ScanSoft to Acquire Philips Speech Processing Business Units

PEABODY, MA and AMSTERDAM, THE NETHERLANDS - ScanSoft Inc. (Nasdaq: SSFT) and Royal Philips Electronics (NYSE: PHG, AEX: PHI) announced that the companies have signed a definitive agreement whereby ScanSoft will acquire the Philips Speech Processing Telephony and Voice Control business units, and related intellectual property.

Consideration for the transaction is $35.4 million, comprising $3.0 million in cash; a $4.9 million 5% interest note due December 31, 2003; and a $27.5 million three-year, zero-interest convertible debenture, convertible into common shares of ScanSoft at $6.00 per share. The transaction has been approved by the boards of directors for both companies, and is expected to close during the first quarter of 2003.

The acquisition provides ScanSoft with significant resources and market opportunities to:
·Broaden ScanSoft's embedded automatic speech recognition (ASR) solutions for automobiles, mobile devices and consumer electronics, and adds new reference accounts including Bosch-Blaupunkt, Daimler Chrysler, General Motors, Land Rover, Motorola, Opel and Siemens.
·Provide enterprise- and carrier-level productivity solutions for the telephony market, such as directory assistance and automated attendant applications, that are consistent with ScanSoft's strategy of delivering repeatable applications to targeted markets. Telecommunications companies, including British Telecom, MCI/Worldcom and Portugal Telecom, have deployed these solutions.
·Add telephony-based ASR solutions to complement ScanSoft's RealSpeak™ text-to-speech (TTS) capabilities and enable ScanSoft to offer a combined ASR/TTS solution through its existing channel and technology partners.
·Allow ScanSoft to leverage and expand its current global channel network.

"Philips is a pioneer and a great believer in the future of the speech recognition industry. By merging our speech telephony businesses into ScanSoft, we will contribute to making a worldwide market leader in this area," said Tom Verbeek, Head of Philips Corporate Investments. "Because of our confidence in the speech industry and ScanSoft in particular, we have elected to receive consideration with a clear upside potential rather than in cash." The Philips Speech Processing Dictation business is not part of this transaction and will remain within Philips to develop applications for its medical businesses and other professions in the fields of hardware and software dictation systems.

An ongoing partnership between Philips and ScanSoft is an integral component of the transaction. This partnership includes continued support and collaboration with Phillips Research in speech technology and innovations, joint assertion of acquired patent rights and designation of ScanSoft as the preferred supplier of embedded speech capabilities for Philips consumer electronics. As part of the transaction, ScanSoft will acquire a full complement of products and technologies, a roster of premier partners and customers, ownership of critical intellectual property and an existing royalty revenue stream. ScanSoft will add to its operations employees that are located in Europe, North America and Asia.

"Philips' people, products and technology have gained the respect of customers and competitors for their leadership and innovative capabilities, assets that will help accelerate ScanSoft's success," said Paul Ricci, ScanSoft's chairman and chief executive officer. "We are especially enthusiastic about our ongoing partnership with Philips in research, patent assertion and development of consumer markets for speech."

This acquisition enhances ScanSoft's speech portfolio with solutions that will expand its market opportunities with existing business partners and global channels. As the integration of Philips' speech business begins, ScanSoft will apply the same focus on controlling expenses and enhancing productivity employed during the recent integration of the L&H business. ScanSoft expects the acquired businesses to generate revenues approximating $18 million in 2003 and to be accretive for the full year, adding $.02 per share to earnings before the amortization of acquisition-related intangibles.

The businesses to be acquired by ScanSoft include:
·Telephony - The Philips Speech Processing Telephony business allows enterprise customers, telephony vendors and carriers to speech-enable a range of services, including directory assistance, interactive voice response and voice portal applications. Philips automatic speech recognition (ASR) engine, SpeechPearl®, supports more than 40 languages and can process a vocabulary of more than one million words. Philips has also leveraged its expertise in telephony ASR to develop VoiceRequest, an enterprise auto-attendant solution, and automated directory assistance implementations that have been deployed by Telia in Sweden, the Japan Multimedia Service and Telefónica de Argentina, among others.
·Voice Control - The Philips Speech Processing Voice Control business is addressing growing consumer demand for speech-enabled automotive, mobile and consumer electronics products. Philips's SpeechWave and VoCon small-footprint speech recognition engines are suited for embedded applications including voice-control of climate and entertainment features within cars. These solutions are also used within navigation systems and to enable automated voice dialing within mobile phones, including those from Philips.

Investor Call
In conjunction with this announcement, ScanSoft conducted a conference call at 9:00a.m. (ET) on October 7, 2002. A telephone replay will be available starting at approximately 2:00 p.m. (ET) on Monday, October 7 until 11:30 p.m. (ET) on Sunday, October 13. The access number for the replay is (719) 457-0820 or (888) 203-1112; the confirmation number is 794663. Investors will also have access to an archived version of the call on the Company's Web site.