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ScanSoft & Nuance To Merge

May 9, 2005

Anyone else been wondering what's up with ScanSoft lately? Now, we have an answer. This merger will create the largest and most powerful speech technology organization in the world. Competitors, put your running shoes on. Release below.

TES

ScanSoft and Nuance to Merge, Creating Comprehensive Portfolio of Enterprise Speech Solutions and Expertise

Combined Company Poised to Accelerate Technology Innovation for Customers and Partners around the World

Acquisition Expected to be Accretive to ScanSoft Shareholders for Fiscal Year 2006

Peabody, Mass. and Menlo Park, Calif., May 9, 2005 – ScanSoft, Inc. (Nasdaq: SSFT) and Nuance Communications, Inc. (Nasdaq: NUAN) today announced that they have signed a definitive agreement whereby ScanSoft will acquire all of the outstanding common stock of Nuance, merging the two organizations into a single company with the expertise and resources required to satisfy the increasing demand for powerful speech solutions.

Under the terms of the agreement, ScanSoft will issue approximately 28 million shares of its common stock to Nuance shareholders, who will receive 0.77 shares of ScanSoft common stock for each share of Nuance common stock that they own. Additionally, each Nuance shareholder will receive $2.20 of cash per share of Nuance common stock owned. The transaction is valued at approximately $221 million based on the closing price of ScanSoft common stock of $4.46 per share on May 6, 2005, or $122 million net of Nuance’s cash and equivalents of $98.7 million on March 31, 2005, which includes $11.1 million of restricted cash.

Upon closing, ScanSoft expects to have approximately $80 million in cash and marketable securities. The transaction is expected to generate cost synergies between $25 million and $30 million per year through headcount reductions, office site consolidations and elimination of duplicate operating expenses. In ScanSoft’s fiscal year 2006, the company expects combined revenue to exceed $315 million. ScanSoft expects that the transaction will be accretive to ScanSoft shareholders for fiscal year 2006.

 

"Speech software is transforming the way people use digital devices and access information systems," said Paul Ricci, ScanSoft chairman and CEO. "As businesses increasingly turn to speech solutions to manage and improve customer interactions, combining our organizations creates a trusted provider of industry-defining technologies and applications. Together, we are better positioned to accelerate the development and adoption of innovative speech-enabled applications and services worldwide. We look forward to welcoming Nuance’s talented and motivated employees as we deliver on our shared vision."

Today, ScanSoft and Nuance combined automate more than 20 million contact center and directory assistance calls per day; bring the power of speech to millions of people through mobile phones, automobiles, consumer electronics and games; and provide dictation solutions for more than 3,000 hospitals and more than one million consumers worldwide. The combined company is committed to making speech-enabled systems, devices and interactions as effective and ubiquitous as the Web.

The combination of ScanSoft and Nuance brings together the industry’s most comprehensive portfolio of speech applications, technologies and expertise that will enable customers to effectively deploy innovative speech-based solutions. The combined organization will have the technical resources and intellectual property required to develop new and innovative speech solutions that deliver enhanced value to customers. With leading technology, a premier partner network and an organization dedicated to speech, the company will be able to compete more effectively in new and expanding markets and provide value for its most important stakeholders – its customers, partners, investors and employees.

"This merger brings together the customer successes, technical talents and sales and marketing competencies of both companies," said Chuck Berger, president and CEO of Nuance. "Paul and I agreed that by combining our companies, we will be in the best position to advance the emerging speech industry into stronger growth and maturity and provide superior financial results for shareholders."

In connection with this transaction and for other corporate purposes, Warburg Pincus, the global private equity firm and a leading investor in technology companies, has agreed to purchase ScanSoft common stock in separate transactions as follows:

• 3.54 million shares at a purchase price of $4.24 per share, the closing bid price on Thursday, May 5, 2005, for an aggregate investment of $15.0 million. This transaction closed today and is independent of the Nuance transaction.

• 14.2 million shares at a purchase price of $4.24 per share, for an aggregate investment of $60.0 million. This transaction will close concurrent with, and is contingent upon, the closing of the Nuance transaction.

• In addition, Warburg Pincus has acquired a warrant to purchase 0.86 million shares of ScanSoft common stock along with the first investment, and will acquire a warrant to purchase 3.18 million shares of ScanSoft common stock upon the closing of the second investment. Both warrants have an exercise price of $5.00 per share and a four-year term.

William H. Janeway, a Vice Chairman of Warburg Pincus and a ScanSoft Director, stated: "Warburg Pincus enthusiastically supports the merger of ScanSoft and Nuance. Based on the foundation of ScanSoft’s strong performance in recent quarters, we have confidence that the combined company will have the technical and operational resources to meet the increasing demand for speech technologies and to increase shareholder value."

A Comprehensive Portfolio of Enterprise Speech Solutions and Expertise Benefits of the combined organization include:

• Proven Experience that Drives Better Results – Customers and partners of both companies will benefit from the experience behind thousands of successful speech services deployed worldwide. Combined, ScanSoft and Nuance have deployed more than 3,000 speech applications that automate approximately seven billion phone conversations for some of the world’s most respected companies, including Bank of America, British Airways, Citigroup, General Electric, NTT, Verizon and Vodafone. Together, ScanSoft and Nuance maintain speech-focused, deeply tenured professional service organizations with a combined team of approximately 250 speech and voice user interface experts that offer more than 800 cumulative years of speech experience.

• A Comprehensive Speech Portfolio that Delivers Choice and Completeness – ScanSoft and Nuance each bring a broad set of speech applications and technologies to the combined company. These assets will allow the combined company to satisfy a wider set of customers’ speech needs from a single source. As speech technologies continue to converge, the combined company will be able to leverage an unparalleled set of resources that spans the full breadth of speech capabilities – including network speech, embedded speech, and dictation – to drive innovation and more complete speech applications.

• Deep Technical Expertise that Results in Better Performing Products and Accelerated Innovation – The combined organization will bring together an array of resources – from 300 speech scientists and engineers to a patent portfolio comprising more than 250 patent families. With these assets, the combined company is well suited to handle complex implementations and solve more difficult problems with speech technology. Both ScanSoft and Nuance have been strong, active proponents of speech industry standards. Both companies are strong participants in the development of VoiceXML including providing multiple editors, and both companies were founding drafters of the MRCP specification.

• A Commitment to Premier Partner Relationships that Provide Total Solutions – The combined company will build upon the strong relationships that have been developed with industry leaders, such as Avaya, Cisco, Genesys, and Nortel, to further promote the innovation and adoption of speech. These partnerships are critical to providing complete solutions for our mutual customers and dramatically broadening the awareness and availability of speech solutions.




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