Philips to acquire leading US PACS
supplier Stentor

8 July 2005

Amsterdam, The Netherlands and Brisbane, California, USA. Royal Philips Electronics and Stentor Inc. have announced that Philips will acquire Stentor, a leading US supplier of picture archiving and communication systems (PACS) used for storing, managing and distributing digital radiology images such as CT, MRI, X-ray and ultrasound. Philips will pay approximately US$280 million in cash for Stentor Inc. subject to receipt of regulatory approval. Stentor's shareholders have approved the agreement and transaction.

The Merger strengthens Philips' presence in the high-growth healthcare information technology market by enabling it to give a more complete package of products. The geographic reach of Stentor also complements that of Philips.

Stentor expects 2005 sales to grow to approximately US$50 million and 2006 sales annual growth is projected at 50% based on the company's unique "pay-per-study" business model, in which customers pay a fee to view, distribute and store medical images rather than purchase a PACS system. Stentor will be incorporated into the Healthcare IT business of Philips' Medical Systems division.

From its headquarters location in Brisbane, California, Stentor will become the global headquarters of Philips' overall PACS business.

"Stentor is an exceptional company with very talented people and unique technology that will significantly strengthen our position in healthcare IT. The merger of the Stentor Radiology PACS, the number one in multiple KLAS ratings, and the Philips Cardiology PACS, the "Best Overall Cardiology PACS Vendor" in the June 2005 KLAS report, gives us exactly what we want: world-class technology already recognized and appreciated by our customers, clear and immediate synergies with our imaging business and an opportunity to leverage the Philips world-wide resources. Philips is strongly committed to the support of its current customer base and will work with these users to let them benefit from the Stentor advantages," said Jouko Karvinen, President and CEO of Philips Medical Systems.

In commenting on the merger, Oran Muduroglu, President of Stentor, said: "In the healthcare industry, Philips is known for its high quality medical equipment and for its commitment to customers — an approach we value. We can now extend Stentor PACS outside of the radiology department and into other areas of the hospital where conditions like cancer and heart disease are treated." Mr. Muduroglu added: "We are very excited about what this means for all of our current and future customers, as we combine our strengths in image and information management."

Stentor's PACS technology can transmit medical images — with full resolution 4 to 16 times faster than any competitor, and with significantly less hardware costs for hospitals. In addition, Stentor's proven service delivery model and commitment to customer support is well aligned with Philips' overall strategy of designing the solution around the customer and making it easy for the user to experience.

Independent consultant Ralph Reyes Senior VP of KLAS noted the following: "KLAS is an independent monitor of healthcare IT vendor performance. Unique to KLAS is that the healthcare IT performance data we report on originates from only one source: the healthcare provider executive who has been personally interviewed by KLAS. Since the Stentor PACS solution captured our healthcare providers' attention it has consistently been rated as a leading PACS solution with #1 PACS positions in KLAS Top 20 end of year reports for 2003 (global PACS category) and 2004 (large acute care PACS category). In addition, the 2005 Mid-Year KLAS HIT Top 20 industry report noted Stentor #1 with a rating of 90.55 out of a possible 100 points for the ranked PACS applications. Their consistent high performance, as measured by healthcare executives has been very impressive."

Acquisition creates leading healthcare IT provider with global reach

By merging with Stentor, Philips — the market leader in patient monitoring systems and the second largest global manufacturer of medical diagnostic imaging and monitoring equipment — can offer hospitals and other customers a complete package of state-of-the-art medical scanners along with Stentor's best-in-class PACS products to handle the large volumes of imaging data generated by medical scanners.

In addition, Stentor and Philips have highly complementary geographic footprints allowing for more rapid deployment of Stentor's products into Europe and Asia, while providing Stentor's US customers with a greater choice of medical equipment. Combined, Philips and Stentor will have PACS installed at over 1,600 healthcare institutions worldwide, and will be second largest in the global PACS market.

Philips and Stentor will continue to pursue their shared vision for healthcare IT

Both Stentor and Philips share a vision of creating a digital hospital environment with electronic health records (EHRs) that provide physicians with on-demand access to all patient data, anytime, anywhere. The healthcare IT market is attractive given that U.S. and European healthcare industries have traditionally underinvested in IT. According to an October 2003 report by the U.S. General Accounting Office, less than 10 percent of hospitals had replaced paper charts with EHR, and the U.S. Center for Medicare & Medicaid estimated that in 2004 less than five percent of U.S. healthcare spending went into IT — much lower than in financial institutions and other service industries.

In 2003, Philips embarked on its vision for healthcare IT through the launch of an alliance with Epic Systems Corporation — a specialist in IT systems for creating an EHR for sharing patient information across hospitals. By merging with Stentor, Philips will be able to equip EHRs with diagnostic quality medical images that can be viewed throughout the hospital and via the Internet.

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