UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

(Amendment No. 2 to Form 10-K)

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2006

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

NUANCE COMMUNICATIONS, INC.

DELAWARE		94-3156479
(State of Incorporation)		(I.R.S. Employer Identification No.)
1 Wayside Road
Burlington, Massachusetts 01803		(781) 565-5000
(Address of Principal Executive Offices,		(Registrant’s Telephone Number,
Including Zip Code)		Including Area Code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $0.001 per share
Preferred Share Purchase Rights

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ      Accelerated filer o       Non-accelerated filer o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The aggregate market value of the outstanding common equity held by non-affiliates of the Registrant as of the last business day of the Registrant’s most recently completed second fiscal quarter was approximately $1,514,563,908 based upon the last reported sales price on the Nasdaq National Market for such date. For purposes of this disclosure, shares of Common Stock held by officers and directors of the Registrant and by persons who hold more than 5% of the outstanding Common Stock have been excluded because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive.

The number of shares of the Registrant’s Common Stock, outstanding as of November 30, 2006, was 170,981,880.

 

 

EXPLANATORY NOTE

This Annual Report on Form 10-K/A is being filed as Amendment No. 2 to the Annual Report on Form 10-K for the fiscal year ended September 30, 2006 for Nuance Communications, Inc. (“Nuance”, the “Company”, “we” or “our”). This Annual Report on Form 10-K/A is filed with the Securities and Exchange Commission solely for the purpose of including information that was to be incorporated by reference from the Company’s definitive proxy statement pursuant to Regulation 14A of the Securities and Exchange Act of 1934. The Company will not file its definitive proxy statement within 120 days of its fiscal year ended September 30, 2006 and is therefore amending and restating the following items contained herein in their entirety.

PART III

Item 10. Directors and Executive Officers of the Registrant

Directors and Executive Officers

The following table sets forth certain information with respect to our executive officers and directors.

Name		Age				Position
Paul A. Ricci			50			Chairman and Chief Executive Officer
James R. Arnold			50			Senior Vice President and Chief Financial Officer
Steven G. Chambers			44			President, SpeechWorks Solutions Business Unit
Peter Hauser			53			Senior Vice President and General Manager, International Operations
Donald D. Hunt			51			Senior Vice President, Worldwide Sales
Jeanne F. McCann			54			Senior Vice President, Research and Development
John D. Shagoury			48			President, Productivity Business Applications Business Unit
Charles W. Berger			53			Director
Robert M. Finch (2)			49			Director
Robert J. Frankenberg (1), (2), (3), (4)			59			Director
John C. Freker, Jr. (1)			48			Director
Jeffrey A. Harris			51			Director
William H. Janeway			63			Director
Katharine A. Martin (4)			44			Director
Mark B. Myers (2), (3)			68			Director
Philip J. Quigley			64			Director
Robert G. Teresi (4)			65			Director

     Paul A. Ricci 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.

     James R. Arnold, Jr. has served as our Senior Vice President and Chief Financial Officer since September 2004. From April 2003 through June 2004, Mr. Arnold served as Corporate Vice President and Corporate Controller for Cadence Design Systems, Inc. From October 1997 through April 2003, Mr. Arnold held a number of key financial positions, including Chief Financial Officer in 2000 and 2001, with Informix Corp. which changed its name to Ascential Software Corp. and was subsequently acquired by International Business Machines Corp.

     Steven G. Chambers has served as our President, SpeechWorks Solutions Business Unit since March 19, 2004. Mr. Chambers joined Nuance in August 2003 as General Manager, Networks Business Unit in connection with our acquisition of SpeechWorks International, Inc. and was elected an executive officer on March 1, 2004. From September 1999 to August 2003, Mr. Chambers served as the Chief Marketing Officer of SpeechWorks International, Inc.

     Peter Hauser has served as our Senior Vice President and General Manager, International Operations since December 2000 and as an executive officer from March 1, 2005 to November 2006. From 1995 through 2000 Mr. Hauser served as Senior Vice President of International Operations for General Datacom Inc. From 1990 through 1994, Mr. Hauser served as General Manager , Networks Division of Ascom AG.

     Donald W. Hunt has served as our Senior Vice President, Worldwide Sales since September 2006. Mr. Hunt was elected an executive officer effective November 2, 2006. From June 2004 through June 2006, Mr. Hunt served as Senior Vice President of Worldwide Sales of 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, a customer contact solutions provider.

     Jeanne F. McCann has served as our Senior Vice President of Research and Development since September 2003. From December 2001 to September 2003, Ms. McCann served as Senior Vice President 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.

     John D. Shagoury has served as President of our Productivity Business Applications Business Unit since March 2004. 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.

     Charles W. Berger 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. Since April 2006, Mr. Berger has served as Chairman and Chief Executive Officer of DVDPlay, Inc., a manufacturer of remotely managed DVD rental kiosks. From September 2005 to December 2005, Mr. Berger served in a transition role with the Company assisting with the integration of the former Nuance Communications, Inc. From March 2003 to September 2005, Mr. Berger served as President and Chief Executive Officer of the former Nuance Communications, Inc., a leader in the voice automation market. From December 2001 through December 2002, Mr. Berger was President and Chief Executive Officer of Vicinity, Inc., a leading provider of locations-based technology and solutions. From July 1997 through June 2001 he held the position of Chief Executive Officer at AdForce. Mr. Berger serves on the board of directors of SonicWALL, Inc. and Tier Technologies, Inc.

     Robert M. Finch has served as a director since the consummation of the acquisition of SpeechWorks International, Inc. in August 2003. Since August 2005, Mr. Finch has served as Vice President, Spectrum Development for Sprint Nextel Corporation. From July 2004 to August 2005, Mr. Finch served as Vice President, Spectrum Development for Nextel Communications, Inc. From April 2002 to July 2004, Mr. Finch served as President of Cirpass, LLC, a telecommunications industry consulting firm. From March 2001 to April 2002, Mr. Finch served as Senior Vice President, Corporate Development for CIENA Corporation, a telecommunications equipment manufacturer. From February 2000 to February 2001, Mr. Finch served as Vice President, Operations for BroadBand Office, Inc., a provider of technology and communications solutions. Mr. Finch served as a Director of SpeechWorks International, Inc. from April 2000 until August 2003. Mr. Finch serves on our Audit Committee.

     Robert J. Frankenberg, 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 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.

     John C. Freker, Jr. has served as a director since the consummation of the acquisition of SpeechWorks International, Inc. in August 2003. Since October 2006, Mr. Freker has served as President and Chief Operating Officer of Zenta, LLC, a leading provider of business process outsourcing and knowledge process outsourcing serving the real estate, financial services, banking and insurance industries. From October 2005 to June, 2006, Mr. Freker served as Chief Executive Officer of Oblicore, Inc., a provider of service level and business service management software. From December 2002 to October 2005, Mr. Freker served as President of the

Customer Management Group of Convergys Corporation, a provider of integrated customer care and billing services. From September 1999 to December 2002, Mr. Freker served as Executive Vice President of Convergys Corporation. From September 1997 to September 1999, Mr. Freker was President of the Custom Solutions Group of Convergys Corporation. Prior to September 1997, Mr. Freker was President of the Custom Services Division of Matrixx Marketing, a predecessor of Convergys and a subsidiary of Cincinnati Bell. Mr. Freker serves on our Compensation Committee.

     Jeffrey A. Harris is being nominated for election to our Board by Warburg Pincus pursuant to the terms of a Stockholders Agreement described herein under “Related Party Transactions.” Mr. Harris has served on our Board since September, 2005 and was appointed to the Board pursuant to the terms of a Stockholders Agreement between the Company and Warburg Pincus & Co. Since 1988, Mr. Harris has been a Member and Managing Director of Warburg Pincus LLC and a partner of Warburg Pincus & Co. Mr. Harris joined Warburg Pincus & Co. in April 1983. Mr. Harris serves as a director of Bill Barrett Corporation, Knoll, Inc. and Spinnaker Exploration Co. and several privately held companies. Mr. Harris received a B.S. in Economics from the Wharton School, University of Pennsylvania and an M.B.A. from Harvard Business School.

     William H. Janeway is being nominated for election to our Board by Warburg Pincus pursuant to the terms of a Stockholders Agreement described herein under “Related Party Transactions.” Mr. Janeway 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 BEA Systems, Inc., NYFIX, Inc. and 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 has served as a director since December 17, 1999. Since September 1999, Ms. Martin has served as a Member, and is currently the head of the business law and tax services departments, of Wilson Sonsini Goodrich & Rosati, Professional Corporation. Wilson Sonsini Goodrich & Rosati serves as the Company’s primary outside corporate and securities counsel. Prior thereto, Ms. Martin was a Partner of Pillsbury Madison & Sutro LLP. Ms. Martin also serves on the board of directors of the Wilson Sonsini Goodrich & Rosati Foundation, a nonprofit organization. Ms. Martin serves as Chairman of our Governance Committee.

     Mark B. Myers has served as a director since March 2, 1999. Dr. Myers served as Senior Vice President, Xerox Research and Technology, responsible for worldwide research and technology from February 1992 until April 2000. Dr. Myers is presently a visiting faculty member at the Wharton School, University of Pennsylvania. Dr. Myers serves as Chairman of our Nominating Committee and also serves on our Audit Committee.

     Philip J. Quigley 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 to several private organizations.

     Robert G. Teresi 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.

Audit Committee

     The Audit Committee of the Board of Directors, established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended, currently consists of Messrs. Finch, Frankenberg and Myers, each of whom is independent within the meaning of the listing standards of the NASDAQ Stock Market. The Board of Directors has determined that Mr. Frankenberg is an audit committee financial expert as defined by Item 401(h) of Regulation S-K of the Securities Exchange Act of 1934, as amended. 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.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules of the Securities and Exchange Commission (the “Commission”) thereunder require the Company’s executive officers, directors and certain stockholders to file reports of ownership and changes in ownership of the Company’s Common Stock with the Commission. Based solely on a review of the copies of such reports furnished to the Company and representations that no other reports were required during the fiscal year ended September 30, 2006, the Company believes that all directors, executive officers and beneficial owners of more than 10% of the Company’s Common Stock complied with all filing requirements applicable to them during the fiscal year ended September 30, 2006, except for inadvertent late filings by Messrs. Ricci, Arnold and Hebert and Ms. McCann. Messrs. Ricci and Arnold and Ms. McCann were late to report shares of restricted stock granted to them on December 15, 2005. Mr. Hebert was late to report shares of restricted stock granted to him on May 1, 2006.

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, Massachusetts 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.

Item 11. Executive Compensation

Summary Compensation

     The following table shows compensation information for (i) the Company’s Chief Executive Officer and (ii) the Company’s four other most highly compensated executive officers in the fiscal year ended September 30, 2006 (the “Named Executive Officers”). In October 2004, the Company changed its fiscal year end from December 31 to September 30, effective beginning September 30, 2004. As a result, the compensation information contained in this Proxy Statement for fiscal 2004 is based on the nine months ended September 30, 2004, while the information for fiscal 2006, fiscal 2005 and fiscal 2003 is based on the twelve months ended September 30, 2006, September 30, 2005 and December 31, 2003, respectively.

																		Long-Term
		Annual Compensation																Compensation Awards
																		Restricted				Securities				All Other
														Other Annual				Stock				Underlying				Annual
Name and Principal Position		Year				Salary				Bonus				Compensation				Award(s)($)(1)				Options(#)				Compensation(2)
Paul A. Ricci			2006			$	524,750			$	95,625	(3)		$	78,858	(4)		$	5,968,463	(5)			1,000,000			$	6,327
Chief Executive Officer			2005			$	464,688			$	131,913			$	62,170	(6)		$	95,625	(7)			750,000			$	3,025
			2004			$	300,000				—			$	80,250	(8)			—				—				—
			2003			$	300,000				—			$	107,000	(8)		$	1,205,700	(9)			—				—
James R. Arnold, Jr.			2006			$	285,000			$	25,650			$	11,626	(11)		$	177,949	(12)			—			$	2,816
Sr. Vice President Chief			2005			$	285,000			$	37,620			$	12,200	(13)		$	25,650	(14)			100,000			$	3,369
Financial Officer (10)			2004			$	2,192				—				—			$	509,875	(15)			450,000				—
Steven G. Chambers			2006			$	265,625			$	83,410	(17)		$	14,067	(18)		$	771,927	(19)			100,000			$	4,343
President-SpeechWorks			2005			$	250,000			$	75,900	(20)		$	4,650	(21)		$	49,988	(22)			150,000			$	4,089
Solutions Business Unit (16)			2004			$	170,833			$	42,065	(23)			—			$	526,350	(24)			200,000			$	2,510
Peter Hauser			2006			$	215,011			$	204,976	(26)		$	20,373	(27)		$	697,425	(28)			100,000			$	24,522	(29)
Sr. Vice President and General Manager, International Operations (25)			2005			$	246,525			$	275,700	(26)		$	2,894	(27)			—				100,000				—
John D. Shagoury			2006			$	265,625			$	113,470	(31)		$	16,354	(32)		$	821,920	(33)			100,000				—
President — PABU(30)			2005			$	250,000			$	62,675	(34)		$	11,428	(35)			—				100,000				—
			2004			$	136,378			$	11,312	(36)			—			$	499,898	(37)			400,000				—

Executive Officer		Shares of Restricted Stock				Value of Restricted Stock
Paul A. Ricci			735,445			$	6,007,850
James R. Arnold, Jr.			89,343				729,843
Steven G. Chambers			146,302				1,195,167
Peter Hauser			100,061				817,398
John D. Shagoury			141,677				1,157,359

Option Grants in Last Fiscal Year

     The following table sets forth certain information regarding options granted during the fiscal year ended September 30, 2006 to the Named Executive Officers.

						Percent of
						Total
						Options												Potential Realizable Value
		Securities				Granted to				Exercise								at Assumed Annual Rates
		Underlying				Employees				or Base								of Stock Price Appreciation
		Options				in Fiscal				Price				Expiration				for Option Term($)(2)
Name		Granted(#)				Year(%)(1)				($/Share)				Date				5%				10%
Paul A. Ricci			1,000,000	(3)			30.2	%		$	7.57				8/11/2013			$	3,081,750			$	7,181,788
James R. Arnold, Jr.			—				—				—				—				—				—
Steven G. Chambers			100,000	(3)			3.0	%		$	9.30				2/15/2013			$	378,603			$	882,307
Peter Hauser			100,000	(4)			3.0	%		$	9.30				2/15/2011			$	256,942			$	567,774
John D. Shagoury			100,000	(3)			3.0	%		$	9.30				2/15/2013			$	378,603			$	882,307

Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values(1)

     The following table shows the number of shares of Common Stock represented by outstanding stock options held by each of the Named Executive Officers as of September 30, 2006.

		Shares								Number of Securities								Value of Unexercised
		Acquired								Underlying Unexercised								In-The-Money
		on								Options at 09/30/06								Options at 09/30/06
		Exercise				Value Realized				Exercisable				Unexercisable				Exercisable				Unexercisable
Paul A. Ricci			400,000			$	3,751,923				3,036,554				1,375,000			$	14,999,742			$	2,242,500
James R. Arnold, Jr.			75,000			$	485,490				200,000				275,000			$	807,500			$	1,114,250
Steven G. Chambers			75,000			$	434,250				384,374				240,626			$	1,308,518			$	505,482
Peter Hauser			187,500			$	1,304,610				140,624				171,876			$	471,163			$	281,837
John D. Shagoury			100,000			$	539,850				191,666				308,334			$	678,247			$	749,753

Compensation of Non-Employee Directors

     On February 3, 2006, the Board approved changes to the cash compensation payments made to the non-employee directors. From and after that date, each non-employee director will receive an annual retainer of $30,000. The Chairman of the Audit Committee will receive an annual retainer of $15,000 and the other members of the Audit Committee will receive an annual retainer of $7,500. The Chairman of the Compensation Committee will receive an annual retainer of $7,500 and the other members of the Compensation Committee will receive an annual retainer of $5,000. The Chairmen of the Nominating and Governance Committees will receive an annual retainer of $5,000 and the additional members of the Nominating and Governance Committees will receive an annual retainer of $2,500. In addition to the annual retainer, each non-employee director received $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 reimbursed directors for expenses in connection with attendance at meetings. The following table provides information regarding the actual cash compensation paid to our non-employee directors during the 2006 fiscal year:

		Annual				Board				Committee				Total Cash
		Retainer				Meeting Fees				Meeting Fees				Compensation
Charles W. Berger		$	30,000			$	5,500			$	—			$	35,500
Robert M. Finch		$	37,500			$	8,750			$	11,250			$	57,500
Robert J. Frankenberg		$	60,000			$	8,750			$	19,500			$	88,250
John C. Freker, Jr.		$	35,000			$	8,750			$	7,500			$	51,520
Jeffrey A. Harris		$	30,000			$	5,500			$	—			$	35,500
William H. Janeway		$	30,000			$	8,750			$	—			$	38,750
Katharine A. Martin		$	35,000			$	8,750			$	1,500			$	45,250
Mark B. Myers		$	42,500			$	8,750			$	12,000			$	63,250
Philip J. Quigley		$	30,000			$	7,500			$	—			$	37,500
Robert G. Teresi		$	32,500			$	8,750			$	1,500			$	42,750

     Non-employee directors are also entitled to participate in the 1995 Directors’ Stock Option Plan (the “Directors’ Plan”). Prior to amendments approved by the stockholders at the 2006 Annual Meeting, the Directors’ Plan provided for an initial option to purchase 50,000 shares of Common Stock to non-employee directors upon first joining the Board of Directors as a non-employee director. All initial options have an exercise price equal to the fair market value of the Common Stock on the respective date of the grant. Each initial option vests over four years with 25% of the option becoming vested on each of the first, second, third and fourth anniversaries of the date of grant, subject to the non-employee director’s remaining a member of the Board of Directors on the applicable vesting date. Prior to the amendments, the Directors’ Plan also provided for the automatic annual grant of options to purchase 15,000 shares of Common Stock to each non-employee director on January 1 of each year, provided that, on such date, he or she shall have served on the Board of Directors for at least six months. These annual options have an exercise price equal to the fair market value of the Common Stock on the respective date of the grant and become fully vested and exercisable on the first anniversary of the date of grant, subject to the non-employee director’s remaining a member of the Board of Directors on such vesting date. During fiscal 2006,

options were granted to non-employee directors under the Directors’ Plan for the following number of shares and at the per share exercise prices shown:

		Initial				Annual				Exercise
Non-Employee Director		Grant				Grant				Price
Charles W. Berger*			—				—			$	—
Robert M. Finch			—				15,000			$	7.80
Robert J. Frankenberg			—				15,000			$	7.80
John C. Freker, Jr.,			—				15,000			$	7.80
Jeffrey A. Harris*			—				—			$	7.80
William H. Janeway			—				15,000			$	7.80
Katharine A. Martin			—				15,000			$	7.80
Mark B. Myers			—				15,000			$	7.80
Philip J. Quigley*			—				—			$	7.80
Robert G. Teresi			—				15,000			$	7.80

The Directors’ Plan, as amended, currently provides for an initial grant of 30,000 restricted stock purchase rights 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 purchase rights 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 purchase rights 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.

Change in Control and Employment Agreements

     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 August 11, 2006. Pursuant to the new agreement, effective October 1, 2006, Mr. Ricci received an annual base salary of $575,000, with an annual bonus opportunity of up to 100% of his base salary. Mr. Ricci also received the following equity-based compensation awards: (i) a grant of 750,000 shares of restricted stock which shall vest on August 11, 2009 (735,445 of the shares of restricted stock were issued on August 11, 2006 and 14,555 of the shares of restricted stock were issued on October 1, 2006), provided that the vesting of 50% of such shares shall accelerate upon the achievement of certain performance objectives established by the Board of Directors for the Company’s 2007 fiscal year and the vesting of the remaining 50% of such shares shall accelerate upon the achievement of certain performance objectives established by the Board of Directors for the Company’s 2008 fiscal year and (ii) a grant of 1,000,000 stock options which shall be scheduled to vest in three equal annual installments on each anniversary of the grant date. In addition, Mr. Ricci is entitled to receive an additional grant of 250,000 shares of restricted stock if (x) the vesting of the shares of restricted stock described above is accelerated based upon the achievement of the fiscal 2007 and fiscal 2008 performance objectives or (y) the closing price of the Company’s common stock on the Nasdaq Global Market exceeds $18 per share for a period of ninety consecutive days. If issued, the additional grant of shares of restricted stock shall be scheduled to vest on August 11, 2009. The grants of equity-based compensation pursuant to the terms of the employment agreement are intended to serve as Mr. Ricci’s equity-based compensation for the three-year term of the agreement, provided, however the compensation committee reserves the right to make additional grants of equity-based compensation to Mr. Ricci if deemed appropriate by the committee.

     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 1.5 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 in control of the Company, Mr. Ricci shall be entitled to continued payment of 2.0 times his base salary as then in effect and payment of 100% 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, (i) the vesting of all equity-based compensation awards issued to Mr. Ricci prior to August 11, 2006 shall accelerate and be fully vested as of the termination date and (ii) equity-based compensation awards issued on or after August 11, 2006 shall continue to vest during the severance period and any unvested options or awards at the termination of the severance period will

be forfeited, provided, however, if such termination occurs within 12 months of a change in control of the Company, the vesting of 100% of Mr. Ricci’s stock options and restricted stock shall accelerate 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 option, 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 his base salary through the termination date and all equity-based compensation awards issued to Mr. Ricci shall accelerate and be fully vested as of the termination date. Mr. Ricci is also entitled to continuation of certain Company benefits following termination of employment, depending on the circumstances surrounding such termination. 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.

     The agreement also provides for reimbursement to Mr. Ricci for excise tax payments which may be due pursuant to Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), if payments to Mr. Ricci are deemed “parachute payments” within the meaning of Section 280G of the Code, subject to a maximum amount of $4,000,000. The Company has also agreed to provide an enhanced executive medical program and will reimburse up to $15,000 of services provided under the program annually. The Company has also agreed to reimburse Mr. Ricci up to $15,000 per year for post-retirement medical coverage for a 10 year period. Mr. Ricci will only receive this benefit in the event that (i) Mr. Ricci’s employment is terminated within twelve months following a change in control of the Company or (ii) Mr. Ricci retires from active employment with the Company after the age of fifty-five. The Company has also agreed to reimburse Mr. Ricci for up to $10,000 of tax and financial planning services and to provide a $15,000 car allowance to Mr. Ricci.

     Mr. Arnold serves as our Chief Financial Officer. As part of Mr. Arnold’s September 2004 offer letter, in the event Mr. Arnold’s employment is terminated without cause and provided he executes our standard severance agreement, Mr. Arnold will receive a severance package of six months base salary, six months paid health insurance under COBRA, and a budget of $60,000 for relocation expenses. If Mr. Arnold’s employment is terminated without cause within six months following a change of control, Mr. Arnold will receive a severance package of twelve months base salary and twelve months paid health insurance under COBRA, plus immediate acceleration of all of his unvested stock options or restricted stock.

     Ms. McCann serves as our Senior Vice President of Research and Development. Under the terms of a letter addressed to Ms. McCann on February 17, 2003, in the event there is a change in control and Ms. McCann’s employment is terminated within 6 months following the change in control, 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 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 paid health insurance under COBRA.

     Mr. Chambers serves as President of our SpeechWorks(R) Solutions Business Unit. As part of Mr. Chambers August 2003 offer letter, in the event Mr. Chambers’ employment is terminated for any reason other than cause, 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. In the event there is a change in control and Mr. Chambers’ employment is terminated within 6 months following the change in 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. In addition, under the terms of our standard severance benefits for officers, if Mr. Chambers’ employment is terminated without cause, Mr. Chambers will receive a severance package of six months base salary and six months paid health insurance under COBRA, provided, however, if such termination occurs in connection with a change of control, Mr. Chambers will receive a severance package of twelve months base salary and twelve months paid health insurance under COBRA.

     Mr. Shagoury serves as President of our Productivity Applications Business Unit. As part of Mr. Shagoury’s March 2004 offer letter, in the event Mr. Shagoury’s employment is terminated without cause, and provided he executes a standard severance agreement, Mr. Shagoury will receive a severance package of six months base salary plus six months of paid health insurance under COBRA. In the event there is a change in control and Mr. Shagoury’s employment is terminated within 12 months following the change in control, he will receive a severance package of twelve months base salary, twelve months of paid health insurance under COBRA and all of his unvested stock options and restricted stock will become fully vested as of the effective date of the termination of his employment.

     Mr. Hauser serves as our Senior Vice President & General Manager, International Operations. As part of Mr. Hauser’s election as an executive officer, in the event there is a change in control and Mr. Hauser’s employment is terminated within 6 months following the change in 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. In addition, pursuant to the terms of his employment agreement, Mr. Hauser is also entitled to severance equal to twelve months base salary and bonus in the event his employment is terminated without cause.

     Mr. Hunt serves as our Senior Vice President, Worldwide Sales. 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, Mr. Hunt will receive a severance package of twelve months base salary, twelve months paid health insurance under COBRA. If Mr. Hunt’s employment is terminated without cause within twelve months following a change of control, Mr. Hunt will receive a severance package of twelve months base salary and twelve months paid health insurance under COBRA, plus immediate acceleration of all of his unvested stock options or 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 12 month period following the change of control transaction.

Compensation Committee Interlocks and Insider Participation

     None of the members of the Compensation Committee has been or is an officer or employee of Nuance. None of our executive officers serves on the board of directors or compensation committee of a company that has an executive officer that serves on our Board or Compensation Committee.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     The following table sets forth certain information with respect to the beneficial ownership of the Company’s Common Stock as of December 31, 2006, as to (1) each person (or group of affiliated persons) who is known by us to own beneficially more than 5% of the Company’s Common Stock; (2) each of our directors; (3) each executive officer named in the Summary Compensation Table; and (4) all directors and executive officers of the Company as a group.

     Beneficial ownership is determined in accordance with SEC rules and includes voting or investment power with respect to securities. All shares of Common Stock subject to options exercisable within 60 days of December 31, 2006 are deemed to be outstanding and beneficially owned by the persons holding those options for the purpose of computing the number of shares beneficially owned and the percentage ownership of that person. They are not, however, deemed to be outstanding and beneficially owned for the purpose of computing the percentage ownership of any other person.

     Subject to the paragraph above, percentage ownership of outstanding shares is based on 172,348,961 shares of Common Stock outstanding as of December 31, 2006.

						Percent of
		Number				Outstanding
Name and Address of Beneficial Owner(1)		Owned				Shares
Warburg Pincus (2) 466 Lexington Avenue New York, NY 10017			42,277,057				23.1	%
Franklin Resources, Inc. One Franklin Parkway San Mateo, CA 94403			9,073,179				5.3	%
Paul A. Ricci (3)			4,075,840				2.3	%
Charles W. Berger (4)			1,253,226				*
Robert M. Finch (5)			88,582				*
Robert J. Frankenberg (6)			252,675				*
John C. Freker (7)			99,411				*
Jeffrey A. Harris (8)			42,289,557				23.1	%
William H. Janeway (9)			42,332,057				23.1	%
Katharine A. Martin (10)			146,000				*
Mark B. Myers (11)			145,000				*
Philip J. Quigley (12)			152,079				*
Robert G. Teresi (13)			281,757				*
James R. Arnold, Jr. (14)			399,434				*
Steven G. Chambers (15)			544,500				*
John D. Shagoury(16)			458,260				*
All directors and executive officers as a group (16 persons) (17)			51,630,257				28.5	%

EQUITY COMPENSATION PLAN INFORMATION

     As of September 30, 2006, there were 23,404,137 shares subject to issuance upon exercise of outstanding options or awards under all of our equity compensation plans referred to in the table below, at a weighted average exercise price of $4.80, and with a weighted average remaining life of 5.66 years. As of September 30, 2006 there were 5,131,476 shares available for issuance under those plans.

     The following table provides information as of September 30, 2006 with respect to the shares of Common Stock that may be issued under existing equity compensation plans.

(c)

Number of

Securities Remaining

(a)

Available for Future

Number of

(b)

Issuance Under

Securities to be

Weighted Average

Equity Compensation

Issued Upon

Exercise Price of

Plans (Excluding

Exercise of

Outstanding

Securities Reflected

Options

Options

in Column (a))

Equity compensation plans approved by shareholders(1)

8,334,020

(2)

$

6.08

4,290,317

(3)

Equity compensation plans not approved by shareholders(4)(5)

8,414,777

(6)(7)

$

4.15

1,851,989

Total equity compensation plans

16,748,797

$

5.11

6,142,306

Description of Plans Not Adopted by Stockholders

2000 Nonstatutory Stock Option Plan (the “NSO Plan”)

     In August 2000, the Board of Directors approved our NSO Plan. The NSO Plan has not been approved by our stockholders. The NSO Plan, which has been amended from time to time, provides for the grant of nonstatutory stock options to employees and consultants. A total of 10,150,000 shares of Common Stock have been reserved for issuance under the NSO Plan. Of this amount, as of September 30, 2006, options with respect to 5,089,650 shares were outstanding, and 543,172 shares were available for future grants. All of the outstanding options were granted with an exercise price at or above fair market value, ranging from $0.66 to $11.81 per share with an average per share exercise price of $4.68. Vesting schedules of the options range from 2 to 4 years, and they have a maximum term of 10 years. All future options will be issued at or above fair market value with a maximum option term of 7 years.

Nuance 2003 Stock Plan (formerly the SpeechWorks International, Inc. 2000 Employee, Director and Consultant Stock Plan) (the “2003 Plan”)

     In August 2003, in connection with the SpeechWorks acquisition, the Company assumed the 2003 Plan. The 2003 Plan provides for the grant of nonstatutory stock options or stock purchase rights to employees and consultants that were not employed by the Company prior to the time of the acquisition. A total of 4,402,011 shares of Common Stock have been reserved for issuance under the 2003 Plan. Of this amount, as of September 30, 2006, options with respect to 1,821,627 shares were outstanding, stock purchase units with respect to 44,500 shares were outstanding, and 1,308,817 shares were available for future grants. All outstanding options were granted with an exercise price at or above fair market value, ranging from $3.46 to $12.41 per share with an average per share price of $4.95. Vesting schedules of the options range from 3 to 4 years, and have a maximum term of 10 years. All future options will be issued at or above fair market value with a maximum option term of 7 years.

Item 13. Certain Relationships and Related Transactions

     On May 5, 2005, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) by and among the Company, Warburg Pincus Private Equity VIII, L.P. and certain of its affiliated funds (collectively, “Warburg Pincus”) pursuant to which Warbug Pincus agreed to purchase and we agreed to sell 3,537,736 shares of our common stock and warrants to purchase 863,236 shares of our common stock for an aggregate purchase price of $15.1 million. The warrants have an exercise price of $5.00 per share and a term of four years. On May 9, 2005, the sale of the shares and the warrants pursuant to the Securities Purchase Agreement was completed. We also entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) by and among the Company and Warburg Pincus pursuant to which Warburg Pincus agreed to purchase and we agreed to sell 14,150,943 shares of our common stock and warrants to purchase 3,177,570 shares of our common stock for an aggregate purchase price of $60.0 million. The warrants have an exercise price of $5.00 per share and a term of four years. On September 15, 2005, the sale of the shares and the warrants pursuant to the Stock Purchase Agreement was completed. The net proceeds from these two fiscal 2005 financings were $73.9 million. In connection with the financings, we granted Warburg Pincus registration rights giving Warburg Pincus the right to request that we use commercially reasonable efforts to register some or all of the shares of common stock issued to Warburg Pincus under both the Securities Purchase Agreement and Stock Purchase Agreement, including shares of common stock underlying the warrants.

     In connection with the foregoing transactions, we and Warburg Pincus entered into an Amended and Restated Stockholders Agreement dated May 5, 2005 (the “Amended and Restated Stockholders Agreement”), which amended and restated the previous Stockholders Agreement dated March 19, 2004. The Amended and Restated Stockholders Agreement provides Warburg Pincus with the opportunity to designate two directors to the Board, until the later of (i) the date that Warburg Pincus shall cease to beneficially own at least 25,000,000 shares of our voting stock, or (ii) the date that Warburg Pincus’s percentage beneficial ownership of our voting stock is less than the quotient of (x) two divided by (y) the then authorized number of directors of the Company. Messrs. Janeway and Harris, who are each members of the Board, are the designees of Warburg Pincus.

     During the fiscal year ended September 30, 2006, the law firm of Wilson Sonsini Goodrich & Rosati, Professional Corporation, acted as primary outside corporate and securities counsel to the Company. Ms. Martin, a member of our Board of Directors, is a member, and is currently the head of the business law and tax services departments, of Wilson Sonsini Goodrich & Rosati. Aggregate fees and costs billed to us for services performed during the fiscal year ended September 30, 2006 by Wilson Sonsini Goodrich & Rosati were approximately $2,242,480, which is less than one percent (1%) of Wilson Sonsini Goodrich & Rosati’s revenue for the year ended January 31, 2006.

Item 14. Principal Accountant Fees and Services

Principal Accountant Fees During Fiscal Years 2006 and 2005

     The following table sets forth the approximate aggregate fees paid by the Company to BDO Seidman, LLP during the fiscal years ended September 30, 2006 and September 30, 2005.

		2006				2005
Audit Fees (1)		$	3,292,675			$	2,690,425
Audit Related Fees (2)		$	1,564,870			$	352,176
Tax Fees (3)		$	23,945			$	3,120
All Other Fees		$	—			$	—
Total Fees		$	4,881,490			$	3,045,721

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

     The Sarbanes-Oxley Act of 2002 and the auditor independence rules of the U.S. Securities and Exchange Commission require all independent registered public accounting firms that audit issuers to obtain pre-approval from their respective audit committees in order to provide professional services without impairing independence. As such, our Audit Committee has a policy and has established procedures by which it pre-approves all audit and other permitted professional services to be provided by our independent registered public accounting firm.

     The pre-approval procedures include execution by the Chief Financial Officer and Audit Committee Chairperson, on behalf of the Company and the entire Audit Committee, of an audit and quarterly review engagement letter and pre-approval listing of other permitted professional services anticipated to be rendered during the foreseeable future. Additionally, from time to time, we may desire additional permitted professional services for which specific pre-approval is obtained from the Audit Committee Chairman, acting on behalf of the Company and entire Audit Committee, before provision of such services commences. In doing this, the Company and Audit Committee have established a procedure whereby a BDO Seidman, LLP representative, in conjunction with the Chief Financial Officer or Chief Accounting Officer, contacts the Audit Committee Chairman and obtains pre-approval for such services on behalf of the entire Audit Committee, to be followed by a written engagement letter, as appropriate, confirming such arrangements between BDO Seidman, LLP and the Company. In addition, on a periodic (at least quarterly) basis, the entire Audit Committee is provided with a summary of all pre-approved services to date for its review. During the fiscal year ended September 30, 2006, all services provided by our independent registered public accounting firm were pre-approved by the Audit Committee in accordance with this policy.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)

The following documents are filed as a part of this Report:

	(1)		Financial Statements. The financial statements were previously filed with the Annual Report on Form 10-K/A for the fiscal year ended September 30, 2006, filed on December 15, 2006.
	(2)		Financial Statement Schedules. All schedules have been omitted as the requested information is inapplicable or the information is presented in the financial statements or related notes previously filed with the Annual Report on Form 10-K/A for the fiscal year ended September 30, 2006, filed on December 15, 2006.
	(3)		Exhibits –See Item 15(b) of this Report below.

(b)

Exhibits.

SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 2 to the Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

NUANCE COMMUNICATIONS, INC.

By: /s/ Paul A. Ricci                          
Paul A. Ricci
Chief Executive Officer and Chairman of the Board

     Pursuant to the requirements of the Securities Exchange Act of 1934, this Amendment No. 2 to the Annual Report on Form 10-K has been signed by the following persons in the capacities and on the dates indicated.

Date: January 29, 2007		/s/ Paul A. Ricci   Paul A. Ricci, Chief Executive Officer and Chairman of the Board (Principal Executive Officer)
Date: January 29, 2007		/s/ James R. Arnold, Jr.   James R. Arnold, Jr., Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer )
Date: January 29, 2007		*   Charles Berger, Director
Date: January 29, 2007		*   Robert Finch, Director
Date: January 29, 2007		*   Robert J. Frankenberg, Director
Date: January 29, 2007		*   John C. Freker, Jr., Director
Date: January 29, 2007		*   Jeffrey A. Harris, Director
Date: January 29, 2007		*   William H. Janeway, Director
Date: January 29, 2007		*   Katharine A. Martin, Director
Date: January 29, 2007		*   Mark Myers, Director
Date: January 29, 2007		*   Philip Quigley, Director
Date: January 29, 2007		*   Robert G. Teresi, Director

		* By:		/s/ James R. Arnold, Jr.
				Attorney-in-Fact

EXHIBIT INDEX