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Outsourcing Agreement - Modus Media International and Dragon Systems Inc.

                              OUTSOURCING AGREEMENT


                            MODUS MEDIA INTERNATIONAL
                                LANDDROSTLAAN 51
                                7327 GM APELDOORN
                                 THE NETHERLANDS
                               (HEREINAFTER "MMI")


                              DRAGON SYSTEMS, INC.
                                320 NEVADA STREET
                                NEWTON, MA 02160
                          (HEREAFTER "DRAGON SYSTEMS")

                        EFFECTIVE AS OF (EFFECTIVE DATE)

1.       PURPOSE OF AGREEMENT Formalize the agreements made regarding services
and products between Dragon Systems and MMI.

2.       SERVICES MMI will produce products for Dragon Systems on a Turnkey
basis. Initially, services will cover 3 products, as per the attached price
sheets. However, this may be extended.

Specific services will be:

-        Receipt and Management of master materials

-        Supply base management

-        Production (both components & finished goods)

-        Delivery

-        Inventory Management

-        Financial Services

Quality and Services Level Agreements will be based on mutual agreement.

3.       DELIVERY

MMI shall deliver the Services in line with the agreed service levels to Dragon

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


Dragon Systems may reject the Services if they do not comply with the
specification set out by Dragon \s\ JB. The Services are deemed to be accepted
if MMI does not receive a notification within 60 days after delivery to Dragon
Systems or its customers.


Dragon Systems will compensate MMI for all Services rendered in accordance with
the rates specified in the Annex "Prices." Unless otherwise agreed, prices shall
exclude transport, insurance, VAT and Import duties (outside EC countries) to
Dragon Systems' designated delivery address.

For all materials in stock, older than 90 days, MMI will charge Dragon Systems
with an Inventory Carriage Charge of [**] of its value per month.

MMI will invoice Dragon Systems based on actual shipments that have been

Payments will be due in US dollars within 30 days after delivery, or when agreed
after delivery of installments or the receipt of invoice by Dragon Systems,
which ever is later. MMI shall invoice Dragon Systems indicating the performed
services in US$ with reference to this Agreement.

Dragon Systems shall be entitled to deduct from or set off against any sums
which Dragon Systems may be liable to pay to MMI any amounts owed by MMI, its
affiliated entities, subsidiaries or successors in interest.

6.       WARRANTY

MMI warrants providing the Services with due diligence and care in accordance
with the specifications set by Dragon Systems. Should MMI not supply the
Services as agreed or should the Services become defective within 6 months from
their delivery to Dragon Systems, Dragon Systems may at its option require MMI
to complete or re-perform the Services within a reasonable period of time,
rescind the contract or refuse payment of the compensation in part or in total,
notwithstanding any damage claims.

7.       INDEMNITY

MMI shall reimburse Dragon Systems and hold Dragon Systems harmless from any
liabilities or obligations imposed upon Dragon Systems resulting directly or
indirectly from MMI's or its employees or agents activities under this


8.       LIABILITY

Either party shall be liable for failure or delay in performance of its duties
under this Agreement except for reasons beyond such party's reasonable control.
MMI shall not be liable for indirect or consequential damages unless caused by
intention or gross negligence.


Both parties shall take reasonable precautions to preserve in strict confidence
any confidential or proprietary information obtained by them, their agents or
employees concerning the business, products, equipment or services of the other
party, including without limitation, trade secrets. Such reasonable precautions
shall include exercising precautionary measures designed to preserve the secrecy
of such information and to prevent its disclosure to third parties, except
following prior consent of the other party, with such precautions being at least
equivalent to those taken by each party with respect to its own confidential


MMI warrants that the Services supplied to Dragon Systems will not infringe any
third parties' intellectual property rights. MMI will defend and indemnity
Dragon Systems against a claim that the Services supplied hereunder infringe a
patent or copyright and will pay resulting costs and damages provided that
Dragon Systems (i) promptly informs MMI in writing of the claim and (ii) gives
MMI sole control of the defense and all related settlement negotiations. MMI
will either procure the right for Dragon Systems to continue using the Services
or replace or modify them so that they become non-infringing or accept return of
the Services for a credit equal to the price paid by Dragon Systems.


Dragon Systems hereby grants MMI the rights to copy in printed or electronic
form the master materials according to the forecasted numbers given to MMI by
Dragon Systems.


This Agreement shall be valid for an indefinite period.

Both parties may terminate the Agreement with immediate effect

-        of either party breaches a material term of the Agreement

-        in case of a merger or change of key management or control

-        in case of bankruptcy or similar.

Dragon may terminate this agreement without cause by giving sixty (60) days
written notice to MMI.



Any lawsuit relating to any matter arising under this Agreement may be initiated
in a State or Federal Court located in the Commonwealth of Massachusetts or in
any court in the Netherlands having jurisdiction over the matter.

14.      INSURANCE

MMI shall at its own expense obtain and maintain with an insurer adequate
insurance coverage in respect of any Dragon Systems property under the care,
custody or control of MMI. MMI shall immediately notify Dragon Systems in
writing of any theft, loss or damage to any Dragon Systems property and shall
indemnify Dragon Systems in respect of the same.


\s\ John Dick                          General Manager
          19 Jan. 1998


\s\ Janet M. Baker,                         President
          12 Jan. 1998



     Part Number              Description     1,000 units    2,500 units   5,000 units   10,000 units   25,000 units  50,000 units
----------------------   -------------------  -------------  ------------  ------------  -------------  ------------  -------------



                         Dictate Power

     Part Number              Description     1,000 units    2,500 units   5,000 units   10,000 units   25,000 units  50,000 units
----------------------   -------------------  -------------  ------------  ------------  -------------  ------------  -------------



                          Dictate Classic

     Part Number              Description     1,000 units    2,500 units   5,000 units   10,000 units   25,000 units  50,000 units
----------------------   -------------------  -------------  ------------  ------------  -------------  ------------  -------------

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