ScanSoft to Extend Speech Markets through Acquisitions of Phonetic Systems, ART and Rhetorical

PEABODY, Mass. - ScanSoft has signed separate agreements to acquire Phonetic Systems, Ltd., ART Advanced Recognition Technologies, Inc. and Rhetorical Systems Ltd. that upon closing will further accelerate its growth and extend its ability to deliver solutions in three key speech segments - directory assistance, enterprise speech applications and wireless solutions. 

ScanSoft is delivering on its strategy for a future where natural, human conversations will be the predominant way that people retrieve information and interact with automated systems.  To achieve this, ScanSoft has recognized that speech applications need to become more dynamic, sound more natural, interact more conversationally, perform tasks on multiple devices and adapt to personal preferences.  These acquisitions are expected provide ScanSoft with an array of technologies, customers, partners and talented employees to help ScanSoft fuel its growth and propel the quality of speech applications throughout the world. 

Each acquisition has been approved by the companies' respective boards of directors.  Aggregate fixed consideration for these transactions is approximately $63.2 million plus additional earn-out provisions as described below:

• Phonetic Systems - Consideration comprises $35 million in cash, with a payment of $17.5 million due at closing and another payment of $17.5 million due 24 months after closing.  Terms also include the potential for additional cash consideration of up to $35 million in the form of an earn-out and the potential vesting of a warrant to purchase 750,000 shares of common stock.  The earn-out is based on the business achieving maximum performance targets over each of the next three years.   The transaction is expected to close in January 2005.
• ART - The transaction is valued at approximately $21.5 million, net of ART's expected closing cash balance of $5 million.  Consideration comprises cash payments of approximately $5 million due at closing, net of the estimated closing cash balance, and $16.5 million due in December 2005.  The transaction is expected to close in January 2005.
• Rhetorical - Consideration for this transaction is approximately $6.7 million, comprising $4.9 million in cash due at closing and $1.8 million of ScanSoft common stock.  The transaction is expected to close in December 2004.

Phonetic Systems, Ltd.
ScanSoft strengthens its portfolio of automated directory assistance and operator services applications through the acquisition of Phonetic Systems.  For more than a decade, Phonetic Systems has provided products and technologies for applications within telecommunications carriers and global enterprises.

This acquisition furthers ScanSoft's global position in automated Directory Assistance (DA) and enterprise speech applications.  Combined, the organizations provide speech solutions that automate directory assistance for more than a dozen telecommunications carriers and power speech applications for more than two-thirds of the Fortune 100, with Phonetic Systems adding new customer relationships with industry leaders, including ATandT, Bell Canada, JP Morgan, Motorola, Novartis and Procter and Gamble. 

ART Advanced Recognition Technology, Inc.
ScanSoft further strengthens its position in embedded speech by acquiring ART.  As businesses and consumers increasingly demand reliable and immediate access to content, data and images, today's mobile devices need to be more accessible and user-friendly for a global population.  Through ART's solutions, users benefit from speech recognition technologies to set meetings, call people, read emails and retrieve information from their company systems or the Internet.

Today, more than 30 handset manufacturers worldwide have adopted ART's technologies, which can be integrated into almost any cellular chipset, operating system, and mobile platform.  Its current customer portfolio includes: Analog Devices, Agere Systems, Hitachi, LG Electronics, Intel, Mitsubishi Electric, Motorola, NEC, Panasonic, Qualcomm and Texas Instruments.

Rhetorical Systems Ltd.
With the acquisition of Rhetorical Systems, ScanSoft solidifies its position as a provider of speech synthesis or text-to-speech (TTS) solutions for a variety of speech-based applications.  ScanSoft will further differentiate its solutions with a number of techniques, tools and services that enhance its ability to deliver custom, dynamic voices.