Leading Speech Vendor Swallows Rival Dragon

SAN MATEO (03/28/2000) - Lernout & Hauspie Speech Products Inc. (L&H), one of three leading independent software vendors that sells a voice recognition application for PCs, announced on Tuesday it was acquiring one of its two long-time rivals -- Dragon Systems Inc., a privately held company based in Newton, Massachusetts.

L&H will acquire all of Dragon's outstanding stock for approximately 5.44 million shares of L&H common stock. L&H closed Monday at US$108.75 a share.

While speech-enabled applications for the desktop have a high visibility in the consumer market, it is in the area of post-PC devices -- everything from handheld computers to automotive applications -- where they appear to be gaining more momentum in the marketplace.

Up until now L&H has been somewhat constrained in its ability to pursue new markets due to the size of its research staff, according to Bill DeStefanis, senior director of product management. The acquisition will bring on board 375 Dragon employees, 220 of which are research scientists and development engineers.

"Prior to the acquisition, both Dragon and L&H had small teams dedicated to the automotive industry. By combining our resources we can go attack that part of the market with more sophisticated voice solutions in cars," DeStefanis said.

Other areas identified as growing markets ripe for speech recognition products include Internet appliances, WAP-enabled smart phones, and mobile devices such as the prototype unveiled by L&H at the Demo 2000 conference last February.

Code-named Nuk, the personal digital assistant included a built-in speech recognition engine.

In addition, L&H will continue the research now underway at Dragon in audio data mining for indexing and searching terabytes of audio and video clips using a voice interface.

Both companies will continue to sell their retail products for the foreseeable futures, DeStefanis said. L&H sells its retail products under the Voice Express brand for desktops and notebooks and Dragon Systems under the brand Dragon Naturally Speaking.

Janet M. Baker, Dragon chairman and co-founder, will take a seat on the L&H board of directors and will be named chairman of the L&H Technology Advisory Board. Dragon President John Shagoury will remain in an as-yet-unnamed capacity, however Don Waite, Dragon interim CEO, and Ellen Chamberlain, Dragon interim CFO, will most likely return to Seagate Technologies, according to an L&H spokesperson.

In the long term, users can expect to see more robust products with more sophisticated vocabularies and natural-language understanding capabilities from the combined companies, with the more immediate business benefit of speeding time to market for products now in development, according to L&H president and CEO Gaston Bastiaens.

Dragon System Inc., in Newton, Mass., can be reached at www.dragonsys.com.

Lernout & Hauspie, in Burlington, Mass., can be reached at www.lhsl.com.

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