ScanSoft to Expand Automated Directory Assistance and Speech Application Portfolio through Acquisition of Phonetic Systems

PEABODY, Mass., November 15, 2004 - ScanSoft, Inc. (Nasdaq: SSFT), a global leader of speech and imaging solutions, today announced that it has signed an agreement to acquire Phonetic Systems, Ltd., a leading provider of large, highly dynamic speech recognition solutions for telecommunications carriers and large enterprise customers.

This acquisition strengthens ScanSoft's global leadership 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. Phonetic Systems adds customer relationships with industry leaders, including AT&T, Bell Canada, JP Morgan, Motorola, Novartis and Procter & Gamble. In addition, Phonetic Systems brings to ScanSoft a focused, established speech team and comprehensive technology and application portfolio that advance ScanSoft's delivery of solutions for voice-based access to information, people, applications and services.

"The addition of Phonetic Systems' innovative speech solutions and its team of established global speech experts is exciting and will be of tremendous value to our partners and customers," said Paul Ricci, chairman and CEO, ScanSoft. "Our applications are renowned for delivering field-proven and measurable results for carriers, enterprises and service providers throughout the world. With Phonetic Systems, we extend our leadership in automated directory assistance and broaden our assets to further accelerate acceptance and growth of enterprise speech applications."

The transaction has been approved by the boards of directors of both companies and is expected to close in January 2005. 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. "ScanSoft understands the power of open and innovative speech solutions and has established a leading position in the market through innovative technologies and the industry's premier partner network and catalog of satisfied customers," said Yahal Zilka, chairman at Phonetic Systems. "ScanSoft's global reach, solutions expertise and reputation for stable and reliable operations are exactly what Phonetic Systems needs to take our solutions to the next level. We are impressed by the strength and commitment of ScanSoft's customers and business partners, and look forward to joining forces with ScanSoft to expand our role in the speech market."

This acquisition is an example of how ScanSoft continues to invest in high-growth speech markets and 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 recognizes that speech applications need to be more dynamic, sound more natural, interact more conversationally and adapt to personal preferences. Phonetic Systems provides an array of technology, customer, partner and employee resources to help ScanSoft fuel its growth and propel the quality of speech applications throughout the world.

Strengths of the combined organization include:

• Solid Carrier Relationships
  The combined company has a strong foothold and significant momentum in providing speech automated DA and enhanced services to carriers. Important customer and partner relationships with telecommunications companies such, as AT&T, Belgacom, Bell Canada, BellSouth, Swisscom and SBC, provide expanded opportunities in the carrier market.
  
  
• Innovative Enterprise Applications
  The combined organization offers a highly respected suite of applications that provide more effective enterprise communications, business continuity and clear value propositions and cost savings. Its combined portfolio includes a series of operator services applications, including voice activated dialing, auto-attendant, multimodal messaging, identity control, call forwarding, broadcast messaging and dynamic contact management.
  
  
• State-of-the-Art Technology
  The combined company benefits from a rich set of resources and technologies designed specifically for recognizing and searching information in large unconstrained, un-tuned systems and databases used within complex DA and enterprise speech applications. These resources are complemented by rigorous application development efforts, a focus on comprehensive DA and Enterprise solutions and expanded opportunities to advance ScanSoft's product portfolios and capabilities.
  
  
• Global Presence and Distribution Network
  The combined organization maintains expansive sales operations, partner relationships and marketing programs that fortify its presence across domestic and international telecommunications enterprise markets. In addition, Phonetic Systems will establish a corporate presence for ScanSoft in Israel to serve customers and address markets throughout the region.

About Phonetic Systems

Phonetic Systems delivers real-time speech recognition solutions that use the power of voice to increase productivity and improve customer service. Customers and partners worldwide use Phonetic Systems' Voice Search Engine (VSE) to automate a range of applications like carrier directory assistance, voice access to CRM applications, password management, automated attendant and more. Phonetic Systems dominates large-scale speech deployments with leading carriers and enterprise customers including AT&T, Bank of NY, Continental Airlines, Novartis, and Pelephone. Phonetic Systems' US headquarters are in Billerica, Massachusetts, with global offices in the UK and Israel. For more information please visit www.PhoneticSystems.com.

About ScanSoft, Inc.

ScanSoft, Inc. (Nasdaq: SSFT) is the global leader of speech and imaging solutions that are used to automate a wide range of manual processes - saving time, increasing worker productivity and improving customer service. For more information regarding ScanSoft products and technologies, please visit www.scansoft.com.

Trademark reference: ScanSoft and the ScanSoft logo are registered trademarks or trademarks of ScanSoft, Inc. in the United States and other countries. All other company or product names mentioned may be the trademarks of their respective owners.

This press release contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements relating to the ability of ScanSoft to realize the anticipated benefits from the acquisition of Phonetic Systems; the growth of the speech industry and the demand for speech solutions; future demand for, performance of, and opportunities for growth in ScanSoft's speech solutions; future revenue contributions from relationships with ScanSoft's partners; potential synergies from the Phonetic Systems acquisition; the continued strength of existing products, services and relationships as well as the introduction of new products, services and relationships; the market for ScanSoft's products; ScanSoft's strategic and operational plan; and future prospects regarding international operations. Such statements are based on current expectations that are subject to a number of risks and uncertainties, and actual results may differ materially. These risks and uncertainties include, without limitation, the following: difficulties with integrating product plans and operations of acquired businesses and the accounting effects of such acquisitions on ScanSoft's operating and financial results; fluctuations in demand for ScanSoft's existing and future products; economic conditions in the United States and abroad; ScanSoft's ability to control and successfully manage its expenses, inventory and cash position; the effects of competition, including pricing pressure; possible defects in products and technologies; and ScanSoft's dependence on OEM customers. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in ScanSoft's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2003, and its most recent quarterly reports on Form 10-Q. ScanSoft undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this document.

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