Technology License Agreement - Articulate Systems Inc. and Dragon Systems Inc.


                          TECHNOLOGY LICENSE AGREEMENT

         This Agreement is entered into as of July 7, 1998 (the "Effective
Date") by and between Articulate Systems, Inc., a corporation of the state of
Delaware and having its principal place of business 600 West Cummings Park,
Suite 4500, Woburn, MA 01801 ("ASI") and Dragon Systems, Inc., a Delaware
corporation having its principal place of business at 320 Nevada Street, Newton,
MA 02160 ("Dragon").

         WHEREAS, Dragon is in the business of developing, using, and licensing
others to use and is the owner of, or has the relevant licenses to use, certain
voice recognition software and hardware ("Dragon Technology"); and

         WHEREAS, ASI is in the business of providing voice recognition and
transcription products and services ("ASI Products"); and

         WHEREAS, ASI desires to license the Dragon Technology for use in
conjunction with the ASI Products;

         NOW THEREFORE, for good and valuable consideration and on the promises
and premises set forth below, the parties agree as follows:

1.       DEFINITIONS.

         1.1      CONFIDENTIAL INFORMATION:

         a.       DRAGON CONFIDENTIAL INFORMATION: Confidential and/or
                  proprietary information relating to the Dragon Technology,
                  research, development, products, processes, trade secrets,
                  business plans, customers, finances, and personnel data
                  related to the business of Dragon. Dragon Confidential
                  Information does not include any information (i) which ASI
                  knew before Dragon disclosed it to ASI; (ii) which has become
                  publicly known through no wrongful act of ASI; (iii) which ASI
                  developed independently, as evidenced by appropriate
                  documentation; (iv) which is disclosed to ASI by a third party
                  without restriction of confidentiality; or (v) the disclosure
                  of which is required by law.

         b.       ASI CONFIDENTIAL INFORMATION: Confidential and/or proprietary
                  information relating to the research, development, products,
                  processes, trade secrets, business plans, customers, finances,
                  and personnel data related to the business of ASI. ASI
                  Confidential Information does not include any information (i)
                  which Dragon knew before ASI disclosed it to Dragon; (ii)
                  which has become publicly known through no wrongful act of
                  Dragon; (iii) which Dragon developed independently, as
                  evidenced by appropriate documentation; (iv) which is
                  disclosed to Dragon by a third party without restriction of
                  confidentiality; or (v) the disclosure of which is required by
                  law.

         1.2 DERIVATIVES: Any or all translation (including translation into
other human or computer languages), portation, modification, correction,
addition, extension, upgrade, update, enhancement, revision, new version,
improvement, compilation, abridgement, or other form in which the Intellectual
Property Rights may be recast, transformed, or adapted, including any products,
systems or other items which provide comparable or enhanced functionality
whether or not specifically based on or derived from such Intellectual Property
Rights.


         1.3 DRAGON DOCUMENTATION: Any and all manuals, user guides, product
specifications and other documentation, owned by or licensed to Dragon, relating
or referring to the Dragon Technology.

         1.4 DRAGON RIGHTS: Any and all Intellectual Property Rights and
Derivatives, of Dragon in and to the Dragon Copyrights, Dragon Documentation,
Dragon Marks, Dragon Patents, Dragon Technology and/or the Project Work Product.

         1.5 DRAGON TECHNOLOGY: Dragon's proprietary voice recognition software
and hardware as set forth in Exhibit A1 hereto including, but not limited to,
all English and foreign language, all commercial and non-commercial, and all
present and future versions thereof, and all required and/or relevant Dragon
Documentation, Intellectual Property Rights and other proprietary rights
therein, and Derivatives thereof that is required and/or relevant to ASI's
development of current and future versions of ASI Products. Dragon Technology
includes:

         a.       DRAGON DISTRIBUTABLE TECHNOLOGY: The Dragon Technology which
                  ASI is authorized to distribute as an integrated or bundled
                  feature in or in connection with the ASI Products, as set
                  forth in Exhibit

         b.       DRAGON NON-DISTRIBUTABLE TECHNOLOGY: The Dragon Technology
                  which ASI is authorized to use in the development of ASI
                  Products, but which it is not authorized to distribute as an
                  integrated or bundled feature in or in connection with the ASI
                  Products, as set forth in Exhibit A1.2. The Dragon
                  Non-Distributable Technology is divided into the "Core
                  Non-Distributable Technology" and the "Other Non-Distributable
                  Technology" as described in Exhibits A1.2I and A1.2II,
                  respectively.

         1.6      FIELDS OF USE (FOU): ALL MARKETS AND INDUSTRIES, AS FOLLOWS:

         a.       EXCLUSIVE FIELDS OF USE (EXCLUSIVE FOU): The Exclusive FOU is
                  set forth in Exhibit A2.1 hereto.

         b.       NON-EXCLUSIVE FIELDS OF USE (NON-EXCLUSIVE FOU): The
                  Non-Exclusive FOU is set Exhibit A2.2 hereto.

The use of "FOU" by itself shall mean collectively both the Exclusive and
Non-Exclusive FOU.

         1.7 INTELLECTUAL PROPERTY RIGHTS: Any and all proprietary, common law,
and/or statutory intellectual property rights, including but not limited to,
patentable materials and patent rights, copyrightable materials and copyrights,
moral rights, trade secret rights, trademark rights, service mark rights, and/or
any and all other proprietary rights, including all Derivatives.

         1.8 ASI CLIENT: An end user customer of ASI in the FOU and Territory.

         1.9 ASI DISTRIBUTOR: Authorized third party distributors licensed by
ASI to distribute the ASI Products to ASI Clients.

         1.10 ASI PRODUCTS: Any and all voice recognition and transcription
products and services that use, integrate, or contain voice recognition
capabilities, made, distributed, and/or sold by ASI to one or more professional
user market segments.

         1.11 ASI RIGHTS: Any and all Confidential Information and Intellectual
Property Rights of ASI in and to the ASI Products, exclusive of the Dragon
Rights.

                                       -2-


         1.12 MREC ENGINE: The component of the Dragon Technology that is the
core speech recognition engine.

         1.13 NATURALLYSPEAKING DELUXE EDITION: One of the commercially
available versions of Dragon's NaturallySpeaking voice recognition product line.

         1.14 TERRITORY:

         a.       EXCLUSIVE FOU: North America (United States and its
                  territories and Canada) in American English

         b.       NON-EXCLUSIVE FOU: Worldwide

         1.15 THIRD PARTY RIGHTS: Any and all of the proprietary third party
patents, copyrights, and trade secrets licensed to Dragon and included in the
Dragon Intellectual Property Rights relating or referring to the Dragon
Technology, as identified in Exhibit A3 hereto.

2.       GRANT BY DRAGON.

         Subject to the terms and conditions set forth in this Agreement, DRAGON
hereby grants to ASI during the Term and in the Territory, and ASI hereby
accepts:

         a.       EXCLUSIVE LICENSE - An exclusive, non-transferable (except as
                  provided in Section 13.1) license to use the Core
                  Non-Distributable Technology in the Exclusive FOU as set forth
                  in Exhibit A1.2I. During the term of this Agreement, Dragon
                  will not use, or authorize, license or permit any person other
                  than ASI to use the Core Non-Distributable Technology to
                  develop or offer any language models or other products or
                  services in the Exclusive FOU.

         b.       NON-EXCLUSIVE LICENSE - A non-exclusive, non-transferable
                  (except as provided in Section 13.1) license:

                  i.       To use the Dragon Non-Distributable Technology in the
                           Non-Exclusive FOU;

                  ii.      To use, reproduce, distribute, and prepare derivative
                           works of the Dragon Distributable Technology in the
                           Non-Exclusive FOU and the Exclusive FOU;

                  Without limitation, ASI's non-exclusive rights shall include
the rights:

                  i.       to use the Dragon Other Non-Distributable Technology
                           for the Exclusive FOU;

                  ii.      To use the Dragon Technology internally for testing,
                           demonstration, training, support and promotional
                           purposes by its personnel;

                  iii.     To demonstrate the Dragon Distributable Technology to
                           potential ASI Distributors and ASI Clients;

                  iv.      To provide training and technical support to
                           employees, ASI Distributors and ASI Clients; and


                                       -3-


                  v.       To use the Dragon Documentation in support of ASI's
                           authorized use of Dragon Technology;

         c.       END-USER LICENSE - A non-exclusive, non- transferable license
                  to market and grant End User licenses of the Dragon
                  Distributable Technology, provided ASI presents or causes to
                  be presented to each End User an End User License Agreement
                  containing substantially the same terms and conditions as
                  contained in the License Agreement shown in Exhibit C hereto.
                  Upon DRAGON's request, ASI shall provide a copy of ASI's
                  standard End User License Agreement. ASI agrees to comply with
                  all reporting and record keeping requirements set forth
                  herein.

         d.       DISTRIBUTOR LICENSE - The right to appoint ASI Distributors to
                  market and grant sub licenses of the Dragon Distributable
                  Technology under terms of this Agreement. ASI shall ensure
                  that each ASI Distributor executes a written agreement with
                  ASI binding Distributors to provisions substantially similar
                  to those contained in the pertinent sections of this
                  Agreement. ASI agrees to comply with all reporting and record
                  keeping requirements set forth herein.

3. LIMITATIONS ON ASI. The foregoing license grants are expressly conditioned
upon ASI's compliance with the following requirements:

         3.1 ASI acknowledges that the Dragon Rights and Dragon Confidential
Information are proprietary to Dragon and/or its licensor(s) and that Dragon
and/or its licensor (s) retains all right, title, and interest therein and
thereto, including without limitation all Intellectual Property Rights therein
and therefor, and that ASI has no rights therein other than as set forth in this
Agreement.

         3.2      Other than as expressly set forth in this Agreement, ASI
                  agrees not to:

         a.       reproduce, sublicense, distribute or dispose of the Dragon
                  Rights;

         b.       alter, create derivative works of, edit, modify, or revise the
                  Dragon Rights;

         c.       reverse engineer, reverse compile, or disassemble the Dragon
                  Rights, in whole or in part, except as expressly permitted by
                  this Agreement or pursuant to applicable law.

         3.3 On all copies of the Dragon Rights made by ASI pursuant to this
Agreement, ASI agrees that it shall (i) not remove any copyright notices,
trademarks, or other proprietary legends contained therein or thereon, as
provided by Dragon, and (ii) include any copyright notices, trademarks, or other
proprietary legends contained within the Dragon Technology, as provided by
Dragon.

         3.4 ASI warrants and represents that it does not intend to, nor will,
directly or indirectly, export or transmit the Dragon Technology, in whole or in
part, or any Dragon Confidential Information or technical data relating thereto,
to any country to which such export or transmission is restricted by any
applicable U.S. regulation or statute, without prior written consent, if
required, of the Bureau of Export Administration of the U.S. Department of
Commerce, or other such governmental entity as may have jurisdiction over such
export or transmission.

         Use, duplication, or disclosure by the United States Government of the
Dragon Technology is subject to restrictions as set forth in The Rights in
Technical Data and Computer Software clause at

                                       -4-


DFARS 252.227-7013 or of the Commercial Computer Software -Restricted Rights
clause at 48 C.F.R. 52.227-19 as applicable.

         3.6 ASI agrees not to in any way misrepresent, or to mislead
(especially with respect to prospective customers, journalists, or market
analysts, etc.) about ASI's relationship with DRAGON, ASI's duties as specified
in this Agreement, the features of DRAGON's products including any technical
specifications, expected benefits of use, and the origin of DRAGON's products.
In particular, ASI shall not represent itself as an exclusive agent or exclusive
distributor of DRAGON's products, except as indicated in this Agreement. ASI
shall not represent itself as the developer or manufacturer of DRAGON's
products, or as DRAGON itself.

         3.7 Prior to the first commercial shipment from ASI to any End User, of
an ASI Product incorporating the MREC Engine, ASI must submit a finished version
of such ASI Product, along with the accompanying documentation, to DRAGON for
testing to insure satisfactory operation and receive from DRAGON a written
notice of approval. DRAGON shall examine and test a finished version of each ASI
Product that incorporates the MREC Engine, and provide such notice of approval
or a statement of defects as quickly as possible but no later than 30-days from
receipt. ASI shall not be required to correct any such defects other than those
defects that are such as to cause material harm to Dragon if included in the
software distributed by ASI ("Major Defects"). In the event Dragon does not give
a statement identifying such Major Defects within such 30 day period, the
software shall be deemed approved for all purposes hereof. In the event DRAGON
notifies ASI in writing of Major Defects, ASI must correct such Major Defects
and return a newly finished version of the ASI Product for retesting, and DRAGON
shall within 30 days of such redelivery provide ASI with written notice of
approval or a statement of Major Defects. DRAGON's acceptance of a finished
version of ASI Product shall not be unreasonably withheld, and approval shall be
deemed to have been given if in any case Dragon does not deliver notice of Major
Defects within 30 days following delivery of a version of the software. The
above procedure may, at DRAGON's option, be repeated until a final version of
each ASI Product is approved. However, Dragon may terminate this Agreement if a
corrected version of an ASI Product is not approved after the 4th separate
attempt at correcting the Major Defects.

4.0      OBLIGATIONS OF THE PARTIES.

         4.1      DRAGON OBLIGATIONS. During the Term of this Agreement, Dragon
                  agrees to:

         a.       Provide the expertise of sufficient personnel, with
                  appropriate expertise and competence ("Dragon Key Personnel"),
                  to provide technical information and support to ASI Key
                  Personnel (as identified in Exhibit A4 hereto) in the
                  development of ASI Products. Dragon will determine the
                  identity of Dragon Key Personnel. Dragon will also determine
                  the level of effort of these Dragon Key Personnel, but it will
                  be reasonable and sufficient to meet Dragon's obligations
                  under this Agreement. ASI Key Personnel must sign appropriate
                  individual non-disclosure agreements prior to receiving
                  confidential information from Dragon. ASI has the right, with
                  prior written permission from Dragon, to add individuals to
                  the list of ASI Key Personnel;

         b.       Provide relevant Dragon Technology to ASI in accordance with
                  the terms and conditions of this Agreement;

         c.       Provide ASI Key Personnel with access to the relevant Dragon
                  Technology, including participation in Dragon's first beta
                  testing of relevant Dragon Technology, whether or not such
                  testing is made available to other Dragon licensees;


                                       -5-


         d.       Provide sufficient and appropriate training to ASI personnel
                  to enable ASI to understand the developing Dragon Technology
                  including, but not limited to:

                  i.       Dragon will provide appropriate training, at ASI's
                           sole cost and expense, to ASI in the marketing, use
                           and installation of the Dragon Technology at Dragon's
                           Corporate Headquarters;

                  ii.      At ASI's option, Dragon will provide ASI with
                           training on Dragon's standard technical support
                           procedures at ASI's sole expense;

                  iii.     Dragon will provide all other reasonable and
                           necessary training, support and maintenance to ASI,
                           as set forth in Exhibit B, and ASI shall be
                           responsible for providing such training, support and
                           maintenance to ASI Clients and ASI Distributors at
                           ASI's sole expense.

         e.       Refrain from developing, marketing, licensing, selling or
                  otherwise distributing, directly or indirectly (including
                  activities through or in cooperation with any third party),
                  any language models in the Exclusive FOU.

         4.2      ASI OBLIGATIONS. During the Term of this Agreement ASI agrees
                  to:

         a.       Provide Dragon with appropriate marketing and promotional
                  assistance in the FOU in the manner and methods to be mutually
                  agreed between the parties in writing.

5.0      CONFIDENTIALITY.

         a.       Each party agrees not to disclose any Confidential Information
                  of the other party and to maintain such Confidential
                  Information in strictest confidence, to take all reasonable
                  precautions to prevent its unauthorized dissemination and to
                  refrain from sharing any or all of the information with any
                  third party for any reason whatsoever except as required by
                  court order, both during and after the termination of this
                  Agreement. Without limiting the scope of this duty, each party
                  agrees to limit its internal distribution of the Confidential
                  Information of the other party only on a "need to know" basis
                  and solely in connection with the performance of this
                  Agreement, and to take steps to ensure that the dissemination
                  is so limited.

         b.       Each party agrees not to use the Confidential Information of
                  the other party for its own benefit or for the benefit of
                  anyone other than the providing party, or other than in
                  accordance with the terms and conditions of this Agreement.

         c.       All ASI Confidential Information remains the property of ASI
                  and all Dragon Confidential Information remains the property
                  of Dragon, and other than as expressly provided by this
                  Agreement.

         d.       Upon written request of the providing party, or upon the
                  expiration or other termination of this Agreement for any
                  reason whatsoever, the receiving party agrees to return to the
                  providing party all such provided Confidential Information,
                  including but not limited to all copies thereof.

         e.       ASI agrees to limit access to the Dragon Non-Distributable
                  Technology, and any tangible embodiments thereof (including
                  without limitation documentation, descriptions, notes,
                  memoranda and other materials defining, describing or
                  containing the Dragon Non-Distributable Technology) shall be
                  made available only to those

                                       -6-


                  individuals identified as ASI Key Personnel in Exhibit A4
                  hereto, and such other employees of ASI whom Dragon may have
                  approved in writing and who require access to the Dragon
                  Non-Distributable Technology and such tangible embodiments in
                  connection with ASI's activities under the licenses granted
                  herein. Copies of such Dragon Non-Distributable Technology
                  shall be subject to appropriate physical and electronic
                  protection to prevent access by unauthorized personnel.

         f.       The provisions of this Section shall survive the expiration or
                  other termination of this Agreement.

6.0      OWNERSHIP, INTELLECTUAL PROPERTY RIGHTS, AND NON-DISCLOSURE.

         6.1      DRAGON RIGHTS:

         a.       DRAGON shall retain all rights, title and interest (including
                  all intellectual property rights) of the Dragon Technology and
                  Dragon Documentation and any derivative works of the Dragon
                  Documentation, and any copies thereof.

         b.       ASI shall not alter or remove any copyright, trade secret,
                  patent, proprietary and/or other legal notices contained on or
                  in copies of the Dragon Technology and Dragon Documentation.
                  ASI shall reproduce and include any DRAGON trademark,
                  copyright, trade secret or proprietary information notices and
                  other legends on every copy, in whole or in part, of the
                  Dragon Technology in any form. ASI shall not decompile,
                  disassemble or otherwise reverse engineer the Dragon
                  Technology, except as DRAGON is required to allow ASI to do
                  under applicable law.

         c.       ASI shall render to DRAGON commercially reasonable assistance
                  in connection with DRAGON's enforcement of its rights in and
                  to the Dragon Technology and Dragon Documentation, including
                  without limitation using efforts to prevent End Users from
                  copying or using the Dragon Technology and Dragon
                  Documentation outside the scope of this Agreement, or the End
                  User License Agreement.

         d.       Certain data or portions thereof which may be supplied by
                  Dragon relating to the Dragon Technology are confidential and
                  proprietary to Dragon and will be so marked. ASI shall abide
                  its obligations under Section 5.0 as applicable to such data.

         6.2 ASI: ASI is, and as to Dragon, shall be, the owner of all worldwide
right, title and interest, including any and all Intellectual Property Rights,
in and to the ASI Confidential Information and the ASI Rights.

7.0      TERM.

         The license granted under this Agreement shall commence on the
Effective Date set forth above and terminate at the expiration of three years
from such effective date. The Agreement shall automatically renew for another
three year period unless terminated by either party in writing within ninety
(90) days before the end of the initial three year term unless sooner terminated
in accordance with the provisions of Section 11 below.






                                       -7-


          Confidential Materials omitted and filed separately with the
         Securities and Exchange Commission. Asterisks denote omissions.

8.0      PAYMENTS.

         8.1 During the Term of this Agreement, Dragon shall give ASI [**] for a
NaturallySpeaking Deluxe Edition, its successors and equivalents made available
by Dragon to any of its resellers, distributors or technology licensees (the
"Engine Favorable Rate").

         8.2 ASI shall pay to Dragon license fees [**] in the amount of the
lesser of (i) the applicable Engine Favorable Rate for the month in issue or
(ii) [**] for each MREC Engine run-time license it distributes to ASI Clients
during the month in issue.

         8.3 Within [**] after the end of each calendar month, commencing with
the monthly period during which this Agreement becomes effective, ASI shall
furnish to DRAGON a statement in form acceptable to Dragon, certified by an
authorized representative of ASI, identifying the number of sub-licenses granted
to End Users during such monthly period and showing the amount of fees payable
to DRAGON hereunder. Within such [**] period, ASI shall pay DRAGON the fees
payable for such monthly period as shown in the statement required hereby. Such
statement, together with the payment in United States dollars for the fees shown
therein, shall be sent to DRAGON at its principal executive offices unless
otherwise indicated by DRAGON. If ASI does not remit payment within such [**]
period, interest shall accrue on any overdue amounts at the rate of 1.5% per
month or the highest rate allowable by law, whichever is less. ASI further
agrees to furnish whatever additional information DRAGON may reasonably require
from time to time to enable DRAGON to ascertain the amounts of fees payable
hereunder. No other license fees, royalties or other charges shall be payable
hereunder with respect to ASI's use, reproduction and distribution of the Dragon
Technology.

         ASI shall maintain full, clear and accurate records reflecting and
recording all transactions subject to payment of license fees hereunder. ASI
shall institute a system to separately identify all copies of the Dragon
Distributable Technology which are distributed pursuant to this agreement. Such
system shall provide for identification by serial number or other method
acceptable to DRAGON. Upon reasonable notice, DRAGON shall have the right to
engage an independent certified public accounting firm to audit the systems,
books and records of ASI as they relate to ASI's obligations under this
agreement, provided that such firm shall first execute a confidentiality
agreement in form reasonably satisfactory to ASI in which it will agree to
disclose to Dragon only the ultimate results of its audits and not the details
of ASI's records, and not otherwise to disclose any information learned in such
audit to any person except Dragon's duly authorized accountants and lawyers. If
the audit of ASI's records pursuant to this paragraph determines that there is
any underpayment of royalties due, the payment due shall be made within [**].
ASI shall remit the amount owed within [**] of notice of such underpayment. If
the underpayment is greater than 5% of the payment due for the audited period,
then ASI shall pay the cost of the audit.

         The license fees and all other amounts payable pursuant to this
Agreement are exclusive of all federal, state, local, municipal or other excise,
sales, use, property or similar taxes and fees, now in force or enacted in the
future, and all such taxes and fees shall be paid by ASI. ASI shall obtain and
provide to DRAGON any certificate of exemption or similar document required to
exempt any transaction under this Agreement from sales tax, use tax or other tax
liability.

9.0      DRAGON REPRESENTATIONS AND WARRANTIES.

         Dragon represents and warrants to ASI, during the Term and in the
Territory, as follows:

                                       -8-


         a.       OWNERSHIP. Dragon is the owner, or has the right to enter into
                  this Agreement on behalf of the owner, of all worldwide right,
                  title and interest in and to any and all Dragon Confidential
                  Information and the Dragon Rights. Dragon will obtain in
                  writing, prior to delivery to ASI of any Dragon Confidential
                  Information or Dragon Rights, any and worldwide assignments,
                  licenses, permissions, or other consents of all third party
                  Intellectual Property Rights and/or other third party
                  proprietary rights as are or shall be necessary to enable
                  Dragon to fulfill its obligations to ASI hereunder, and to
                  enable ASI to utilize the Dragon Rights for their intended
                  purpose. Dragon shall immediately notify ASI in writing of any
                  limitations on use required by the proprietor of such third
                  party materials, and Dragon shall not agree to any such
                  demands or requirements without the prior written approval of
                  ASI.

         b.       NON-INFRINGEMENT. To the best of Dragon's knowledge the Dragon
                  Rights do not infringe any existing patent, copyright,
                  trademark, service mark, trade name, trade secret, patent, or
                  other Intellectual Property Right of any third person, firm,
                  corpora tion or other entity.

         c.       NO BUGS. Dragon agrees that prior to submission to ASI, the
                  Dragon Rights in the form of prerecorded media will be tested
                  by Dragon and confirmed to the best of Dragon's knowledge, to
                  be free of any known viruses and/or known bugs.

         d.       NO ENCUMBRANCES. To the best of Dragon's knowledge, the Dragon
                  Rights shall be free and clear of any and all encumbrances
                  and/or liens of any nature whatsoever, other than those
                  identified by Dragon pursuant to this Agreement, and other
                  than non-exclusive licenses granted by Dragon to others to use
                  the Dragon Rights.

         e.       NO CONFLICTS. To the best of Dragon's knowledge, Dragon's
                  performance of this Agreement does not conflict with any other
                  Agreement to which Dragon is bound and, while performing this
                  Agreement, Dragon will not knowingly enter into any other
                  Agreement in conflict with this Agreement or which would
                  impair the ability of Dragon to perform this Agreement.

         f.       CONFORMATION. Dragon warrants that the Dragon Rights shall
                  conform to the specifications set forth in the Dragon
                  Documentation. Dragon shall be responsible, at its sole cost
                  and expense, for replacing, revising, modifying, or otherwise
                  correcting any Dragon Rights that do not meet the
                  specifications.

         g.       MAINTENANCE OF DRAGON TECHNOLOGY. Dragon warrants in the
                  course of regular business that it will use its best efforts
                  to maintain, update, and upgrade the Dragon Technology on a
                  continuing and real-time basis during the Term of this
                  Agreement to ensure the continued and continuing operation,
                  operating system compatibility, relevance, and viability of
                  the Dragon Technology during the Term of the Agreement, and
                  that it will hire, train, and maintain sufficient, and
                  sufficiently qualified, programmers and technology
                  support/maintenance personnel during the Term of the
                  Agreement. Upon development and first commercial availability
                  (including beta test) of any new version of Dragon Technology,
                  Dragon shall promptly deliver a copy thereof, with available
                  documentation, to ASI.

         h.       YEAR 2000 COMPLIANCE. Dragon warrants and/or represents to ASI
                  as follows:

                  DRAGON warrants that the Dragon Technology, as provided by
                  DRAGON, is capable

                                       -9-


                  of processing, recording, storing and presenting data
                  containing four-digit years in substantially the same manner
                  and with substantially the same functionality as it performed
                  before January 1, 2000. However, DRAGON assumes no
                  responsibilities or obligations to cause third-party products
                  or services to function with the Dragon Technology. In
                  addition, DRAGON will not be in any breach of this warranty
                  for any failure of the Dragon Technology to correctly create
                  or process date-related data if such failure results form the
                  inability of any software, hardware, or systems of a customer
                  or any third party either to correctly create or process such
                  date-related data or to create or process such date-related
                  data in a manner consistent with the method in which the
                  Dragon Technology creates or process date-related data. In the
                  event of a breach of this warranty, DRAGON shall use its
                  commercially reasonable efforts to correct or provide a work
                  around for reproducible errors that cause breach of this
                  warranty, or if DRAGON is unable to make the Dragon

Technology operate as warranted herein within a reasonable period of time, the
customer shall be entitled to recover the fees paid for the license of the
Dragon Technology.

10.0     INDEMNIFICATION.

         10.1 BY DRAGON. DRAGON will defend ASI against a claim that an ASI
Product supplied hereunder infringes a U.S. patent or copyright, or other
proprietary right of a third party, and DRAGON will indemnify ASI and hold it
harmless from and against any loss, liability and any costs, expenses and
reasonable attorneys' fees finally awarded. ASI shall prompt notify DRAGON in
writing of the claim, and DRAGON shall have sole control of the defense and all
related settlement negotia tions, and ASI shall provide DRAGON complete
information concerning the claim but any failure to provide prompt notice or
information shall not impair ASI's rights to indemnification hereunder except to
the extent that such failure has materially prejudiced or materially delayed
DRAGON in defense of its claim. DRAGON shall have the right to assume the
defense of any claim against ASI in connection with such violation or
infringement. After notice from DRAGON to ASI of election to assume the defense
thereof, DRAGON will not be liable to ASI for any legal or other expenses
subsequently incurred by ASI in connection with the defense thereof other than
reasonable costs of investigation, unless incurred at the written request of
DRAGON, in which event such legal or other expenses shall be borne by DRAGON.
ASI shall, however, have the right to participate in the defense and settlement
of such claim being defended by Dragon through separate counsel at ASI's
expense. ASI shall not be subject to any liability or restriction under any
settlement entered into by DRAGON without ASI's prior written approval.

         a.       DRAGON shall have no obligation to ASI under this Section if
                  any claimed infringe ment is based upon: (i) use of any Dragon
                  Technology delivered hereunder in connection or in combination
                  with equipment, software or devices not supplied by DRAGON;
                  (ii) ASI's use of a Dragon Technology in the practicing of any
                  process or in a manner for which the Dragon Technology was not
                  designed; or (iii) DRAGON's compliance with ASI's designs,
                  specifications or instructions. ASI shall indemnify and hold
                  DRAGON harmless from and against any loss, cost or expense
                  suffered or incurred in connection with any suit, claim or
                  proceeding brought against DRAGON so far as it is based on a
                  claim that the manufacture or sale of any Dragon Technology
                  delivered hereunder which has been either (1) modified,
                  altered or combined with any product, software, or device not
                  supplied by DRAGON or (2) modified by DRAGON in accordance
                  with ASI's designs, specifications or instructions,
                  constitutes such an infringement because of any such
                  modification, alteration or combination.



                                      -10-


The foregoing states DRAGON's entire liability for infringement by Dragon
Technology furnished under this Agreement

         b.       EXCEPT AS STATED ABOVE, DRAGON DISCLAIMS ALL WARRANTIES,
                  EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE DRAGON
                  TECHNOLOGY, INCLUDING BUT NOT LIMITED TO THE IMPLIED
                  WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
                  PURPOSE. DRAGON SHALL IN NO EVENT SHALL DRAGON BE LIABLE FOR
                  ANY DAMAGES RESULTING FROM LOSS OF DATA, PROFITS OR USE OF
                  EQUIPMENT, OR FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL
                  DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE USE OR
                  PERFORMANCE OF THE DRAGON TECHNOLOGY.

         c.       IT IS ALSO UNDERSTOOD BY BOTH PARTIES TO THIS AGREEMENT THAT
                  SPEECH RECOGNITION IS INHERENTLY A STATISTICAL PROCESS; THAT
                  SPEECH RECOGNITION ERRORS ARE INHERENT IN THE PROCESS OF
                  SPEECH RECOGNITION; THAT SPEECH RECOGNITION APPLICATIONS AND
                  USAGE MUST BE DESIGNED TO ALLOW FOR SUCH ERRORS IN THE SPEECH
                  RECOGNITION PROCESS; AND THAT IT IS ASI'S RESPONSIBILITY THAT
                  ALL ITS SUBLICENSEES UNDERSTAND THAT SUCH ERRORS ARE
                  INEVITABLE AND THAT IT IS THE RESPONSIBILITY OF THE
                  APPLICATION DEVELOPER TO PROVIDE FOR HANDLING SUCH ERRORS AND
                  OF THE USER TO MONITOR THE SPEECH RECOGNITION PROCESS AND
                  CORRECT ANY ERRORS. DRAGON SHALL IN NO EVENT BE LIABLE FOR
                  ANYDIRECT OR INDIRECT DAMAGES, INCLUDING PERSONAL INJURY,
                  RESULTING FROM ERRORS IN THE RECOGNITION PROCESS.

         10.2 BY ASI. ASI agrees to indemnify and hold harmless Dragon, its
officers, agents, and employees from and against all liability, loss, cost,
damages, claims or expenses (including reasonable attorneys fees) arising out of
any claims or suits, whatever their nature and however arising, which may be
brought or made against Dragon by reason or arising from (i) any material breach
this Agreement by ASI or (ii) any allegation of third party intellectual
property right(s) infringement or unfair competition, where such claim or suit
is based upon the combination, operation, modification, or use of the Dragon
Rights, if such claim of infringement would have been avoided but for such
combination, operation, modification, or use. ASI shall have sole control over
the selection of counsel and the defense of any claim or any settlement thereof,
at ASI's expense. Dragon shall provide ASI with its reasonable assistance in the
defense of such claim, at the expense of ASI. In no event may ASI enter into any
third party settlement agreements which would in any manner whatsoever affect
the right of, or bind, Dragon in any manner to said third party, without the
prior written consent of Dragon.

         10.3 NOTIFICATION. The party seeking indemnification under this Section
shall immediately notify the other party, in writing, of any claim or proceeding
brought against it for which it seeks indemnification hereunder.

IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INCIDENTAL,
CONSEQUENTIAL, INDIRECT OR SPECIAL DAMAGES OF ANY NATURE WHATSOEVER, EVEN IF
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

         10.4 INSURANCE. Each party will carry appropriate and sufficient
policies of insurance, which must comply with all statutory regulations in the
state (or country) where this Agreement is being performed, which shall be in
effect at least as early as the Effective Date of this Agreement and which shall
remain in force and provide coverage throughout the Territory until the
effective date of

                                      -11-


Termination. Each party shall be solely responsible for the payment of all
deductibles on its own policies. Such policies of insurance shall include, but
are not limited to, the following: (i) Workers' Compensation and State
Disability, including Employers' Liability, (ii) Comprehensive General
Liability, (iii) Umbrella Liability, and (iv) Auto Liability. Prior to the
Effective Date of this Agreement, each party will deliver to the other a
certificate of insurance or other documentary proof that each party has obtained
the required insurance policies pursuant to this Agreement.

         10.5 The provisions of this Section shall survive the expiration or
other termination of this Agreement.

11.0     TERMINATION.

         11.1 FOR CAUSE: Without prejudice to any rights which it may have under
this Agreement or in law,equity, or otherwise:

         a.       Either party shall have the right to terminate this Agreement
                  if the other party defaults in the performance of any of its
                  obligations or breaches any term, provision, warranty, or
                  representation under this Agreement ("Defaults"). Upon the
                  occurrence of any of the foregoing Defaults, the
                  non-Defaulting party shall give notice of termination of this
                  Agreement in writing to the Defaulting party, who shall have
                  thirty (30) days from the date of notice in which to correct
                  any Default, or if not wholly curable within said thirty days,
                  to use its best efforts to commence any and all steps
                  reasonably necessary to cure such Default. If the Defaulting
                  party fails to correct the Default or to commence any and all
                  steps reasonably necessary to cure such Default within the
                  notice period, this Agreement shall terminate on the last day
                  of such notice period unless otherwise agreed to in writing
                  signed by both parties.

         b.       This Agreement shall terminate automatically and without
                  further notice to the other party in the event that either
                  party shall make any unauthorized assignment for the benefit
                  of creditors, file any petition under the bankruptcy or
                  insolvency laws of any jurisdiction, have or suffer a receiver
                  or trustee to be appointed for its business or property, or be
                  adjudicated a bankrupt or an insolvent.

         11.2     EFFECT OF TERMINATION FOR DEFAULT OF EITHER PARTY.

         Upon expiration or termination of this Agreement for the Default of
either party, or for any reason (including expiration under Section 7.0) other
than the insolvency, bankruptcy, reorganization of Dragon or its authorized
successors or assigns, or the termination, cessation, or inability or failure to
maintain the Dragon Technology or that portion of the business associated with
the Dragon Technology during the Term of the Agreement, by Dragon or its
authorized successors or assigns:

         a.       ASI shall, within five (5) business days thereof, return or,
                  at Dragon's option, destroy all whole or partial copies of the
                  Dragon Rights in ASI's possession, custody or control, and
                  certify to Dragon in writing within five (5) business days
                  thereafter that it has complied with the foregoing obligation;

         b.       Each party shall return all copies of Confidential Information
                  disclosed by the other party which remain in its possession or
                  under its control;

         c.       Termination shall not affect the rights of ASI Clients and ASI
                  Distributors to continue to use the Dragon Technology acquired
                  from ASI in accordance with the terms of this Agreement;

                                      -12-


         d.       Termination shall not affect ASI's obligation to pay to Dragon
                  all amounts due as of the effective date of Termination and
                  shall not affect Dragon's obligation to refund to ASI any
                  amounts paid by ASI attributable to any period of time after
                  the effective date of termination; and,

         e.       Except in the case of termination of this Agreement for the
                  Default of ASI, ASI shall have the continued right to exercise
                  the rights and licenses granted in Section 2 in connection
                  with the Dragon Technology as in existence as of the date of
                  expiration or termination (and not including any subsequent
                  improvements or Derivatives thereof), subject to the continued
                  payment of license fees under Section 8.0 with respect to any
                  distribution of the MREC Engine, if any, by ASI after such
                  expiration or termination, and provided that ASI's rights
                  under Section 2.a shall no longer be exclusive.

         11.3     EFFECT OF TERMINATION FOR DRAGON INSOLVENCY, ETC.

         In addition to requirements and dispositions set forth in preceding
paragraph 11.2, upon termination of this Agreement for the (i) insolvency,
bankruptcy, reorganization of Dragon or its authorized successors or assigns,
(ii) insolvency, bankruptcy, reorganization of Dragon or its authorized
successors or assigns, including the transfer (by cash, credit, or stock
purchase) of all or a majority of either Dragon's total assets or that portion
of Dragon's business attributable to the Dragon Technology to a third party, or
(iii) the termination, cessation, or inability or failure to maintain the Dragon
Technology or that portion of the business associated with the Dragon
Technology, during the Term of the Agreement, by Dragon or its authorized
successors or assigns, then all of the rights granted by Dragon to ASI hereunder
shall immediately and automatically convert into worldwide, fully paid up, fully
transferable, perpetual licenses (a)exclusive in the Exclusive FOU and (b)
Non-Exclusive in the Non-Exclusive FOU.

12.0     ESCROW.

         Within thirty (30) days of the effective date of this Agreement, source
code for the Dragon Technology Licensed by ASI pursuant to this Agreement will
be placed in escrow, under the conditions set forth below, with an escrow agent
mutually agreed to by the parties.

         1. The cost of maintaining the escrow shall be borne by ASI.

         2. The source code shall not be released to ASI unless or until Dragon
ceases to continue its business or upon the failure of Dragon to perform
obligations it may have to maintain the Dragon Technology in question.

         3. The use of the source code, if released to ASI, is subject to the
terms and conditions governing the use of the object code as set forth in this
Agreement with the additional restrictions that the source code is not
authorized to be sub-licensed and that it shall not be provided to or disclosed
to third parties.

         4. The release of the source code to ASI shall be solely for the
purpose of assisting ASI in the use, maintenance, modification, or updating of
the object code and in no way shall impair Dragon's ownership of the Dragon
Technology or the rights of Dragon's creditors, assigns, or successors in
interest.

         5. THE SOURCE CODE SHALL BE PROVIDED ON AN "AS IS" BASIS WITH WHATEVER
SUPPORT SERVICES MAY BE AVAILABLE AND WITHOUT ANY WARRANTY OF

                                      -13-


ANY KIND, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, OR FREEDOM FROM INFRINGEMENT OF PATENTS OR
COPYRIGHTS.


13.0     ASSIGNMENT.

         13.1 Either party may assign its rights, duties and/or obligations
under this Agreement in connection with the transfer (by merger or by sale of
assets or stock) of all or a majority of either its total assets or that portion
of its business attributable to the Dragon Technology (in the case of Dragon) or
the ASI Products (in the case of ASI) to a third party, provided that any such
assignment is made expressly subject to the terms and conditions of this
Agreement, and the assignee agrees in writing to be bound by the terms and
conditions hereof.

         13.2 Except as otherwise provided by this Agreement, neither party may
assign its rights, duties and obligations under this Agreement, without the
prior written consent of the other party, and further provided that any such
assignment is made expressly subject to the terms and conditions of this
Agreement, and the assignee agrees in writing to be bound by the terms and
conditions hereof.

14.0     GOVERNING LAW AND JURISDICTION.

         This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts, without reference to its
conflicts of laws principles. Any lawsuit relating to any matter arising under,
or related to this Agreement, initiated by or on behalf of ASI against DRAGON,
its employees, ex-employees, officers, agents, or affiliates shall be initiated
in the appropriate state or Federal Court serving Middlesex County in the
Commonwealth of Massachusetts.

         DRAGON and ASI may not institute any action in any form arising out of
or in any way connected with this Agreement more than eighteen (18) months after
the cause of action has arisen, or in the case of nonpayment, more than eighteen
(18) months from the date of last payment or promise to pay, except that this
limitation does not apply to an action for payment of taxes.

15.0     WAIVER, AMENDMENT, OR MODIFICATION.

         Any waiver, amendment or modification of this Agreement shall not be
effective unless made in writing and signed by both parties. No failure or delay
by either party in exercising any right, power or remedy with respect to any of
its rights hereunder shall operate as a waiver thereof in the future.

16.0     NO PARTNERSHIP.

         This Agreement does not constitute and shall not be construed as
constituting a partnership or joint venture between ASI and Dragon. Neither
party shall have any right to obligate or bind the other party in any manner
whatsoever, and noting herein contained shall give, or is intended to give, any
rights of any kind to any third persons.

         Any commitment made by ASI to its customers with respect to quantities,
delivery, modifications, interfacing capability, suitability of software, or
suitability in specific applications will be ASI's sole responsibility. ASI has
no authority to modify the warranties contained in this Agreement or to make any
other commitment on behalf of DRAGON, and ASI will indemnify and defend DRAGON
from any liability, suit or proceeding for any such modified warranty or other
commitment by ASI.


                                      -14-


         ASI has the right to determine its own resale prices, and no DRAGON
representative will require that any particular price be charged by ASI or grant
or withhold any treatment to ASI based on ASI's pricing policies. ASI agrees
that it will promptly report directly to a DRAGON officer any effort by DRAGON
personnel to interfere with its pricing policies.

17.0     NOTICES.

         All notices required under this Agreement will be in writing, will
reference this Agreement, and will be deemed given: (i) when delivered
personally; (ii) when sent by confirmed electronic mail or facsimile; (iii) five
(5) days after having been sent by registered or certified mail, return receipt
requested, postage prepaid; or (iv) one (1) day after deposit with a commercial
overnight carrier for one day overnight service, with written verification of
receipt. All communications will be sent to the names and addresses set forth
beneath the signature of each party to this Agreement.

18.0     FORCE MAJEURE.

         Neither party will be deemed in default or breach of this Agreement to
the extent that performance of its obligations or attempts to cure any breach
are delayed or prevented by reason of any act of God, fire, natural disaster,
accident, act of government, or an act that is beyond the reasonable control of
either party, provided that such party gives the other party written notice
thereof promptly and, in any event, within fifteen (15) days of discovery
thereof and uses its best efforts to continue to so perform or cure. In the
event of such a Force Majeure, the time for performance or cure will be extended
for a period equal to the duration of the Force Majeure.

19.0     REMEDIES AND ATTORNEYS FEES.

         19.1 1NJUNCTION. The parties recognize and acknowledge that a breach by
one party of any of its covenants, agreements or undertakings hereunder with
respect to the Confidential Information or Intellectual Property Rights of the
other party will cause the non-breaching party irreparable damage, which cannot
be readily remedied in monetary damages in an action at law. In the event of any
default or breach by one party which could result in irreparable harm to the
non-breaching party, or cause some loss or dilution of the good will, reputation
or business of the non-breaching party, the non-breaching party shall be
entitled to an immediate injunction in addition to any other remedies available,
to stop or prevent such irreparable harm, loss or dilution.

         19.2 ATTORNEYS FEES. In the event that either DRAGON or ASI brings suit
against the other party for any matter arising out of or in connection with this
Agreement, and the party which is sued is ultimately adjudicated to not have
liability, then the party bringing suit agrees to pay the other party's
reasonable attorneys' fees and litigation costs.


20.0     ENTIRE AGREEMENT.

         This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof. The failure of either party to require
performance of any provision of this Agreement shall not be, construed as a
waiver of its rights to insist on performance of that same provision, or any
other provision, at some other time. Any waiver, variation or amendment, or
modification, of any term or condition of this Agreement shall be effective only
if signed by an authorized representative of both parties hereto. The waiver by
either party of any right created by this Agreement in one or more instances
shall not be construed as a further continuing waiver of such right or any other
right created by this Agreement. If any provision of this Agreement is found by
a court of competent jurisdiction to

                                      -15-


be unenforceable for any reason, the remainder of this Agreement shall continue
in full force and effect.


                                      -16-


         AGREED TO AND ENTERED INTO BY AND BETWEEN THE PARTIES AS OF THE
EFFECTIVE DATE SET FORTH ABOVE.

DRAGON SYSTEMS, INC.

\s\ James K. Baker
------------------

Print Name: James K. Baker
           -----------------
Print Title:  CEO
           -----------------
Date:            7/6/98
           -----------------

ARTICULATE SYSTEMS, INC.

\s\ Peter Durlach
-----------------

Print Name:   Peter Durlach
           -----------------
Print Title:      EVP
           -----------------
Date:              7/7/98
           -----------------

NOTICES TO DRAGON SHOULD BE SENT TO:

Janet Baker                                 Hale & Dorr
President                                   60 State Street
Dragon Systems, Inc.                        Boston, MA 02109
320 Nevada Street                           Attn: Michael Bevilacqua
Newton, MA 02160

NOTICES TO ASI SHOULD BE SENT TO:

Ivan Mimica                                 Goodwin, Proctor & Hoar
CEO                                         Exchange Place
Articulate Systems Inc.                     Boston, MA 02109
600 West Cummings Park, Suite 4500          Attn: David Dietz
Woburn, MA 01801