PEABODY, Mass., July 10, 2000 - ScanSoft, Inc. (Nasdaq: SSFT), a leading provider of digital imaging software, today announced that it is implementing a series of new cost reduction actions. The Company will reduce its planned workforce by approximately 70 employees, representing more than 20% of the global ScanSoft employee base. The majority of the reduction will be achieved by the closing of the Company's Los Gatos, CA site. Additional cuts will be made in the sales, marketing and administrative areas at various other locations. The headcount reductions will be partly offset by incremental hiring of software developers at the Company's Budapest, Hungary site.

OmniPage Development Transferred to Budapest

Responsibility for OmniPage product development will be transitioned to ScanSoft's Budapest Operations, formerly the OCR development and marketing company known as Recognita. Budapest Operations already has a highly capable team of 43 software engineers, and this will be supplemented by a dozen new hires over the next several months. The cost of developing software in Budapest is roughly one-quarter the cost of developing it in Los Gatos. "Having worked very closely with Budapest over the last several months, we are confident with their ability to supply world class OCR products to ScanSoft's current and future customers," said Stan Swiniarski, senior vice president, research and development.

"We needed to significantly lower the Company's fixed expense base, while still maintaining a robust product development effort to support future revenue growth," said Michael Tivnan, ScanSoft's chief executive officer. "We believe the decision to move OmniPage to Budapest will achieve both objectives and enable ScanSoft to continue to invest in its core technologies."

Software development for paper management, photo, and Internet services will continue to reside at the Company's Peabody, MA site. Peabody will also house a small number of OCR experts to provide support to Budapest Operations.

Effect of Employee Reductions; Restructuring Charge

The employee reductions will be fully implemented within 90 days, with significant cost benefits realized in the fourth quarter of 2000. ScanSoft will take a restructuring charge in the second quarter estimated at approximately $2.5 million to reflect employee severance and write-offs of depreciable assets associated with the closure of the Los Gatos site. These actions should reduce future operating expenses by $10 - $12 million on an annualized basis, and are in addition to the $10 million in cost reductions implemented immediately following the acquisition of Caere in March.

Updated Revenue and Profit Expectations

ScanSoft's second quarter revenues are being adversely affected by a recent downturn in scanner sales in the US, which in turn reduce the Company's channel sales and OEM royalties. In addition, European revenue is lower than expected due, in part, to integration difficulties and delays in introducing ScanSoft products into the former Caere distribution channels. As a result, the Company expects to report an operating loss (before amortization of intangibles) for the second quarter, and ScanSoft's revenue forecast for the second half of the year is being revised downward to approximately $70 million on an annualized basis. "On a year-over-year comparison, due to the recent acquisition of Caere, reported revenue will continue to show significant growth. However, based upon a preliminary review of second quarter sales data, we have determined that we will not achieve our previously stated objective of producing revenue at an annualized rate of approximately $100 million in the second half of 2000," said Tivnan. "With the growth in revenue smaller than we originally projected, it was important to take quick action and resize the company accordingly. We believe these cost reductions will allow ScanSoft to reach operating profitability, before amortization of intangibles, by the end of the third quarter. Once we achieve positive operating margins with these actions, we'll be well positioned to take advantage of the growth opportunities available in the digital imaging software market."

ScanSoft will release complete financial results for the second quarter 2000, and its management will hold a teleconference with investors, in early August.

About ScanSoft, Inc.

Headquartered in Peabody, MA, ScanSoft, Inc. (Nasdaq: SSFT) is the leading developer of digital imaging software that enables users to leverage the power of their scanners, digital cameras and other electronic devices. ScanSoft's award-winning product line - Pagis® Pro, TextBridge® Pro, PaperPort® Deluxe™, Paper Converter™, OmniPage Pro®, OmniForm®, OmniPage Pro Scan Suite Plus™, PageKeeper®, Kai's PhotoSoap2™, Kai's SuperGoo™, Kai's PowerShow™, and PhotoFactory™ - enables users to capture, recognize, edit, manage and share documents and photos electronically by taking advantage of ScanSoft's cutting-edge technology.

ScanSoft has established numerous strategic partnerships with the industry's leading scanner and multifunction vendors to deliver the most comprehensive and cost-effective solutions to its customers. Vendors who have chosen ScanSoft's cutting-edge OCR technologies to incorporate into their own product offerings include Brother, Canon, Epson, Fujitsu, Hewlett-Packard, Lotus, Microtek, Mustek, Primax, Sharp, Symantec, Visioneer, Xerox and others. ScanSoft's leading OCR technology has been licensed by Microsoft for use in future products. ScanSoft continues to cultivate and develop strategic partnerships to deliver the most comprehensive and cost-effective solutions for its customers.

ScanSoft software is sold and marketed worldwide through retail, dealer and OEM channels as well as the Internet, capturing the consumer, small office/home office (SOHO) and corporate markets. There are approximately 6 million registered users of ScanSoft products. ScanSoft can be found on the Web at www.scansoft.com.

Except for the historical information contained herein, this press release includes forward-looking statements within the meaning of Section 21(e) of the Securities Exchange Act of 1934. These statements are based on ScanSoft's current expectations and estimates as to prospective events and circumstances which may or may not be in ScanSoft's control and as to which there can be no firm assurances given. These forward-looking statements are subject to risks and uncertainties and there can be no assurance that any of these forward-looking statements may prove to be correct and actual results may differ materially. These risks and uncertainties include, but are not limited to, timeframes for closing the Los Gatos site, the allocation of resources, the allocation of capital and management attention, the cost of the reduction in force, the amount of the restructuring charge expected in the second quarter, our ability to effectively manage diverse and geographically dispersed operations, difficulties in implementing the planned cost reductions, potential that the information and estimates used to predict the cost savings were not accurate, and other risks detailed from time to time in ScanSoft's SEC reports. ScanSoft disclaims any intent or obligation to update these forward-looking statements.

TextBridge, Pagis, PaperPort, PaperPort Deluxe, Paper Converter, Scanner Suite, OmniPage, OmniForm, and PageKeeper, are registered trademarks or trademarks of ScanSoft, Inc. All other trademarks and trade names are hereby recognized and may be registered to their respective holders.

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