Dragon Systems to constitute L&H's second mega-acquisition in one month's time

Ieper 28 March 2000Lernout & Hauspie has signed a definitive agreement to acquire Dragon Systems Inc. of Newton, Massachusetts, a privately held leader in speech and language technology. Combined, the two companies' existing resources create a "brain trust" that is expected to use the best of the technologies developed in both companies to work on projects designed to accelerate the use of speech and language in emerging and mainstream consumer markets. Dragon Systems will help L&H meet the growing demand for speech and language applications in key markets such as telephony and health care.

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The acquisition will provide L&H with approximately 350 additional employees, 170 of whom are research scientists and development engineers with expertise in speech and language technology. The addition of these talented engineers and scientists will allow L&H to accelerate its pursuit of new strategic market opportunities in areas such as handheld and mobile devices, automotive, WAP, data mining, and others. The increased R&D resources and the combined intellectual properties should equally help L&H create speech solutions that are even more intuitive and user-friendly, helping to make speech more appealing to an even broader group of general consumers.

The transaction calls for L&H to acquire all of the outstanding stock of Dragon Systems for approximately 5.45 million shares of L&H Common Stock. L&H expects the acquisition to be slightly accretive to its EPS, excluding goodwill, during the second half of year 2000 and much stronger beyond 2000. The company expects the acquisition to close in the next few months. Dragon Systems had revenues of approximately $60 million and a net loss of about $22 million for its fiscal year 1999. L&H intends to use the purchase accounting method for this acquisition.

By combining the two companies' R&D resources and also leveraging the sales and marketing teams, L&H expects to significantly add to its revenue and opportunity base using some 8% of its market capitalisation, as stated by Carl Dammekens, CFO of L&H. This acquisition represents an important turning point in L&H's strategic development, according to Gaston Bastiaens, president and CEO of L&H. "Dragon Systems is a speech industry leader well known for its technology breakthroughs and its award-winning dictation products. By combining our talent with Dragon Systems, we are pooling some of the best speech and language minds in the industry to create speech solutions that are even more user-friendly and are applicable for broader, more consumer oriented markets than ever before. We should also be able to speed our time to market with existing projects that to date we have not had the resources to tackle."

"The union of talented minds, visions and technologies that will occur as a result of this new acquisition will benefit all parties: L&H, Dragon Systems, the speech and language industry overall and, most importantly, both companies' customers", stated Dr. Janet M. Baker, Chairman of the Board and Co-Founder of Dragon Systems, who expects that combined, the companies will more quickly be able to bring the many benefits of speech and language to a wider variety of devices and broader base of users than ever could have been accomplished by either company alone. "This transaction is about joining the resources and technologies of two companies with common interests and vision", commented Donald T. Waite, Dragon Systems' CEO. "Together, we will be able to provide customers with broader solutions while offering greater opportunities for our employees, partners, and shareholders."

L&H expects that it will apply its increased research, development and linguistic staff to accelerate work on key projects in application areas which include handheld/mobile devices, smart phones, automotive, English as a second language, voice to voice translation technologies, innovative wireless communications for Internet and e-commerce, intelligent search engines, multi-lingual text retrieval systems, and audio mining solutions. In the near term, the company expects to apply the resources to accelerate its time to market for NAK (code-named), its patent-pending, prototype handheld device that utilises a large vocabulary continuous speech dictation engine and its L&H RealSpeak text-to-speech (TTS) to easily send and receive e-mail, surf the Web and conduct e-commerce transactions.

L&H equally anticipates that it will leverage Dragon Systems' existing resources in the telephony, medical, legal and health care applications, thus allowing L&H to expand its existing offerings and customer base to meet the rapidly growing demand for speech-enabled applications in those arenas. L&H further expects that the many languages which Dragon Systems supports in its continuous speech dictation engine will offer the company immediate access to additional foreign markets for speech, such as those in Japan, Italy and Spain.

With the acquisition of Dragon Systems, L&H clearly advances its voice processing technology. Together with its recently announced acquisition of Dictaphone, L&H now possesses the distribution channels to serve a wider range of applications such as health care and legal, and also has the technology for emerging voice interface and information appliance markets, as stated by Amy Wohl, President of Wohl Associates. Dragon Systems will also provide L&H with access to its large customer base, which includes companies such as Bank America, Boeing, Citibank, Compaq, Corel, Dell, Deutsche Bank, Fujitsu, Kaiser Permanente, Peugeot, Seiko, Sony, Toshiba, Wells Fargo and many others.

Its strong brand recognition in the United States will be complemented by L&H's strengths in the U.S. and abroad, particularly in the Pacific Rim and Europe. Dragon Systems will not only bring additional R&D staff to L&H but will augment L&H's existing lab facilities with research laboratories in the United States and Cheltenham, England. In April of 1997, Dragon Systems launched the world's first general purpose large vocabulary continuous speech recognition product, Dragon NaturallySpeaking. Since its introduction, the product has claimed well over 100 major industry awards worldwide, more than any other speech software product. Dragon holds 35 patents for its speech and language technologies, many of which for the technology employed in its Naturally Speaking product family.

L&H will continue to market and support Dragon NaturallySpeaking as well as other products in the Dragon Systems family and the L&H Voice Xpress family of products, providing continuity and support for the Dragon Systems customers and strategic partners and also allowing the company to focus on a smooth integration of resources and strategies. In time, L&H expects that it will combine the best technologies from each single product to create next generation products for consumers.

Following the acquisition, Dr. Janet M. Baker, Dragon Systems' chairman and co-founder, will be nominated to have a seat on L&H's Board of Directors and become Chairman of L&H's Technology Advisory Board. L&H equally plans to retain other key members of the Dragon Systems management team including John Shagoury, Dragon Systems' President, who will play a vital role in the new combined company. Donald T. Waite, Dragon Systems' CEO and Ellen Chamberlain, Dragon Systems' CFO, Vice President of Finance and Treasurer, will still continue to work with Dragon Systems through the transition period. Both however plan to return to their executive positions at Seagate Technologies, which is Dragons' largest outside shareholder.

L&H has pro-actively put in place an experienced, carefully selected integration team, comprised of executive management from each company. The team's charter will be to concentrate on a smooth integration of the two company's combined resources and to continue assessing the challenges and opportunities created by the acquisition. Dragon Systems has 350 employees worldwide with offices in Newton and subsidiaries in Munich, Paris, London and Tokyo. Since its founding in 1982, Dragon Systems has developed a number of significant technology firsts in speech recognition, spanning the first built-in PC speech recognition to server-based AudioMining.

Dragon's offerings include continuous and discrete dictation products for the consumer, business and professional markets, diverse command and control programmes, vertical market add-on vocabularies for specific applications, like legal and medical, customised telephony solutions, and developers' tools. Dragon Systems' goal is to "humanise" the interface between people and machines by expanding the use of speech, the most natural and efficient way for people to communicate. The news on the recent acquisition of Dictaphone by L&H is available in the April 2000 VMW article Dictaphone Corporation acquisition offers L&H resources to establish stronghold in health care solutions.


Leslie Versweyveld

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