EXHIBIT 99.2
L&H Korea
Investigation
Press Conference, Diegem, April 6, 2001
Phillipe Bodson, President & Chief Executive Officer
Thomas Denys, Senior Vice President & General Counsel
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2
L&H KOREA CO., LTD. ("LHK")
Investigation
o Lernout & Hauspie Speech Products N.V. ("LHNV") has conducted an
investigation, with the assistance of its advisors, of LHK. This report
presents a summary of our findings through the date of this report.
o The company's investigation focused on the facts and circumstances
surrounding the cancellation of over $100 million of revenue related to
47 license and maintenance agreements entered into between September
1999 and November 2000.
o Because our investigation is on going, the company may update this
report, in view of any additional findings.
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3
Summary of Findings
o The company understands that LHK created the appearance of valid
license and maintenance agreements through various arrangements with
customers including oral and written side agreements. It appears LHK
created these arrangements to meet its sales goals. The contracts were
often entered into at the end of the month with small business owners,
often start ups, that allegedly were known by LHK management.
o Through various factoring and transfer arrangements, LHK created the
appearance that cash had been received. In fact, there were little or
no payments generated by LHK customers and the cash from factoring was
held and controlled by the banks.
o In November 2000 accounting records show that LHK had available cash of
$97.5 million prior to cancellation. In fact, subsequent to the
cancellation LHK's available cash position was approximately $2.3
million.
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4
Transactions with LHK
o LHNV purchased Bumil Information and Communication Co. Ltd. from Mr.
Ju-Chul Seo on September 9, 1999 for $25 million.
o Stock Purchase Agreement also provided for an Earn-out of $25 million
to be paid to Mr. Seo. The Earn-out would be determined on the basis of
results between acquisition date and 31 December 2000, and was
scheduled to be paid in 2001. However, the full $25 million payment was
accelerated by LHNV to January 28, 2000 at the advice of LHNV's CEO,
supposedly because of LHK's exceptionally good results in 1999.
o LHNV provided capital infusions to LHK in the amount of $6 million on
March 9, 2000 and $19 million on April 10, 2000.
o In the aggregate, LHNV has invested $75 million for the acquisition and
financing of its Korean subsidiary.
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5
Impact of Cancelled Contracts
on Cash Position
Beginning Cash Balance as of November 16, 2000 $97,501,584
Less:
Restricted Time Deposits Related to:
-Factoring $53,627,737
-Transfers 23,213,214 76,840,951
-----------
Payment of Penalties 5,564,649
Investments 11,736,733
Other Miscellaneous Uses of Cash 1,068,589
-----------
Ending Cash Balance as of November 29, 2000 $ 2,290,662
===========
- --------------------------------------------------------------------------------
Upon cancellation, restricted time deposits reverted to banks and customers
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6
LHK's Cumulative License
Revenue
[GRAPHIC CHART]
Original Sales Sales Net of Cancellations
9/30/99 4,196,390.00 0.00
12/15/99 10,265,887.00 0
12/17/99 10,670,520.15 0
12/21/99 11,126,808.58 0
12/24/99 12,312,297.58 0
12/27/99 22,312,297.58 10,000,000.00
12/28/99 33,031,545.89 10,000,000.00
12/30/99 40,920,342.37 10,000,000.00
12/31/99 45,920,342.37 15,000,000.00
01/22/00 53,941,469.32 23,021,126.95
02/29/00 54,947,844.75 23,021,126.95
03/01/00 57,459,275.18 25,532,557.37
03/23/00 64,646,785.73 25,532,557.37
03/30/00 76,794,585.46 26,815,272.58
03/31/00 92,575,153.29 34,712,003.06
05/16/00 92,864,220.53 35,001,020.40
05/17/00 93,326,728.13 35,463,448.15
05/22/00 96,031,915.76 38,168,168.76
05/28/00 96,060,244.35 38,196,492.46
05/30/00 96,098,468.68 38,234,710.19
06/01/00 98,401,371.07 40,537,215.00
06/20/00 98,690,438.31 40,826,232.35
06/22/00 113,786,878.90 40,826,232.35
06/23/00 114,056,385.90 41,095,692.85
06/27/00 116,967,032.90 42,604,767.99
06/28/00 118,629,169.50 44,266,617.70
06/30/00 156,225,120.60 48,882,995.35
$180.000.000 -----------------------------
------------------------------------o 30 of 38 contracts signed
between 6/22/00 and
$160.000.000 6/30/00.
------------------------------------o 21 subsequently
cancelled
$140.000.000 -----------------------------
-----------------------------------------------------------------
$120,000.000 -------------------------------
--------------------------o 13 of 21 contracts signed
$100.000.000 between 3/23/00 and
-------------------------- 3/31/00.
$80.000.000 o 9 subsequently cancelled.
--------------------------
$60.000.000
-------------------------------
$40.000.000 o 9 out of 10 contracts signed
----- between 12/15/99 and
$20.000.000 12/31/99.
-----o 8 subsequently cancelled.
$0 -------------------------------
-----------------------------------------------------------------
9/30/1999 12/31/1999 03/31/2000 06/30/2000
[_] Original Sales [X] Sales Net of Cancellations
================================================================================
LHK's Apparent Sales Growth Resulted from Cancelled Sales
================================================================================
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Summary of License Agreements Cancelled
in November 2000
Customer Sale License Sales Maintenance Sales Amount Cancellation Method
Name Date Amount (Won) Sales Amt (Won) USD Date of Collection
- -----------------------------------------------------------------------------------------------------
000000 06/30/00 2.229.600.000 2.000.000 11/14/00 Transferred
06/30/00 2.229.600.000 2.000.000 11/14/00 Transferred
06/30/00 2.229.600.000 2.000.000 11/14/00 Transferred
06/30/00 2.229.600.000 2.000.000 11/14/00 Transferred
06/22/00 8.952.800.000 8.000.000 11/14/00 Factored
03/30/00 7.557.520.000 6.800.000 11/14/00 Factored
03/30/00 1.111.400.000 1.000.000 11/14/00 Factored
06/26/00 6.714.600.000 6.000.000 11/14/00 Factored
06/30/00 1.449.240.000 1.300.000 11/14/00 No collection
06/30/00 2.787.500.000 2.500.000 11/14/00 No collection
06/30/00 3.344.400.000 3.000.000 11/14/00 Factored
06/30/00 1.116.000.000 1.000.000 11/14/00 No collection
06/30/00 1.560.720.000 1.400.000 11/15/00 Transferred
06/30/00 1.449.240.000 1.300.000 11/15/00 Transferred
06/30/00 1.114.800.000 1.000.000 11/14/00 Transferred
06/30/00 1.114.800.000 1.000.000 11/14/00 No collection
06/30/00 1.337.760.000 1.200.000 11/14/00 Transferred
03/23/00 8.083.290.000 7.300.000 11/14/00 Factored
06/30/00 3.344.400.000 3.000.000 11/15/00 Factored
03/30/00 1.333.680.000 1.200.000 11/15/00 Factored
06/27/00 894.960.000 800.000 11/14/00 Factored
03/31/00 4.433.200.000 4.000.000 11/16/00 Factored
03/29/00 5.556.000.000 5.000.000 11/16/00 Factored
02/29/00 792.260.000 700.000 11/14/00 Factored
02/29/00 339.540.000 300.000 11/14/00 Factored
03/31/00 44.332.000 40.000 11/14/00 Factored
03/31/00 7.979.760.000 7.200.000 11/14/00 Factored
06/30/00 2.229.600.000 2.000.000 11/14/00 Transferred
06/30/00 2.229.600.000 2.000.000 11/14/00 Transferred
06/27/00 559.350.000 500.000 11/15/00 No collection
06/30/00 2.229.600.000 2.000.000 11/14/00 Transferred
03/30/00 1.108.300.000 1.000.000 11/14/00 Transferred
03/30/00 1.108.300.000 1.000.000 11/14/00 Other
09/30/99 4.874.300.000 4.000.000 11/16/00 Factored
12/30/99 9.163.200.000 8.000.000 11/14/00 Transferred
12/08/99 9.055.200.000 8.000.000 11/16/00 Factored
12/21/99 530.000.000 476.000 11/14/00 No collection
12/24/99 627.000.000 563.000 11/16/00 No collection
12/24/99 750.000.000 673.000 11/16/00 No collection
12/17/99 470.000.000 422.000 11/16/00 No collection
12/15/99 7.050.000.000 6.329.000 11/14/00 Factored
8.405.963 8.000 11/16/00 No collection
224.926.000 202.000 11/16/00 No collection
48.799.625 44.000 11/16/00 No collection
83.656.500 75.000 11/16/00 No collection
27.885.500 25.000 11/16/00 No collection
4.439.900.000 4.000.000 11/16/00 Other
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Total 127.754.952.000 393.673.588 114.357.000
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8
Overview of Factoring
Arrangements
o Beginning in September 1999, LHK entered into a series of factoring
arrangements wherein the A/R from licensing agreements were sold to
various banks.
o The company understands that the banks involved did not have factoring
arrangements with other Korean companies prior to LHK.
o It appears LHK had discussions with bank representatives about creating
documentation which gave the appearance that the factoring arrangements
were "without recourse" meaning the credit risk had been shifted to the
bank and LHK could reduce their A/R (and, accordingly, LHNV's DSO
average) and record the receipt of cash
o However, the records reflect that through written side agreements
between LHK and the banks, LHK agreed to make the factoring
arrangements "with recourse," and "not to object" if the time deposit
is offset against factored receivables upon default and to fully
collateralize the loans with the factoring proceeds.
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9
Transfers of License
Agreements (continued)
[GRAPHIC DEPICTING TRIANGLE
OF CUSTOMER, LHK, TRANSFEREE and KOREAN BANK]
Example:
1. Contract 2. Contract Transferred
-------- --------------------
6/30/00 - w-2,452,560,000 9/29/00 - w-2,697,816,000
--------
Customer
--------
5. Payment
- --------- ------- ------------
LHK Transferee
- --------- 10/25/00 - LHK receives ------------
w-720,000,000 payment via a Korean
bank. Transferee makes payment to
a Korean bank who in turn paid LHK.
-----------
Korean Bank
-----------
3. Time Deposit 4. Transferee Loan
------------ ---------------
10/24/00 - LHK opens w-2,500,000,000 10/24/00 - A Korean bank loans
time deposit with a Korean bank. transferee w-2,500,000,000
secured by LHK's time deposit.
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