Parametric Technology Corporation.

 

Jeanne F. McCann, 58, currently serves as our Executive Vice President and General Manager of our Healthcare Division. Ms. McCann served as Co-President of our Imaging and Healthcare Divisions from November 2008 through November 2009. Ms. McCann served as our Executive Vice President of Operations from October 2007 to October 2008. From September 2003 to October 2007, Ms. McCann served as our Senior Vice President of Research and Development. From December 2001 to September 2003, Ms. McCann served as Senior Vice President of Speech Research and Development. From June 2000 to December 2001, Ms. McCann served as Senior Vice President, Development — SLS Division of Lernout & Hauspie. From July 1998 to June 2000, Ms. McCann served as Vice President, Development for Dragon Systems, Inc.

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed with management the following Compensation Discussion and Analysis included in this proxy statement. Based on its review and discussions with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and, by reference, the Company’s Annual Report on Form 10-K for the fiscal year ending September 30, 2009.

 

The Compensation Committee:

 

Mr. Frankenberg

Mr. Myers

 

COMPENSATION DISCUSSION & ANALYSIS

 

Role and Authority of Our Compensation Committee

 

The members of the Compensation Committee are Messrs. Frankenberg (Chair) and Myers, each of whom qualifies as (i) an “independent director” under the requirements of the NASDAQ Stock Market, (ii) a “non-employee director” under Rule 16b-3 of the Exchange Act and (iii) an “outside director” under Section 162(m) of the Code. Our Board of Directors created the Compensation Committee to discharge the Board’s responsibilities relating to compensation of the Company’s executive officers. The Compensation Committee has overall responsibility for approving and evaluating the executive officer compensation plans, policies and programs of the Company. The mandate of the Compensation Committee is to review and recommend to the Board of Directors the Company’s compensation and benefit policies, and oversee, evaluate and approve compensation plans, policies and programs for our executive officers.

 

The Compensation Committee has adopted a written charter approved by the Board of Directors, which is available on the Company’s website at http://www.nuance.com/company/governance/compensation.asp.

 

The Compensation Committee’s responsibilities are discussed in detail in the charter and include:

 

 

The Compensation Committee establishes all elements of compensation paid to our Chief Executive Officer and reviews and approves all elements of compensation paid to our other executive officers, including all of the other executive officers named in the Summary Compensation Table (these executive officers, together with the Chief Executive Officer are referred to herein as the “Named Executive Officers”). The Chief Executive Officer, in consultation with the Sr. Vice President of Human Resources and other members of our senior management, makes all decisions regarding the compensation of our other executive officers. The Compensation Committee also reviews the compensation of all non-employee directors and recommends changes, when appropriate, to the Board of Directors.

 

In carrying out its responsibilities, the Compensation Committee may engage outside consultants and/or consult with the Company’s Human Resources department as the Compensation Committee determines to be appropriate. The Compensation Committee also may obtain advice and assistance from internal or external legal, accounting or other advisers selected by the Compensation Committee. The Compensation Committee may delegate any of its responsibilities to one or more subcommittees, to the extent permitted by applicable law. The Compensation Committee did not delegate any responsibilities to a subcommittee during fiscal 2009.

 

Compensation Philosophy

 

Our compensation philosophy is designed to promote the Company’s business objectives on the principle that the Company’s achievements result from the coordinated efforts of all employees working toward common strategic goals. Our success depends on achieving a level of performance that is focused on results that support the execution of our objectives as outlined in our operating plan. Our guiding compensation principles focus on:

 

 

We support a “pay-for-performance” philosophy by measuring performance and recognizing and rewarding employee contributions toward financial success. Our objective is to implement strategies for delivering compensation that are competitive with the overall software industry, provide sufficient emphasis on “pay-for-performance” and are appropriately aligned with the Company’s financial goals and long-term stockholder returns.

 

Compensation Consultant

 

The Compensation Committee retained an independent consultant, Pearl Meyer & Partners, as its compensation consultant to assist the Compensation Committee with implementing the Company’s total compensation program. Pearl Meyer & Partners provides the Compensation Committee with research, comparative market data and advice to consider and evaluate when making compensation decisions.

 

Competitive Positioning

 

In order to determine the competitiveness of our overall compensation for executive officers, we review the compensation for comparable positions within our industry, the historical compensation levels of our executive officers and the individual performance of executive officers evaluated against their individual objectives established for the preceding year. The Compensation Committee believes the group of software companies it benchmarks provides an appropriate peer group because the Company competes for the same employee pool at the executive level and has similar market practices. The Compensation Committee uses data that it obtains from these companies through surveys, proxy statements and other public filings. In addition, this data is supplemented by survey data on the broader software and high technology markets provided by Pearl Meyer & Partners. The Compensation Committee annually reviews the companies in our peer group and makes changes as necessary to ensure that our peer group comparisons are appropriate. For fiscal 2009, the Compensation Committee determined that the companies listed below were appropriate for inclusion in the Company’s peer group based on several factors, most notably their comparable size. Certain companies included in our peer group for fiscal 2008 were eliminated for fiscal 2009 because they underwent acquisitions. We also replaced several other companies in our peer group because of our own acquisitions, as a result of which we felt that certain other companies would be better suited for inclusion in our peer group. The following sixteen companies comprised our peer group for fiscal 2009:

 

 

The Compensation Committee targets base salaries at the 50th percentile for our peer group, and the average of the base salaries of our Named Executive Officers is currently positioned at the 35th percentile. For fiscal 2009, due to the uncertainty of the economic climate, the Compensation Committee elected not to make any changes to the base salaries of our Named Executive Officers. Instead, the Compensation Committee implemented its “pay-for-performance” philosophy in fiscal 2009 by continuing to place a much greater emphasis on the at-risk earnings of our Named Executive Officers so that their interests were better aligned with the interests of our shareholders. The Compensation Committee offers significant levels of at-risk compensation in the form of stock options and restricted stock unit awards that are directly tied to stockholder value. The Compensation Committee targets total direct compensation (comprised of base salary, annual cash incentives and equity-based compensation) to be heavily driven by Company and individual performance. At the target level of performance, total direct compensation is positioned at the 75th percentile of our peer group. To arrive at this percentile for the total direct compensation of our Named Executive Officers, the Compensation Committee considers corresponding data gathered from public filings for the equivalent positions of the Named Executive Officers at the companies included in our peer group, as well as similar data from published surveys for each position. At the end of fiscal 2009, the Compensation Committee reviewed the performance of our Named Executive Officers as well as Company performance and as a result, determined that the payments outlined below under performance-based compensation were appropriate for the performance of each of our Named Executive Officers.

Elements of Executive Compensation

 

We have a performance-focused compensation philosophy that places emphasis on at-risk pay with a balanced focus between short-term and long-term strategic objectives. Consistent with this philosophy, a significant majority of the target total annual direct compensation available to our Named Executive Officers is variable depending on the Company’s results. To achieve this, we use equity-based compensation in the form of stock options, time-based restricted stock units (“TBRSUs”), performance-based restricted stock units (“PBRSUs”) and a performance-based annual bonus program that may be paid out in cash or stock (with or without additional vesting provisions) or a combination of both (the “Bonus Program”). The performance measures we establish for the PBRSU grants and Bonus Program targets are designed to promote stockholder return, market, revenue and earnings growth. The Compensation Committee consulted with its compensation consultant in deciding how to balance our long-term versus short-term incentives, and given the cyclical nature of the software industry, it has decided to establish performance goals based on financial targets. Our performance measurement period for our Bonus Program and for the PBRSU grants was our 2009 fiscal year and was based upon financial targets which included corporate and divisional revenue achievement for corporate and divisional operating income targets as well as earnings per share. PBRSU grants are classified as long-term incentives because they are stock-based and vest only if the performance criteria are achieved. The PBRSU grants range from one to four year vesting terms with a percentage of the underlying shares covering up to four fiscal periods as further summarized in the Grants of Plan Based Awards table above.

 

Our annual Bonus Program payments are based upon the achievement of Company financial targets approved by the Compensation Committee which are based on the Board-approved financial plans for the Company. For fiscal 2009, executives were entitled to receive 100% of their target bonus if the Company achieved non-GAAP revenue of $1.1 billion and non-GAAP earnings per share of $1.03; however, the Compensation Committee has the discretion to approve bonus payments which are higher or lower than the target bonus amounts in the event the Company under or over achieves these targets. For fiscal 2009, the Compensation Committee determined that the performance of the Company in relation to the metrics described above would result in the funding of the bonus pool at 50%. The Compensation Committee then exercised its discretion in finalizing the appropriate bonus allocations for each of the Named Executive Officers, with the final bonus allocations to each Named Executive Officer as further detailed below in ’Performance-Based Incentive Compensation.’ The determinations of the Compensation Committee for each Named Executive Officer were based on their individual performance as well as financial results for the divisions for which they were responsible.

 

Vesting of PBRSU grants issued to the Named Executive Officers is based upon the achievement of financial performance objectives established on an individual basis by the Compensation Committee. Individual performance objectives approved by the Compensation Committee are detailed further under performance-based incentive compensation.

 

Determination of Executive Officer Compensation

 

We review executive officer compensation annually to ensure that it is consistent with our compensation philosophies, Company and individual performance, changes in the market and executives’ individual responsibilities. Within the second quarter of our fiscal year we conduct a review of each executive officer, including the Chief Executive Officer. The Chief Executive Officer presents to the Compensation Committee his evaluation of each executive officer, which includes a review of the executive’s contribution and performance during the past year (as compared to the goals we established at the beginning of the fiscal year for the executive as described in more detail below), strengths, weaknesses, development plans and succession potential. The Company’s human resources group also assists in the reviews of the executive officers, all of whom report directly to the Chief Executive Officer. The reviews typically focus on the executive’s performance in the past year. The Compensation Committee then makes its own assessments based on the Chief Executive Officer’s presentation and, based on its assessments, approves each executive’s bonus award for the past year, including any discretionary elements to such awards, and the elements of each executive’s total compensation, including performance-based compensation, for the following fiscal year, taking into account in each case the Chief Executive Officer’s evaluation, the scope of the executive’s responsibilities and experience and the Compensation Committee’s own review of survey data provided by Pearl Meyer & Partners.

The Compensation Committee works with the Chief Executive Officer to define and establish his annual goals. In fiscal 2009, Mr. Ricci’s goals were based on achievement of the non-GAAP corporate revenue and earnings per share targets established by the Company’s Board of Directors as part of the Company’s fiscal 2009 operating plan. The Chief Executive Officer works in conjunction with the other Named Executive Officers to develop their goals, which are approved by the Compensation Committee. The Named Executive Officers’ goals are designed to align with the Company’s and Chief Executive Officer’s goals. The fiscal 2009 goals for our Named Executive Officers varied based on their respective business functions and responsibilities as further detailed below under performance-based compensation. The Company and individual goals for our executives are established in a manner such that target attainment is not assured; meaning the executives’ receipt of compensation for performance at or above target will require significant effort on their part.

 

In fiscal 2009, the compensation for the Named Executive Officers comprised the following elements, each of which is discussed in greater detail below:

 

 

Base Salary

 

Base salary reflects the executive’s responsibilities, performance and expertise and is designed to be competitive with salary levels in effect at comparable high-technology companies. The base salary provides a basic level of compensation and is necessary to recruit and retain executives. The Compensation Committee establishes salaries on the data provided by its compensation consultant for software companies within our peer group. We generally tie the amount of short-term incentive compensation and severance benefits to an executive’s base compensation. For fiscal 2009, the Compensation Committee reviewed the base salaries of each of the Named Executive Officers and due to the uncertainty of the economic climate, made the decision to make no changes to their base salaries. The base salaries of our Named Executive Officers therefore remained, as an average, at the 35% percentile of our peer group.

 

Performance-Based Incentive Compensation

 

Our Bonus Program is based upon the Company’s achievement of pre-established financial goals for the fiscal year. With respect to Mr. Hunt, however, 100% of his cash variable amount is based upon the achievement of his sales incentive target which is paid out quarterly based on actual achievement. Annual bonuses may be paid in cash or restricted stock units, which may or may not have additional vesting requirements established by the Compensation Committee. The Bonus Program is designed to support our strategic business objectives, promote the attainment of specific financial goals, reward achievement of specific performance objectives, and encourage leadership and teamwork. The targets for payment of annual cash bonuses are based on the Company’s non-GAAP revenue and earnings per share targets for the applicable fiscal year as stated above. Minimum and maximum performance targets are established by the Compensation Committee and adjusted during the year, if appropriate, to reflect the impact of acquisitions. The amount of each executive’s actual bonus is based on the extent to which the Company achieves or exceeds the targets. Each executive is assigned a participation level that generally reflects the executive’s position and is expressed as a percentage of the executive’s base salary. During fiscal 2009, the Compensation Committee reviewed the participation levels for each of the Named Executive Officers and determined that in comparison to our peer group, they were appropriately aligned at the 35th percentile. Although such an alignment is not at the 50th percentile for cash compensation, when the cash compensation is combined with performance-based long-term equity incentive compensation, the resulting total compensation package for the Named Executive Officers is at the 75th percentile. This follows the philosophy of our Compensation Committee

and also further aligns the interests of our Named Executive Officers with the interests of the shareholders for greater ownership and long-term growth. The participation levels for the Company’s Named Executive Officers for fiscal 2009 (other than Mr. Hunt, whose annual bonus is commission based), and the bonus amounts the Named Executive Officers were entitled to, are set forth below:

 

 

 

 

In addition, as noted above, the vesting of PBRSU grants issued to the Named Executive Officers is based upon the achievement of financial performance objectives established on an individual basis by the Compensation Committee. Individual performance objectives are approved by the Compensation Committee and include objectives related to financial performance goals. For fiscal 2009, the following table outlines the performance metrics and achievements against those targets for PBRSU grants.

 

 

Long Term Equity Incentive Compensation

 

We grant equity in the form of stock options and restricted stock units to provide long-term incentives for executive officers and other key employees. Vesting of these equity awards is designed to align the interests of our executive officers with those of the stockholders and to provide each individual with a significant incentive to manage the Company from the perspective of an owner and to remain employed by the Company.

 

The Compensation Committee determines equity award levels based on market data provided to the Compensation Committee by Pearl Meyer & Partners as well as the peer group study described above. Annual equity awards are granted based on the performance of the executive, the market data results and are typically granted in the form of performance-based grants, time-based grants and options. Any equity granted to employees as promotion or retention awards or to newly hired eligible employees are generally granted on the 15th of the month following the effective date of the promotion, retention or hire, or the first business day thereafter if such day is not a business day, with the exception of the issuance of inducement grants which are granted promptly following the closing of an acquisition or upon hiring of an employee. In the case of options, the exercise price of an option is the closing price of the Company’s common stock on the NASDAQ Stock Market on the date of grant. All stock option grants to Named Executive Officers are granted with an exercise price equal to or above the fair market value of the underlying stock on the date of grant. The Compensation Committee does not grant equity compensation awards in anticipation of the release of material nonpublic information. Similarly, the Company does not time the release of material nonpublic information based on equity award grant dates.

 

We have made significant changes to our equity compensation program over the past several years to reduce its dilutive effects. In fiscal 2005, we introduced time-based restricted stock unit grants with accelerations for achievement of financial targets. In fiscal 2006, we moved to a combination of options, performance-based equity awards and time-based equity awards with a greater emphasis on pay-for-performance. The Compensation Committee believes these equity awards align the interests of the executive officers with the interests of stockholders and reduce dilution. The Compensation Committee also believes these changes increase our ability to retain executives by increasing their opportunity to receive full value equity awards pursuant to restricted stock units, which also help to decrease future exposure to underwater options.

During fiscal 2009, the Compensation Committee approved the issuance of certain equity awards to our Named Executive Officers, which were follows:

 

 

 

 

 

Retirement and Other Benefits

 

We offer a 401(k) retirement plan, to provide our employees a tax-advantaged savings plan. We make matching contributions to the plan to encourage employees to save money for their retirement. The plan enhances our ability to attract and retain key employees because it increases the range of benefits we offer to them.

 

All of our U.S. employees, including our executive officers, are entitled to participate in the 401(k) plan. The Company matches 50% of the first 4% of eligible compensation that is contributed to the plan. Non-U.S. employees are covered under different retirement plans. The Company match paid to each of the Named Executive Officers is reflected in the All Other Compensation column in the Summary Compensation Table set forth above and detailed in the footnotes.

 

We have maintained the Nuance Communications, Inc. 1995 Employee Stock Purchase Plan, or the ESPP, since its adoption in 1995. Eligible employees, including our executive officers, may elect to contribute between 1% and 12% of their annual cash compensation, on an after-tax basis, to purchase shares of our Common Stock; provided, however, that an employee may not purchase more than 2,000 shares per offering period, or $25,000 of Company Common Stock per year pursuant to Internal Revenue Service restrictions. We issue shares of our Common Stock under the ESPP in six month offering periods to eligible employees at a price that is equal to eighty-five percent of the lower of the Common Stock’s fair market value at the beginning or the end of the offering period.

 

We offer an enhanced wellness program to our executive officers to maximize the health of our executive team. This benefit provides for an enhanced annual medical exam for each executive officer.

 

Our Named Executive Officers, other than Mr. Ricci, receive a $500,000 term life insurance policy at the Company’s expense which is in addition to the broad-based program that provides term life insurance for all employees in an amount up to the lesser of $500,000 or two times the employee’s base salary. Mr. Ricci receives a $1,000,000 term life insurance policy at the Company’s expense, in addition to the broad-based program described above. The cost of these policies, if applicable, is reflected in the All Other Compensation column in the Summary Compensation Table and detailed in the footnotes.

 

All of our employees based in the United States receive long-term disability benefits that provide for payment of sixty percent of their eligible earnings capped at a maximum of $13,000 in disability benefits per month if they are deemed to be unable to work in their own occupation for a period of two years. Beyond the second year, if able, employees will be required to return to work to any position they are suited for based on education and training. We provide for an enhanced disability benefit to our Named Executive Officers that provides for a payment of sixty percent of their eligible earnings capped at a maximum of $18,500 per month, with the exception of Mr. Ricci who is not subject to this maximum amount. In addition, the Named Executive Officers have an enhanced Own Occupation provision that provides for continuation of benefits beyond the two years if they cannot return to their own occupation. The expense associated with this enhanced benefit is reflected in the All Other Compensation column in the Summary Compensation Table and detailed in the footnotes.

 

We offer a variety of health and welfare programs to all eligible employees. Our Named Executive Officers generally are eligible for benefit programs on the same basis as the rest of our broad-based employees. The health and welfare programs are intended to encourage a healthy lifestyle and protect employees against catastrophic loss. Our health and welfare programs include medical, wellness, dental, vision, disability, life insurance and accidental death and dismemberment.

 

Perquisites

 

We provide our Named Executive Officers with additional perquisites, including reimbursement for tax and financial planning services and a car allowance, which are reflected in the All Other Compensation column in the

Summary Compensation Table and detailed in the footnotes. The Compensation Committee believes these perquisites are reasonable and consistent with the Company’s overall compensation program, because they better enable the Company to attract and retain superior employees for its key positions. The Compensation Committee reviews and approves perquisites provided to the Named Executive Officers.

 

Executive Severance Policy

 

The Compensation Committee has entered into agreements, on behalf of the Company, with certain executive officers and the Chief Executive Officer which provide for certain benefits upon certain terminations of employment. The Company has also adopted severance policies regarding these matters. The severance policy is designed to attract and retain executive officers and to provide replacement income if their employment is terminated because of an involuntary termination by the Company other than for cause. Vice Presidents who are designated as participants are eligible to participate in the policy, provided they agree to be bound by all of the restrictions, conditions and limitations under the policy, including a customary covenant not to compete against the Company in cases where such covenants are legally enforceable. The covenant not to compete restricts affected executives from competing against the Company during, and for twelve months after, the period of their employment or up to twenty-four months for Mr. Ricci. In addition, a participating executive must release the Company from any claims relating to the executive’s employment and termination in order to receive severance benefits under the policy. The severance policy provides a lump-sum severance payment upon termination of employment by the Company other than for cause except for Mr. Ricci, who is to be paid severance throughout the non-competition period of eighteen to twenty-four months. Participating executives will receive varying amounts of severance in the form of base salary, bonus and other benefits. Details of these severance arrangements are provided under the ‘Employment, Severance and Change in Control’ section.

 

Tax Considerations

 

Section 162(m) of the Internal Revenue Code imposes a $1,000,000 limit on the deductibility of compensation paid to certain executive officers of public companies, unless the compensation meets certain requirements for “performance-based” compensation. In determining executive compensation, the Compensation Committee considers, among other factors, the possible tax consequences to the Company and to the executives. However, tax consequences, including but not limited to tax deductibility by the Company, are subject to many factors (such as changes in the tax laws and regulations or interpretations thereof and the timing and nature of various decisions by executives regarding options and other rights) that are beyond the Compensation Committee’s and the Company’s control. In addition, the Compensation Committee believes that it is important for it to retain maximum flexibility in designing compensation programs that meet its stated objectives. For these reasons, although the Compensation Committee considers tax deductibility as one of the factors in determining executive compensation, it does not necessarily limit compensation to those levels or types of compensation that will be deductible. The Compensation Committee will, of course, consider alternative forms of compensation consistent with our compensation goals, which preserve deductibility as much as possible.

 

Section 280G of the Internal Revenue Code of 1986

 

Section 280G of the Code disallows a Company’s tax deduction for what are defined as “excess parachute payments” and Section 4999 of the Code imposes a twenty percent excise tax on any person who receives excess parachute payments. The Compensation Committee believes that the provision of tax gross-up protection for executive officers is not appropriate, and therefore no longer provides for any gross-up provisions with executive officers. This includes Mr. Ricci, whose new employment agreement entered into in June 2009 does not contain such a gross-up provision.

 

SUMMARY COMPENSATION TABLE

 

The table below sets forth, for the period indicated, the compensation paid or granted by the Company to the individuals who served during fiscal 2009 as Chief Executive Officer, Chief Financial Officer and the three most highly compensated executive officers of the Company, other than the Chief Executive Officer and the Chief Financial Officer, who were serving as executive officers as of September 30, 2009 (collectively, the “Named Executive Officers”).

 

 

 

 

2009
Matching contributions to 401(k) plan		$	4,900
Reimbursement for tax and financial planning services			3,267
Gross up for taxes on reimbursement for tax and financial planning services			1,611
Enhanced long term disability benefits			9,738
Reimbursement for legal fees associated with June contract renewal			19,317
Gross up for taxes on reimbursement for legal fees			13,846
Premiums for term life insurance policy			3,450
Company-paid car lease			12,306
Chairman’s Club			2,330
Total		$	70,766

 

2008
Matching contributions to 401(k) plan		$	4,600
Reimbursement for tax and financial planning services			10,000
Gross up for taxes on reimbursement for tax and financial planning services			4,397
Enhanced long term disability benefits			6,480
Premiums for term life insurance policy			3,450
Company-paid car lease			8,633
Chairman’s Club			1,756
Total		$	39,316

 

2007
Matching contributions to 401(k) plan		$	4,500
Reimbursement for tax and financial planning services			10,000
Enhanced long term disability benefits			2,217
Premiums for term life insurance policy			2,300
Company-paid car lease			8,633
Chairman’s Club			2,050
Total		$	29,700

 

 

2009
Matching contributions to 401(k) plan		$	4,900
Reimbursement for tax and financial planning services			1,400
Gross up for taxes on reimbursement for tax and financial planning services			227
Enhanced long term disability benefits			3,258
Car Allowance			14,711
Chairman’s Club			2,330
Total		$	26,826

 

2008
Car Allowance		$	3,750
Enhanced long term disability benefits			975
Total		$	4,725

 

 

2009
Matching contributions to 401(k) plan		$	4,831
Reimbursement for tax and financial planning services			4,476
Gross-up in taxes for tax and financial planning services			1,906
Enhanced long term disability benefits			3,258
Premiums for term life insurance policy			1,165
Car Allowance			14,711
Special Recognition Award			2,000
Chairman’s Club			2,330
Total		$	34,677

 

2008
Matching contributions to 401(k) plan		$	4,446
Reimbursement for tax and financial planning services			5,000
Gross-up in taxes for tax and financial planning services			2,220
Enhanced long term disability benefits			4,121
Premiums for term life insurance policy			640
Car Allowance			15,000
Executive Wellness Benefit			2,225
Gross-up for taxes on Wellness Benefit			718
Chairman’s Club			1,756
Total		$	36,126

 

2007
Matching contributions to 401(k) plan		$	4,500
Reimbursement for tax and financial planning services			5,000
Gross-up in taxes for tax and financial planning services			2,326
Enhanced long term disability benefits			1,677
Premiums for term life insurance policy			131
Company-paid car lease			6,313
Car allowance			4,550
Chairman’s Club			2,050
Total		$	26,547

 

 

 

2009
Matching contributions to 401(k) plan		$	2,206
Enhanced long term disability benefits			3,258
Car allowance			14,711
Executive Wellness Benefit			1,921
Gross-up for taxes on Wellness Benefit			149
Chairman’s Club			2,330
Total		$	24,575

 

2008
Matching contributions to 401(k) plan		$	2,368
Enhanced long term disability benefits			4,121
Car allowance			15,000
Chairman’s Club			1,756
Total		$	23,245

 

2007
Matching contributions to 401(k) plan		$	1,818
Enhanced long term disability benefits			1,677
Car allowance			13,625
Chairman’s Club			2,050
Total		$	19,170

 

 

2009
Enhanced long term disability benefits		$	2,726
Car allowance			14,711
Matching contributions to 401(k) plan			4,315
Chairman’s Club			2,330
Total		$	24,082

 

2008
Enhanced long term disability benefits		$	3,342
Car allowance			15,000
Matching contributions to 401(k) plan			4,617
Chairman’s Club			1,756
Total		$	24,715

 

2007
Enhanced long term disability benefits		$	1,677
Car allowance			13,625
Matching contributions to 401(k) plan			1,818
Chairman’s Club			2,050
Total		$	19,170

 

 

EMPLOYMENT, SEVERANCE AND CHANGE IN CONTROL AGREEMENTS

 

Chief Executive Officer

 

Mr. Ricci serves as our Chief Executive Officer and Chairman of the Board. We entered into an amended and restated employment agreement with Mr. Ricci effective June 23, 2009. Pursuant to the terms of the new agreement, Mr. Ricci will continue to receive a base salary of $575,000 and an annual bonus opportunity of up to 100% of his base salary. The Company has also agreed to reimburse Mr. Ricci for up to $25,000 of tax and financial planning services per calendar year and to provide a $20,000 car allowance to Mr. Ricci per calendar year.

 

Mr. Ricci will also receive the following equity-based grants: (i) a grant of 724,900 shares of restricted stock and (ii) a grant of 1,000,000 stock options. 50% of the shares of restricted stock will vest on September 30, 2010 and the remaining 50% will vest on September 30, 2010 provided that certain financial targets established by the Board of Directors for fiscal 2010 are achieved. The stock options will vest on September 30, 2010. The Compensation Committee of the Board of Directors will review Mr. Ricci’s grant of restricted stock and stock options on an annual basis and any future annual grants of restricted stock and stock options will be consistent with the grants in the past, assuming consistent performance by Mr. Ricci and the Company.

 

Mr. Ricci will also receive a post-retirement medical benefit for the period following his retirement, but not before age 55, until such time as he is age 65, provided Mr. Ricci is an active full-time employee of the Company at the time of his retirement. In such case, the Company shall reimburse him for up to $250,000, net of withholding taxes, for expenses incurred to purchase medical or health insurance during the ten year period. In addition, Mr. Ricci is entitled to an enhanced long term disability benefit which provides for 60% of his base eligible earnings and continued payment of premiums by the Company for a $1 million term life insurance policy.

 

Upon any termination of Mr. Ricci’s employment by the Company, other than for cause, death or disability, or by Mr. Ricci for good reason, Mr. Ricci shall be entitled to continued payment of one and one-half times his base salary (as then in effect) and payment of 100% of his target bonus (as then in effect) for a period of eighteen months following termination; provided, however, if such termination occurs within 12 months of a change of control of the Company, Mr. Ricci shall be entitled to continued payment of two times his base salary (as then in effect) and payment of 200% of his target bonus (as then in effect) for a period of twenty-four months following termination.

In addition, upon any termination of Mr. Ricci’s employment by the Company, other than for cause, death or disability, or by Mr. Ricci for good reason, Mr. Ricci will receive (i) continued payment by the Company of the group medical, dental and vision continuation coverage premiums for Mr. Ricci and his eligible dependents under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) during the applicable severance period under the Company’s group health plans, as then in effect; (ii) continued payment of the annual premium for the remaining term of the life insurance policy, (iii) full acceleration and vesting as of the termination date of all equity awards issued to Mr. Ricci prior to August 11, 2006 and (iv) continued vesting during the severance period of all equity awards issued on or after August 11, 2006 (with any unvested options or other equity awards remaining at the termination of the severance period forfeited to the Company); provided, however, if such termination occurs within 12 months of a change of control of the Company, all remaining unvested stock options and other equity awards held by Mr. Ricci shall accelerate in full upon the termination event. Following termination of Mr. Ricci’s employment, Mr. Ricci shall be entitled to exercise all stock options granted prior to August 11, 2006 for the life of the stock options, and all stock options granted on or after August 11, 2006 for the lesser of (i) the life of the stock option or (ii) two years following the termination date.

 

If Mr. Ricci’s employment is terminated due to his death or disability, Mr. Ricci (or his legal heirs or designees) shall be entitled to receive (i) an amount equal to one and one-half times his base salary at the time of his death or disability, (ii) 100% of his target performance bonus, (iii) continued payment of the annual premium for the remaining term of the life insurance policy, (iv) the allowance remaining under the post-retiree medical benefit, (v) Company-paid coverage for a period of two years for Mr. Ricci and his eligible dependents under the Company’s health benefit plans (or at the Company’s option, coverage under a separate plan), providing benefits that are no less favorable than those provided under the Company’s plans immediately prior to his death, and all equity awards issued to Mr. Ricci shall accelerate and be fully vested as of the termination date, with an extended period of time to exercise vested options for a period of two years.

 

Mr. Ricci has agreed not to compete with the Company or solicit the Company’s employees or customers during the period in which he is receiving severance payments from the Company. For all termination situations described above, in order for Mr. Ricci to receive the severance benefits described above, Mr. Ricci must execute and deliver to the Company, and not revoke, a full general release, in a form acceptable to the Company, releasing all claims, known or unknown, that he may have against the Company, and any subsidiary or related entity, their officers, directors, employees and agents, arising out of or any way related to his employment or termination of employment with the Company.

 

The following table describes the potential payments upon termination of Mr. Ricci’s employment by the Company without cause (as defined in his employment agreement) or by Mr. Ricci for good reason (as defined in his employment agreement). For purposes of valuing Mr. Ricci’s equity awards, the amounts below are based on a per share price of $14.96, which was the closing price as reported on the NASDAQ Global Select Market on September 30, 2009.

 

 

Other Named Executive Officers

 

Mr. Beaudoin has served as our Chief Financial Officer since August 12, 2008. As part of Mr. Beaudoin’s June 3, 2008 offer letter, in the event Mr. Beaudoin’s employment is terminated without cause and provided he

executes our standard severance agreement, which includes a full release of claims, Mr. Beaudoin will receive a severance package of six months base salary and six months Company-paid health insurance under COBRA. If Mr. Beaudoin’s employment is terminated without cause within twelve months following a change of control, he will receive a severance package of twelve months base salary and twelve months Company-paid health insurance under COBRA, plus immediate acceleration of all of his unvested time-based stock options and restricted stock.

 

Mr. Chambers serves as Executive Vice President Worldwide Sales and Chief Marketing Officer since October 14, 2009. Prior to that position, Mr. Chambers served as President of our Mobility & Consumer Services Division. As part of Mr. Chambers’ August 2003 offer letter, in the event Mr. Chambers’ employment is terminated for any reason other than cause, and provided he executes our standard severance agreement, which includes a full release of claims, Mr. Chambers will be eligible to receive a severance package that is equal to the greater of the severance provided under the Senior Management severance plan in place at the time of his termination or six months base salary and six months Company-paid health insurance under COBRA. In the event there is a change of control and Mr. Chambers’ employment is terminated within six months following the change of control, all of his unvested stock options and restricted stock will become fully vested as of the effective date of the termination of his employment. If Mr. Chamber’s employment is terminated without cause within twelve months following a change of control, he will receive a severance package of twelve months base salary and twelve months Company-paid health insurance under COBRA, plus immediate acceleration of all of his unvested time-based stock options and restricted stock.

 

Mr. Hunt serves as our Executive Vice President for Strategic Accounts. Prior to that position, Mr. Hunt served as President of Global Sales from October 2007 to November 2009 and our Senior Vice President Worldwide Sales from September 2006 to October 2007. As part of Mr. Hunt’s September 2006 offer letter, in the event Mr. Hunt’s employment is terminated without cause and provided he executes our standard severance agreement, which includes a full release of claims, Mr. Hunt will receive a severance package of twelve months base salary and twelve months Company-paid health insurance under COBRA. If Mr. Hunt’s employment is terminated without cause within twelve months following a change of control, he will receive a severance package of twelve months base salary and twelve months Company-paid health insurance under COBRA, plus immediate acceleration of all of his unvested stock options and restricted stock. In addition, if there is a change of control transaction and there is a significant reduction in Mr. Hunt’s duties, position, reporting status or responsibilities during the twelve month period following the change of control transaction, Mr. Hunt will have the right to the same change of control benefits, as outlined above, provided he remains with the Company for the full one-year period following the change of control, executes our standard severance agreement and gives notice of his intent to terminate employment within 30 days of the end of the twelve month period following the change of control transaction.

 

Ms. McCann serves as Executive Vice President and General Manager of our Healthcare Division. Prior to that, Ms. McCann served as Co-President of our Imaging and Healthcare Division. Under the terms of a letter addressed to Ms. McCann on February 17, 2003, in the event there is a change of control and Ms. McCann’s employment is terminated within six months following the change of control, and provided she executes our standard severance agreement, which includes a full release of claims, all of her unvested stock options and restricted stock will become fully vested as of the effective date of the termination of her employment. In addition, under the terms of our standard severance benefits for officers, if Ms. McCann’s employment is terminated without cause, Ms. McCann will receive a severance package of six months base salary and six months Company-paid health insurance under COBRA, provided, however, if such termination occurs in connection with a change of control, Ms. McCann will receive a severance package of twelve months base salary and twelve months Company-paid health insurance under COBRA.

The following tables describe the potential payments upon termination of employment of our Named Executive Officers, other than our Chief Executive Officer, by the Company without cause (as defined in each individual employment agreement or offer letter). For purposes of valuing equity awards held by each Named Executive Officer, the amounts below are based on a per share price of $14.96, which was the closing price as reported on the NASDAQ Global Select Market on September 30, 2009.

 

Termination of Employment Without a Change of Control

 

 

Termination of Employment With a Change of Control

 

 

GRANTS OF PLAN BASED AWARDS

 

The following table shows all plan-based awards granted to our Named Executive Officers during fiscal 2009. The awards identified in the table below are also reported in the Outstanding Equity Awards at Fiscal Year End table on the following page.

 

 

 

 

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

The following table sets forth all outstanding equity awards held by each Named Executive Officer outstanding as of September 30, 2009: