The following demonstrates that when someone buys adaptive technology, one
should consider more than the device itself.  this can include the company
that makes the product, tech support, and the local dealer.  Learnout and
Hauspie is the parent company of Kurzweil Computer Products, which makes
the Kurzweil 1000.  Amid accounting irregularities, L & H was delisted
from the Nasdaq stock exchange.  It has filed for Chapter 11 bankruptcy.
The article below explains why this company collapsed so suddenly.  It
created than acquired 16 dummy corporation.  It also created an investment
fund that essentially invested in itself.

the Kurzweil 1000 is a great product, but it is not the only scanning
system for the blind of high quality.  Consider if you will have tech
support for the next year, upgrades, and bug fixes.  One is not buying a
product but  a long term relationship with someone that offers a solution
for the blind person.

kelly


   The Wall Street Journal

 December 14, 2000

Chief L&H Investors With Close Ties
To Firm Say Deal Was 'Misrepresented'

   By JOHN CARREYROU and MARK MAREMONT
   Staff Reporters of THE WALL STREET JOURNAL

   One of the mysteries in the saga of the Belgian technology company
   Lernout & Hauspie Speech Products NV has been the identities of the
   investors behind many of the start-up firms that provided a
   substantial chunk of the company's revenue in 1998 and 1999.

   Now, it turns out Mercator & Noordstar NV, an Antwerp insurance
   company with a variety of close ties to L&H, was the ultimate owner of
   16 of the 30 start-up firms.

   The link, confirmed by Ronald Everaert, chief executive of Mercator,
   could raise questions for securities regulators who are investigating
   the financial irregularities that led L&H to file for bankruptcy
   protection last month amid a mushrooming accounting scandal. Mr.
   Everaert says he didn't realize his company's involvement in the 16
   start-ups would be as great as it turned out to be. "We are angry
   about the present state of affairs," he says. "Everything was
   misrepresented to us."

   Mercator and its chairman, Louis Verbeke, separately own minority
   stakes in a holding company that has a stake in L&H. Additionally, Mr.
   Verbeke is a partner at L&H's main law firm, Brussels-based Loeff
   Claeys Verbeke, which was the Belgian co-counsel to a U.S. law firm
   that was hired by L&H's audit committee to conduct an internal probe
   of company.

   L&H critics have long suspected that the start-up companies were
   secretly funded by parties related to L&H that would benefit from a
   rise in the company's stock price. In total, license fees paid by the
   30 start-ups contributed 10% of L&H's revenue in 1998, and 25% in
   1999. L&H's former top management refused to release the names of the
   investors in the start-ups, but repeatedly said the investors were
   independent of L&H.

   Of the other 14 start-ups, eight were funded at least in part by
   Flanders Language Valley Fund NV, a Belgian venture pool that L&H
   co-founders Jo Lernout and Pol Hauspie helped start and later
   continued to influence. Ownership of the remaining six start-ups
   remains unclear.

   Once a high-flying European technology star, L&H filed for bankruptcy
   protection after it admitted accounting "irregularities" and said it
   would have to restate its financial reports for the past 2 1/2 years.
   The U.S. Securities and Exchange Commission is conducting a broad
   probe into L&H's finances, including the role the 30 mysterious
   start-up companies played in boosting L&H's reported revenue.

   The revelation of Mercator's role in 16 of the start-ups also raises
   questions about conflicts of interest in an internal probe conducted
   by an audit committee set up by L&H's board. While the St. Louis law
   firm Bryan Cave LLP led the probe, its co-counsel was Mr. Verbeke's
   firm. A central focus of the audit-committee probe has been to shed
   light on the financial underpinnings of the 30 start-up firms, putting
   Mr. Verbeke's law firm in the awkward position of uncovering the
   hitherto secret involvement of Mr. Verbeke's insurance company. The
   final report to L&H's audit committee written by Bryan Cave and Mr.
   Verbeke's law firm didn't mention that Mr. Verbeke was chairman of
   Mercator, although it included a discussion of Mercator's role in the
   30 start-up firms, according to a person familiar with the report.

   Loeff Clayes Verbeke's managing partner, Wim Degonghe, speaking for
   Mr. Verbeke, said "there is no conflict of interest under applicable
   bar rules." Therese Pritchard, a Bryan Cave partner who headed the
   audit committee's investigation, said Mr. Verbeke "did not in any way
   try to influence the outcome of the audit committee report," and
   "neither the process nor the results" of the committee's probe "were
   compromised" by his dual position.

   Mercator owns 6.9% of L&H Holding, which in turn owns 8.9% of L&H. L&H
   Holding is one of the vehicles through which L&H's two founders
   controlled the software firm. Mercator separately owns a direct 0.2%
   stake in L&H. In total, this gives Mercator a direct and indirect
   stake in L&H of about 0.82%, Mercator said. Mr. Verbeke, in an
   interview some weeks ago, said he also was a minority shareholder in
   L&H Holding, but didn't indicate the exact size of his stake.

   Mr. Everaert said the insurer became involved in the start-up
   companies after hearing a pitch from Messrs. Lernout and Hauspie.
   Their idea: Found a raft of companies that would license L&H's speech
   technology for use in a host of new languages. In early 1999, Mr.
   Everaert says, Mercator put $2 million into Language Development Fund
   NV, a holding company set up by L&H to own these start-up firms.
   Mercator also loaned LDF $10 million.

   Eventually, LDF became the owner of 16 of the 30 start-ups, holding
   them through a Singapore-based entity. An internal L&H accounting
   document shows the 16 start-ups owned by LDF paid L&H a total of $53
   million in license fees over the course of 1998 and 1999.

   Mr. Everaert says it isn't improper that Mercator has close ties to
   L&H and to 16 of its customers. But he now has misgivings about the
   deal since, he claims, Messrs. Lernout and Hauspie "misrepresented"
   certain facts about LDF when they sold him on the idea of investing in
   the fund.

   The L&H co-founders said the start-ups would do their own software
   development work and would have their own employees, the Mercator CEO
   says. But that has turned out not to be true. L&H admitted in October
   that the start-ups are relying on it to do their software development
   work, and none of the start-ups has any employees of its own.

   Mr. Everaert also says Messrs. Lernout and Hauspie gave him the
   impression that Mercator would be one of many parties making
   multimillion-dollar investments in LDF. That has also turned out to be
   untrue. Mr. Everaert says he recently found out, much to his surprise,
   that Mercator is by far LDF's largest shareholder with a 96% stake.

   Mr. Hauspie couldn't be reached for comment. Mr. Lernout said: "As
   with any investment of this nature, there were preliminary discussions
   in which I outlined a number of possible concepts, including the fact
   that [the start-ups] would oversee their own development. However, I
   was not a part of the ensuing negotiations that led to the eventual
   investment by Mercator & Noordstar."

   Mr. Everaert also says he is angry about another matter: LDF still
   owes Mercator $5 million of the $10 million loan the insurer extended
   to it in early 1999. Under the terms of the loan, LDF was supposed to
   repay Marcator the entire $10 million no later than the end of
   September 1999. Mr. Everaert says the person who manages LDF, Tony
   Snauwaert, recently told him the firm has no cash, and the outstanding
   $5 million was used to buy software licenses from L&H on behalf of the
   start-ups.

   According to Mr. Everaert, Mr. Snauwaert also told him that "another
   party," which Mr. Snauwaert declined to identify, loaned $36 million
   to LDF. That money, too, was used as part of the license payments made
   by the start-ups to L&H, Mr. Snauwaert told Mr. Everaert.

   Mr. Snauwaert refused to speak with two reporters who recently visited
   him at his office in Eeklo, a town in Western Belgium. Subsequent
   calls to his office weren't returned.

   Mr. Lernout described Mr. Snauwaert in an October interview he gave to
   a Belgian magazine as a broker for Arab princes. The Belgian police
   says Mr. Snauwaert was a motorcycle cop with the national highway
   patrol from 1982 to 1989.

   -- Jesse Eisinger contributed to this article.

   Write to John Carreyrou at [log in to unmask] and Mark Maremont at
   [log in to unmask]


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