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From the New York Times and Boston Globe.


Founders seek to buy back Dragon

Say they will bid to reacquire assets from Lernout & Hauspie

By Peter J. Howe, Globe Staff, 10/24/2001

The founders of the former Dragon Systems, a Newton speech-recognition
technology company bought by scandal-wracked Lernout & Hauspie last year for
$460
million in stock that is now nearly worthless, said yesterday they want to
buy their company back - and potentially all of L&H's speech-technology
assets.

''We are very, very aggressively seeking partners to help us reacquire our
assets,'' former Dragon president Janet Baker said in an interview
yesterday.
''We certainly want to get Dragon back, and it is not out of the question
that we would bid for the whole thing.''

L&H filed for bankruptcy in the United States last year. It is seeking
similar protection in its home country of Belgium. Earlier this month it put
up for
sale what is left of the company, eight discrete business units. On Monday,
Boston-based SpeechWorks International confirmed it has put in a $12.2
million
bid for unspecified parts of L&H's speech business. US and Belgian judges
are expected to pick winning bidders later this year. L&H has twin
headquarters
in Burlington and Belgium.

Janet and James Baker, a husband-and-wife team from Newton, founded Dragon
in 1982. Last June, they completed a sale of the company for $460 million
worth
of L&H stock. L&H shares have since been delisted and are unlikely to ever
be worth anything. The Bakers, who owned a majority of Dragon, are estimated
to have lost more than $200 million in the deal.

About three-quarters of Dragon's former 380 employees have left L&H as the
company was shattered by multinational probes of charges that its Belgian
executive
team engineered phony sales to bogus East Asian companies to pump up its
revenues and stock price. L&H last year had a market capitalization of more
than
$10 billion.

However, L&H has continued to perfect products developed by Dragon,
including an ''audio-mining'' system for finding snippets of text in video
and audio
tapes and speech-recognition systems for handheld computers and Web-enabled
cellphones. This week L&H is launching an enhanced 6.0 version of Dragon's
Naturally Speaking software, which allows people to dictate documents that
are converted into computer text files.

Janet Baker said she and her husband have been ''working as hard as we can''
to line up potential investors, including companies that use Dragon speech
products. For several months, using the law firm of David Boies, the
Washington lawyer who led the Microsoft antitrust prosecution, the Bakers
have been
fighting unsuccessfully to have the sale of Dragon to L&H voided.

''There are all sorts of ironies with having to buy back your assets that
were allegedly fraudulently obtained, but that's where we are,'' Baker said.
''What
we are trying to do is get on with our lives and see if we can restore
Dragon's former glory.''

L&H officials repeatedly said over the last year that Dragon no longer
exists as a discrete entity but has been meshed into several L&H operations.

Baker, however, said: ''We certainly don't have any difficulties identifying
the Dragon technology or [software] code or people.'' Baker added that she
is confident if she and her husband regained control of the company, scores
of departed employees would be eager to return and work for them. If they
succeeded
in buying all eight L&H units up for sale, ''I think we could do a fine job
of running the whole thing,'' Baker said.

Looking back at what she calls her ''year of chaos'' - selling a company
that was her and her husband's life's work only to see it get swept up in
one of
the most spectacular financial scandals of recent times - Baker said, ''Life
is filled with many surprises, some good, some not.''

Peter J. Howe can be reached by e-mail at
[log in to unmask]

This story ran on page D6 of the Boston Globe on 10/24/2001.
©
Copyright
2001 Globe Newspaper Company.

Lernout Is Declared Insolvent

misc/printlogo

October 25, 2001

Lernout Is Declared Insolvent

By PAUL MELLER

BRUSSELS, Oct. 24 - Lernout & Hauspie Speech Products (
news/quote),
the once highflying software company brought low by an accounting scandal
and management turmoil, was declared insolvent today by a court in Ypres,
Belgium,
where it is based. The court appointed five liquidators to dispose of the
company's Belgian assets.

The company had asked the court on Monday for a two-month extension of
Chapter 11-like protection from creditors - enough time, it said, for an
orderly
sale of its eight remaining divisions, a request the court denied today.

"The debts of the company total around 520 million euros," Wim Orbie, the
clerk of the court, said. "The sale of assets wouldn't even reach 25 million
euros,"
or about $22.3 million.

A number of prospective bidders for pieces of Lernout have stepped forward
in recent days. Over the weekend, a voice technology maker, SpeechWorks
International
(
news/quote)
of Boston, offered just more than $12 million for a large chunk of Lernout's
core speech and language technology business. MedQuist (
news/quote),
based in Marlton, N.J., was the high bidder for Lernout's medical division
at an auction in New York on Monday, offering $25 million.

A Lernout employee said another bidder for the core businesses appeared on
the scene today, promising to save up to 300 jobs, but the employee did not
name
the bidder.

Meanwhile, Janet and James Baker, the founders of Dragon Systems, a Newton,
Mass., speech recognition company that Lernout acquired last year for stock
that is now worthless, were said to be looking into retrieving Dragon and
possibly buying other parts of Lernout, The Boston Globe reported.

"It is up to the liquidators to continue these discussions," Mr. Orbie said
of possible asset sales. They will also have to sort out Lernout's legal
status
in the United States, where the company still has Chapter 11 bankruptcy
protection. "That could be a problem," Mr. Orbie said. The liquidators were
not
available for comment.

Lernout's chief executive, Philippe Bodson, told Belgian reporters that he
thought the court's verdict was harsh. Neither he nor the company's press
officers
were available for comment after the ruling, which came late in the day.

The Ypres commercial court's ruling contradicts one it made last month
extending Lernout's bankruptcy protection until next June. The company
appealed that
decision, saying the conditions attached to the extension were too strict.

Specifically, the court required that at least 80 percent of proceeds from
asset sales be set aside to pay creditors' claims rather than finance the
company's
efforts to reorganize. And it demanded that the company's core businesses be
disposed of in a way that guaranteed long-term economic activity and
substantial
employment in Belgium.

Last Thursday, a court in nearby Ghent threw out the company's appeal and
lifted its bankruptcy protection in Belgium. Lernout tried to forestall
immediate
insolvency by reapplying for protection in the Ypres court.

Explaining the court's change of mind, Mr. Orbie said: "A lot has happened
since we last granted the company protection. The Ghent court ruled in the
meantime
that conditions cannot be attached to the granting of bankruptcy
protection."

Lernout began to unravel when a $100 million cash shortfall was discovered
in its South Korean unit last summer. An investigation uncovered accounting
irregularities
throughout the company that had overstated sales by $373 million from 1998
to 2000.

The company's founders, Jo Lernout and Pol Hauspie, were arrested by Belgian
authorities in April, and were among four top executives charged with
falsifying
accounts and stock manipulation. The cases against the executives are
awaiting trial. Neither is now associated with the company, though both hold
stock
in it.

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