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LERNOUT & HAUSPIE SIGNS DEFINITIVE AGREEMENT TO ACQUIRE DRAGON SYSTEMS

Acquisition to Provide Additional Resources to Pursue New Market Opportunities; Combined, Companies Plan to Bring Speech to Mainstream Markets

BURLINGTON, MASS. & IEPER, BELGIUM - March 28, 2000

Lernout & Hauspie (NASDAQ: LHSP, EASDAQ: LHSP) (L&H) announced today that it has signed a definitive agreement to acquire Dragon Systems Inc. of Newton, Mass., 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.

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. It will also help the company meet the growing demand for speech and language applications in key markets such as telephony and healthcare.

The increased R&D resources and the combined intellectual properties should also 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 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 approximately $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 leveraging the sales and marketing teams, we expect to significantly add to L&H's revenue and opportunity base using approximately 8% of our market capitalization," stated Carl Dammekens, CFO of L&H.

"This acquisition represents an important turning point in L&H's strategic development," said 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 acquisition will benefit all parties: L&H, Dragon Systems, the speech and language industry overall and, most importantly, both companies' customers," said Dr. Janet M. Baker, Chairman of the Board and Co-Founder of Dragon Systems. "We expect 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," said Donald L. Waite, Dragon Systems' CEO. "Together, we will be able to offer customers broader solutions while providing greater opportunities for our employees, partners, and shareholders."

Resources to Help Bring Speech to Broad Markets

In particular L&H expects that it will apply its increased research, development and linguistic staff to accelerate work on key projects in application areas that include: handheld/mobile devices, smart phones, automotive, English as a second language, voice to voice translation technologies, wireless communications for Internet and e-commerce, intelligent search engines, multilingual 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 utilizes 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 also expects that it will leverage Dragon Systems' existing resources in the telephony, medical, legal and healthcare applications, 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 that Dragon Systems supports in its continuous speech dictation engine will give L&H immediate access to additional foreign markets for speech, including 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 healthcare and legal and has the technology for emerging voice interface and information appliance markets," said Amy Wohl, President of Wohl Associates.

Dragon Systems Brings Customers, Brand Recognition

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 US and Cheltenham, England.

In April of 1997 Dragon Systems introduced 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 them for 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 Dragon Systems customers and strategic partners and allowing the company to focus on a smooth integration of resources and strategies. Over time L&H expects that it will combine the best technologies from each product to create next generation products for consumers.

Organizational Structure

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 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 L. Waite, Dragon Systems' CEO and Ellen Chamberlain, Dragon Systems' CFO, Vice President of Finance and Treasurer will continue to work with Dragon Systems through the transition period. Both plan to return to their executive positions at Seagate Technologies, Dragon's largest outside shareholder.

L&H has proactively put in place an experienced, carefully chosen integration team, comprised of executive management from each company. The team's charter will be to focus 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 London, Munich, Paris, and Tokyo.

About Dragon Systems

Dragon Systems, Inc., is a leading worldwide supplier of speech and language technology, including award-winning speech recognition software. 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™. In April 1997, the company introduced Dragon NaturallySpeaking®, the world's first continuous speech dictation software, which is part of its full line of multilingual speech recognition products.

The company's offerings include continuous and discrete dictation products for consumer, business and professional markets, command and control programs, vertical market add-on vocabularies for specialized applications, such as legal and medical, customized telephony solutions, and developers' tools.

Dragon Systems' goal is to "humanize" the interface between people and machines by expanding the use of speech - the most natural and efficient way for people to communicate. Speech capabilities available from Dragon Systems include continuous and discrete dictation systems, voice command systems, text-to-speech systems, customized telephony solutions, and developer tools that enable users to speech-enable applications and build interactive dialogues or custom vocabularies.

Founded in 1982 by Drs. Janet and James Baker, Dragon Systems has its headquarters in Newton, Massachusetts. It has European subsidiaries in Munch, Paris and in Marlow, near London, and additional research laboratories in Cheltenham, England (Dragon Systems GmbH, Dragon Systems France S.A.R.L., Dragon Systems SA, Dragon Systems UK Ltd, and Dragon Systems UK Research & Development Ltd, respectively). Dragon has a subsidiary in Tokyo, Japan.

About Lernout & Hauspie

Lernout & Hauspie (L&H) is a global leader in advanced speech and language solutions for vertical markets, computers, automobiles, telecommunications, embedded products, consumer goods and the Internet. The company is making the speech user interface (SUI) the keystone of simple, convenient interaction between humans and technology, and is using advanced translation technology to break down language barriers.

The company provides a wide range of offerings, including: customized solutions for corporations; core speech technologies marketed to OEMs; end user and retail applications for continuous speech products in horizontal and vertical markets; and document creation, human and machine translation services, Internet translation offerings, and linguistic tools.

L&H's products and services originate in four basic areas: automatic speech recognition (ASR), text-to-speech (TTS), digital speech and music compression (SMC) and text-to-text (translation).

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