As Filed with the Securities and Exchange Commission on June 19, 1996
Registration No. 333-3974
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
AMENDMENT NO. 1 TO
FORM S-3/A
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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MEDQUIST INC.
(Exact Name of Registrant as Specified in Charter)
New Jersey 23-2531298
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification
Organization) Number)
Five Greentree Centre
Suite 311
Marlton, New Jersey 08053
(609) 596-8877
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
John M. Suender
Vice President & General Counsel
MedQuist Inc.
Five Greentree Centre
Suite 311
Marlton, New Jersey 08053
(609) 596-8877
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
---------------
WITH A COPY TO:
James D. Epstein, Esq.
Pepper, Hamilton & Scheetz
3000 Two Logan Square
Philadelphia, PA 19103-2799
(215) 981-4000
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Approximate date of commencement of proposed sale to public: As soon as
practicable after the effectiveness of this Registration Statement.
---------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
<PAGE>
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JUNE 19, 1996
PROSPECTUS
MEDQUIST INC.
This Prospectus relates to the sale by certain shareholders of the
Company (the "Selling Shareholders") of 1,038,026 shares (the "Offered Shares")
of MedQuist Inc.'s (the "Company") common stock, no par value per share ("Common
Stock"), including:
(1) 962,675 shares of Common Stock owned by Heller Equity Capital
Corporation ("Heller"); and
(2) 75,351 shares of Common Stock which may be issued by the
Company upon the exercise by Chemical Bank of outstanding warrants (the
"Chemical Warrants") to purchase shares of Common Stock.
The issuance of shares of Common Stock upon the exercise of the
Chemical Warrants is not covered by this Prospectus, which only covers the sale
of the Offered Shares of Common Stock by the Selling Shareholders. There is no
assurance that the Chemical Warrants will be exercised, and therefore there is
no assurance that the Company will receive any proceeds thereunder. The Company
will not receive any proceeds from the sale of the Offered Shares of Common
Stock by the Selling Shareholders. See "Selling Shareholders."
No underwriter is initially being utilized in connection with this
offering. The Company will pay all expenses incurred in connection with this
offering other than fees and expenses (including underwriting fees and selling
commissions) of the Selling Shareholders. See "Plan of Distribution."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
---------------
Prospective Purchasers Should Consider The Risks Set Forth Under
"Risk Factors" Commencing on Page 3.
The sale, transfer and/or distribution of the Offered Shares of
Common Stock by the Selling Shareholders, or by their pledgees, donees,
transferees or other successors in interest, may be effected from time to time
through brokers, agents, dealers or underwriters in one or more transactions
(which may involve crosses and principal trades, including block transactions),
in special offerings, negotiated transactions, exchange distributions or
secondary distributions, or in connection with short-sale transactions, or
otherwise, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. In addition, any Offered
Shares of Common Stock that qualify for sale pursuant to Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), may be sold under
Rule 144 rather than pursuant to this Prospectus. The foregoing is subject to
lock-up agreements executed by Heller and Chemical Bank restricting the public
sale of the Offered Shares for 270 and 180 days, respectively, from May 30,
1996. The Selling Shareholders may pay commissions or other compensation to
broker-dealers in connection with such sales, which may be in excess of
customary commissions charged for Nasdaq National Market transactions. See
"Plan of Distribution."
The Common Stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol "MEDQ". On June 17, 1996, the last sale
price of Common Stock, as reported by the Nasdaq National Market was $18.875
per share.
The date of this Prospectus is June , 1996.
<PAGE>
AVAILABLE INFORMATION
The Company has filed a registration statement on Form S-3 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") relating to the shares of Common Stock offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement and in the amendments, exhibits and schedules thereto, certain
portions of which have been omitted pursuant to the rules and regulations of the
Commission. Reference is hereby made to the Registration Statement and to the
amendments, exhibits and schedules thereto for further information with respect
to the Company and the securities offered hereby. Any statements contained
herein concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete, and in each instance reference is made to the copy of such
document so filed. Each such statement shall be qualified in its entirety by
such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, files reports, proxy and information statements, and other
information with the Commission. Proxy and information statements concerning the
Company, reports and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices in New York (Seven World Trade Center, Suite 1300, New York, New York
10048) and Chicago (Northwest Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511). Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.
The Common Stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol "MEDQ". Report, proxy statements and other
information concerning the Company may be inspected at the offices of The
Nasdaq Stock Market, Inc. located at 1735 K Street NW, Washington, DC
20006-1500.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents and information filed by the Company with
the Commission (Commission File No. 0-19941) are incorporated in this Prospectus
by reference and made a part hereof:
(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
(b) Amendment No. 1 to the Company's Annual Report on Form 10-K/A for
the year ended December 31, 1995.
(c) Amendment No. 2 to the Company's Annual Report on Form 10-K/A for
the year ended December 31, 1995.
(d) The Company's Current Report on Form 8-K filed with the Commission
on April 5, 1996.
(e) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996.
(f) Amendment No. 1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996.
(g) The description of Common Stock registered under Section
12 of the Exchange Act contained in the Company's
Registration Statement on Form S-1 filed with the
Commission on April 1, 1996 (File No. 333-3050), including
any amendments or reports filed for the purpose of
updating such description.
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(h) In addition, all documents subsequently filed by the
Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act prior to the termination of the offering
shall be deemed to be incorporated by reference herein
from their respective dates of filing.
Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated or deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will furnish, without charge, to any person to whom a
copy of this Prospectus is delivered, including any beneficial owner, upon such
person's written or oral request, a copy of any and all of the documents that
have been incorporated by reference in this Prospectus (not including exhibits
to the information that has been incorporated by reference unless such exhibits
are specifically incorporated by reference into the information that the
prospectus incorporates). Any such request should be directed to the Chief
Financial Officer, MedQuist Inc., Five Greentree Centre, Suite 311, Marlton, New
Jersey 08053, phone number: (609) 596-8877.
SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain statements of a forward-looking
nature relating to future events or the future financial performance of the
Company. Prospective investors are cautioned that such statements are only
predictions and that actual events or results may differ materially. In
evaluating such statements, prospective investors should specifically consider
the various factors identified in this Prospectus, including the matters set
forth under the caption "Risk Factors," which could cause actual results to
differ materially from those indicated by such forward-looking statements.
THE COMPANY
The Company is a national provider of electronic transcription and
document management services to the healthcare industry. The Company was
incorporated in New Jersey in 1987 as a group of outpatient healthcare
businesses affiliated with a non-profit healthcare provider. During the last
several years, the Company sold its outpatient businesses, acquired
Transcriptions, Ltd. in May 1994 and two other small transcription businesses in
1995, and sold its receivables management division in December 1995. As used
herein, the term the "Company" includes all of its subsidiaries, including its
current subsidiary Transcriptions, Ltd., as well as Transcriptions, Ltd., the
predecessor acquired by the Company in May 1994.
The Company's principal executive offices are located at Five
Greentree Centre, Suite 311, Marlton, New Jersey 08053, and its telephone number
is (609) 596-8877.
RISK FACTORS
In addition to the other information contained in this Prospectus,
the following risk factors should be considered carefully in evaluating the
Company and its business. This Prospectus contains forward-looking statements
which involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in the following risk
factors and elsewhere in this Prospectus. See "Special Note Concerning
Forward-Looking Statements" above for additional factors relating to such
statements.
Risks Associated With the Business
Dependence on Single Line of Business
The Company's revenues are derived primarily from the provision of
electronic transcription services to hospitals and other healthcare
organizations on an outsourced basis. The Company's future success will
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depend on the continued market acceptance of its transcription services and the
continued trend towards outsourcing of transcription services. A reduction in
demand or increase in competition in the market for its transcription services
would have a material adverse effect on the Company's business, financial
condition and results of operations.
Rapid Technological Change
The healthcare information services industry is characterized by
rapid technological change, evolving client needs and emerging technical
standards. The introduction of competing services or products incorporating new
technologies, such as voice recognition capabilities and the emergence of new
technical standards could render some or all of the Company's services
unmarketable. The Company believes that its future success depends on its
ability to enhance its current services and develop new services that address
the increasingly sophisticated needs of its customers. The failure of the
Company to develop and introduce service enhancements and new services in a
timely and cost-effective manner in response to changing technologies or client
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations.
Inability to Expand Into New Markets
To date, the Company's services have been provided primarily to the
medical record departments of hospitals. However, healthcare services are
increasingly being provided at sites other than hospitals, such as outpatient
clinics and physician practice groups. As part of its strategy, the Company
intends to increase its presence in these new markets and to expand its services
to direct patient care departments within hospitals. However, the Company has
limited experience in such markets and departments which may require significant
modifications to the Company's services or adjustments to its pricing. The
Company's business, financial condition and results of operations may be
materially and adversely affected if its efforts to expand into new markets and
departments are not successful.
Dependence on Key Personnel
The Company's future success depends upon its ability to attract
and retain its key managerial personnel. The loss of services of certain of the
Company's executive officers or the inability of the Company to attract
additional management personnel could have a material adverse effect upon the
Company's business, financial condition and results of operations. Certain of
its key executive officers, including David A. Cohen, the President and Chief
Executive Officer, John A. Donohoe, Jr., the Chief Operating Officer, and Ronald
Scarpone, the Chief Information Officer, have employment agreements with the
Company. Mr. Scarpone's employment agreement terminates on December 31, 1997,
and Mr. Cohen's and Mr. Donohoe's employment agreements terminate on December
31, 1998. Each such agreement permits the executive to resign, at any time, by
giving the Company at least three months prior notice. The Company does not have
key-man insurance on any of its executive officers.
Potential for Significant Fluctuations in Quarterly Operating Results
The Company has experienced, and may in the future experience,
significant quarter to quarter fluctuations in its results of operations. Such
fluctuations may result in volatility in the price of Common Stock. Quarterly
results of operations may fluctuate as a result of a variety of factors,
including demand for the Company's services, the opening of new offices, the
timing of introduction of new services and service enhancements by the Company
or its competitors, the market acceptance of new services, the size and timing
of client contracts, changes in client budgets, the size and timing of
acquisitions, the integration of acquired businesses into the Company's
operations, the number and timing of new hires, competitive conditions in the
industry and general economic conditions. Further, the Company's contracts
generally involve significant client commitment and may require time-consuming
authorization procedures within the client's organization. For these and other
reasons, the sales cycles for the Company's services are typically lengthy and
subject to a number of factors outside of the Company's control. As a result,
the Company's revenues are difficult to forecast, and the Company believes that
period to period comparisons of results of operations are not necessarily
meaningful and should not be relied upon as an
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indication of future results of operations. In addition, the Company's
transcription business has experienced substantial growth in recent periods and
there can be no assurance that such rate of growth in revenues and profits can
be maintained in the future. Due to the foregoing factors, it is possible that
in future quarters the Company's operating results will be below the
expectations of public market analysts and investors. Such an event could have a
material adverse effect on the price of Common Stock.
Ability to Attract and Retain Qualified Transcriptionists
The Company's future success depends upon its ability to attract
and retain qualified transcriptionists. Competition for transcriptionists is
intense, and no assurance can be given that the Company will be successful in
attracting and retaining the personnel necessary to conduct its business
successfully. The inability of the Company to attract, hire and retain such
personnel would have a material adverse effect upon the Company's business,
financial condition and results of operations. The Company takes the position
that its transcriptionists are independent contractors for state tax, benefits
and unemployment purposes and statutory employees for federal income tax
purposes. A successful challenge to the Company's position or a change in
applicable law could result in the incurrence of liability for withholding
taxes, disability payments, unemployment payments, interest and penalties by the
Company, and could have a material adverse effect on the Company's costs of
hiring and retaining transcriptionists.
Risks Associated With Acquisitions
The Company acquired Transcriptions, Ltd. in May 1994, made two
other acquisitions of smaller transcription companies in 1995, and intends to
seek other acquisitions which will likely require the consent of its senior
lenders. There can be no assurance that the Company will be successful in
identifying suitable acquisition candidates, financing such acquisitions,
negotiating terms favorable to the Company, consummating acquisitions or
integrating the acquired businesses into the Company's operations. Moreover, in
connection with acquisitions, the Company may be required to incur additional
indebtedness or other liabilities which could have a material adverse effect on
the Company's liquidity and capital resources, or to issue shares of its capital
stock, which could result in dilution to its shareholders.
Management of Changing Business
The Company has experienced significant changes, including the
acquisition and growth of its transcription business and the divestiture of its
other business. Such changes have placed and may continue to place a significant
strain on the Company's management, client service personnel and operations. In
order to manage such changes in the future, the Company must continue to
implement and improve its operational, financial and management information
systems, and hire, train and manage its employees. If the Company is unable to
implement such systems and manage such changes effectively, the Company's
business, financial condition and results of operations could be materially and
adversely affected.
Competition
The transcription services industry is highly fragmented and
primarily consists of small regional or local companies, and a limited number of
national companies, with which the Company currently competes directly. The
Company believes that its ability to compete successfully depends upon many
factors within and outside of its control, including the timing and market
acceptance of new services and service enhancements developed by the Company and
its competitors, service quality, performance, price, reliability and client
support. In addition, the healthcare information industry includes a number of
companies with substantially greater financial, technical and marketing
resources than the Company. Such companies, if they were to enter the
transcription business, could respond more quickly than the Company to evolving
technological developments, changing client needs or emerging technical
standards, or could devote greater resources to the development, marketing and
sale of their services. Competition may increase due to consolidation of
transcription companies, and current and potential competitors may establish
cooperative relationships among themselves or with third parties to increase
their ability
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to address the needs of the Company's current and prospective clients. Increased
competition may result in price reductions for the Company's services, reduced
operating margins and the inability of the Company to increase its market share.
There can be no assurance that the Company will be able to compete successfully
against current or future competitors or that competitive pressures will not
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the market available to the Company is
limited by healthcare organizations which maintain in-house transcription
departments.
Changes in the Healthcare Industry
The healthcare industry is subject to changing political, economic
and regulatory influences that may affect the outsourcing arrangements of
healthcare providers. Federal and state legislators have proposed programs to
reform the United States healthcare system and other proposals are in the
development stage. In general, these programs and proposals tend to emphasize
managed care, seek to lower reimbursement rates and otherwise attempt to control
the environment in which healthcare providers operate. Healthcare providers may
react to these proposals and the uncertainty surrounding such proposals by
curtailing outsourcing arrangements or deferring decisions regarding the use of
outsourced services. Many healthcare providers are consolidating to create
larger healthcare delivery organizations. This consolidation reduces the number
of potential clients for the Company's services and increases the bargaining
power of these organizations which could lead to reductions in the amounts paid
for the Company's services. The impact of these developments in the healthcare
industry is difficult to predict and could have a material adverse effect on the
Company's business, financial condition and results of operations.
Dependence on Proprietary Rights; Risks of Infringement
The Company's success depends upon its proprietary technology. The
Company regards the software underlying its services as proprietary and relies
primarily on a combination of contract, copyright and trademark law, trade
secrets, confidentiality agreements and contractual provisions to protect its
proprietary rights. The Company has not registered its Medical Transcription
System (an integrated transcription and document management system based upon
proprietary software), Dictation Tracking System (a tracking system for patient
data and transcribed reports), or Transcriptions, Ltd. trademarks and has no
patents or patent applications pending. Existing trade secrets and copyright
laws afford the Company limited protection. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy aspects
of the Company's software or to obtain and use information that the Company
regards as proprietary. Policing unauthorized use of the Company's software is
difficult. There can be no assurance that the obligations to maintain the
confidentiality of the Company's trade secrets and proprietary information will
effectively prevent disclosure of the Company's confidential information or
provide meaningful protection for the Company's confidential information, or
that the Company's trade secrets or proprietary information will not be
independently developed by the Company's competitors. There can be no assurance
that copyrights owned by the Company will provide competitive advantages or will
not be challenged or circumvented by its competitors. Litigation may be
necessary for the Company to defend against claims of infringement, to enforce
copyrights or to protect trade secrets and could result in substantial cost to,
and diversion of management efforts by, the Company. There can be no assurance
that the Company would prevail in any such litigation.
The Company is not aware that any of its software, trademarks or
other proprietary rights infringe the proprietary rights of third parties.
However, there can be no assurance that third parties will not assert
infringement claims against the Company in the future. Any such claims, with or
without merit, can be time consuming and expensive to defend and may require the
Company to enter into royalty or licensing agreements or cease the infringing
activities. The failure to obtain such royalty agreements, if required, and the
Company's involvement in such litigation could have a material adverse effect on
the Company's financial condition and results of operations.
Confidentiality Requirements
The medical information transcribed by the Company is of an
extremely sensitive nature. In providing its services, the Company is subject to
certain statutory, regulatory and common law requirements
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regarding the confidentiality of medical information. Failure to comply with
such confidentiality requirements could result in material liability to the
Company.
Risks Associated With the Offering of Common Stock
Potential Volatility of Stock Price
The market price of Common Stock has been, and may in the future
be, highly volatile. Factors such as acquisitions, technological innovations,
new products or services, changes in government regulation and healthcare
legislation, fluctuations in the Company's operating results and general market
and economic conditions could cause the market price of Common Stock to
fluctuate substantially. In addition, the stock market in general has
experienced extreme price and volume fluctuations which has resulted in
substantial volatility of the market prices of healthcare service companies that
has often been unrelated to the operating performance of these companies. These
or other factors may adversely affect the market price of Common Stock.
Certain Anti-Takeover Provisions
The New Jersey Shareholders Protection Act prohibits the Company
from entering into certain business combination transactions with any
shareholder of the Company which owns 10% or more of the outstanding voting
securities of the Company, except under certain limited circumstances. In
addition, the Company's Amended and Restated Certificate of Incorporation gives
the Board of Directors the authority without shareholder approval to issue up to
3,950,000 shares of Preferred Stock, in one or more series, with rights,
preferences and limitations that could adversely affect the voting power and the
other rights of the holders of Common Stock. The Company's Amended and Restated
Certificate of Incorporation also provides for staggered terms for the members
of the Board of Directors such that no more than one-third of its members stands
for reelection in any one year. The Company has entered into certain severance
arrangements which provide for payments to certain of its officers upon a
"change in control" (as defined therein) of the Company. Moreover, the terms of
the Company's 1992 Stock Option Plan provide that outstanding options
automatically vest and become exercisable upon a "change in control" (as defined
therein) of the Company. These provisions and arrangements may have the effect
of delaying, deferring or making more costly a change in control of the Company,
including transactions in which shareholders might otherwise receive a premium
for their shares over the then current market price, and, therefore, could
adversely affect the market price of Common Stock.
RECENT DEVELOPMENTS
On May 23, 1996, the Company sold 2,200,000 shares of Common Stock
at $17.00 per share in a public offering pursuant to a registration statement on
Form S-1 (No. 333-3050) through Robertson, Stephens & Company LLC, Volpe, Welty
& Company, and Pennsylvania Merchant Group, Ltd, as representatives of the
several underwriters.
The net proceeds from the sale of such shares are estimated to be
$34.8 million based on the public offering price of $17.00 per share, less
estimated underwriting discounts and commissions, and estimated expenses payable
by the Company. The Company used $18,145,858 of the net proceeds to pay the debt
portion of the deferred purchase price payable to related parties in connection
with the acquisition of Transcriptions, Ltd., a current subsidiary of the
Company. In addition, the Company applied $10,842,292 of the net proceeds to
repay in full the borrowings outstanding under the Company's senior credit
facility with certain lenders including Chemical Bank. The remaining net
proceeds will be used by the Company for general working capital purposes.
Concurrently with the consummation of the public offering, Heller
exercised two warrants to purchase convertible preferred stock of the Company,
and simultaneously converted the preferred stock into Common Stock. The Offered
Shares owned by Heller are 962,675 of the 1,005,175 shares of Common Stock
received by Heller in that transaction.
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USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Offered Shares of Common Stock.
SELLING SHAREHOLDERS
The following table sets forth the names of the Selling
Shareholders and certain information regarding the beneficial ownership of
Common Stock by the Selling Shareholders as of June 17, 1996, and as adjusted
to reflect the sale of all of the Offered Shares of Common Stock. However, there
can be no assurance that any of the Selling Shareholders will in fact sell any
or all of the Offered Shares of Common Stock.
<TABLE>
<CAPTION>
Beneficial Ownership
After Offering(1)
Number of --------------------
Shares Number Percent of
Beneficially of Class (if
Owned Prior Shares Number Greater
to Registration Registered of Shares than 1%)
--------------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Heller Equity Capital Corporation 1,005,175(2) 962,675 42,500 --
Chemical Bank 75,351(3) 75,351 0 --
</TABLE>
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(1) Beneficial ownership is determined in accordance with the rules of the
Commission, and includes voting or investment power with respect to the shares
beneficially owned. Shares of Common Stock subject to options or warrants
currently exercisable or exercisable within 60 days after June 17, 1996 are
deemed outstanding for computing the percentage ownership of the person holding
such options or warrants, but are not deemed outstanding for computing the
percentage ownership of any other person.
(2) Heller is a wholly-owned subsidiary of Heller Financial, Inc., a
Delaware corporation which is an indirect wholly-owned subsidiary of The Fuji
Bank, Limited, a Japanese banking corporation. John H. Underwood is a director
of the Company and a Senior Vice President of Heller. Mr. Underwood may be
deemed to be the beneficial owner of such shares of Common Stock, though he
disclaims beneficial ownership of such shares. Mr. Underwood has been a director
of the Company since July 1994. Mr. Underwood was originally nominated to the
Company's Board of Directors in 1994 pursuant to the terms of certain credit
arrangements between the Company and Heller.
(3) Consists of 75,351 shares of Common Stock issuable to Chemical Bank upon the
exercise of the Chemical Warrants.
Heller and Chemical Bank have agreed with Robertson, Stephens &
Company LLC that, until 270 and 180 days, respectively, from May 30, 1996,
they will not make any public sale of shares of Common Stock, any options or
warrants to purchase shares of Common Stock or any securities convertible into
or exchangeable for shares of Common Stock now owned or hereafter acquired by
them, other than with the prior written consent of Robertson, Stephens & Company
LLC.
PLAN OF DISTRIBUTION
The Selling Shareholders or their pledgees, donees, transferees or
other successors in interest, may sell all, a portion or none of the securities
offered by them hereby from time to time. Any such sales may be in one or more
transactions on the Nasdaq National Market at prices prevailing at the times
of such sales or in private sales of the securities at prices related to the
prevailing market prices or at negotiated prices. The sales may involve (a) a
block transaction in which the broker or dealer so engaged will attempt to sell
the shares as agent but may
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position and resell a portion of the block as principal to facilitate the
transaction, (b) a purchase by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus, or (c)
ordinary brokerage transactions in which the broker solicits purchasers.
Broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions (which compensation may be in excess of customary
commissions). The Selling Shareholders and any broker-dealers that participate
in the distribution of the shares may be deemed to be underwriters and any
commissions received by them and any profit on the resale positioned by them
might be deemed to be underwriting discounts and commissions under the
Securities Act.
Heller and Chemical Bank have agreed with Robertson, Stephens &
Company LLC that, until 270 and 180 days, respectively, from May 30, 1996,
they will not make any public sale of shares of Common Stock, any options or
warrants to purchase shares of Common Stock or any securities convertible into
or exchangeable for shares of Common Stock now owned or hereafter acquired by
them, other than with the prior written consent of Robertson, Stephens & Company
LLC (collectively, the "Lock-Up Agreements").
There can be no assurance that the Selling Shareholders will sell
any or all of their shares of Common Stock offered hereby. The Company will
receive no proceeds from any sales of Common Stock hereunder by the Selling
Shareholders.
The Registration Statement of which this Prospectus is a part has
been filed with the Commission by the Company in accordance with an agreement
between the Company and the Selling Shareholders, pursuant to which the Company
has agreed to pay the filing fees, costs and expenses associated with the
Registration Statement. The Company has agreed to indemnify the Selling
Shareholders against certain liabilities, including liabilities arising under
the Securities Act.
In addition, subject to the Lock-Up Agreements, any Offered Shares
that qualify for sale pursuant to Rule 144 under the Securities Act may be sold
under Rule 144 rather than pursuant to this Prospectus. The Selling Shareholders
have advised the Company that they or their pledgees, donees, transferees or
other successors in interest may sell all or a portion of the securities covered
by this Prospectus pursuant to Rule 144 under the Securities Act.
The Selling Shareholders have also informed the Company that they
may, subject to the Lock-Up Agreements, on an individual basis, from time to
time following the effective date of the Registration Statement of which this
Prospectus is a part, sell shares of Common Stock in short-sale transactions
(including, without limitation, selling short against the box) and use some or
all of the Offered Shares to cover such transactions.
At the time a particular offer of the Offered Shares is made, to
the extent required, a Prospectus Supplement will be distributed which will set
forth the number of shares of Common Stock being offered and the terms of the
offering, including the name or names of any underwriters, brokers, dealers or
agents (whether such party is acting as a principal or as a agent for the
Selling Shareholders), any discounts, commissions or concessions and other items
constituting compensation from the Selling Shareholders and any discounts,
commissions or concessions allowed or re-allowed or paid to dealers.
To comply with securities laws of certain states, if applicable,
the Offered Shares will be sold in such states only through registered or
licensed brokers or dealers. In addition, in certain states the Offered Shares
may not be sold unless they have been registered or qualified for sale in such
states or an exemption from registration or qualification is available or is
complied with.
LEGAL MATTERS
The validity of Common Stock offered hereby has been passed upon
for the Company by Pepper, Hamilton & Scheetz, Philadelphia, Pennsylvania.
-9-
<PAGE>
EXPERTS
The Consolidated Financial Statements and Schedule of the Company
incorporated by reference in this Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said report.
-10-
<PAGE>
===============================================================================
No dealer, salesman or other person has been authorized to give any information
or to make any representations other than those contained in this Prospectus in
connection with the offer made hereby, and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, the securities offered hereby to any person in any state or
other jurisdiction in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, imply that information contained herein is correct as of any time
subsequent to its date or that there has not been any change in the facts set
forth in this Prospectus or in the affairs of the Company since the date hereof.
-------------------
TABLE OF CONTENTS
Page
-----
Available Information................................. 2
Incorporation of Certain
Information by Reference........................... 2
Special Note Concerning Forward-
Looking Statements..................................... 3
The Company............................................ 3
Risk Factors........................................... 3
Recent Developments.................................... 7
Use of Proceeds........................................ 8
Selling Shareholders................................... 8
Plan of Distribution................................... 8
Legal Matters.......................................... 9
Experts................................................10
================================================================================
================================================================================
MEDQUIST INC.
----------
PROSPECTUS
----------
June , 1996
===============================================================================
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
SEC Registration Fee.........................................$ 5,400*
Printing and engraving fees.................................. 1,000**
Legal fees and expenses...................................... 10,000**
Accounting fees and expenses................................. 2,000**
Blue Sky expenses and counsel fees........................... 5,000**
Transfer agent and registrar fees............................ 1,000**
Miscellaneous................................................ 5,600**
-------
TOTAL.............................................. $30,000
=======
- -----------------
* Actual
** Estimated for the 12-month period commencing April 24, 1996.
Item 15. Indemnification of Directors and Officers
Section 14A:3-5 of the Corporation Law of the State of New
Jersey ("NJCL") permits each New Jersey business corporation to indemnify its
directors, officers, employees and agents against expenses and liability for
each such person's acts taken in his or her capacity as a director, officer,
employee or agent of the corporation if such actions were taken in good faith
and in a manner which he or she reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal
proceeding, if he or she had no reasonable cause to believe his or her conduct
was unlawful. Article 10 of the Company's Bylaws provides that the Company, to
the full extent permitted by Section 14A:3-5 of the NJCL, shall indemnify all
past and present directors or officers of the Company and may indemnify all past
or present employees or other agents of the Company. To the extent that a
director, officer, employee or agent of the Company has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to in
such Article 10, or in defense of any claim, issue, or matter therein, he or she
shall be indemnified by the Company against expenses in connection therewith.
Such expenses shall be paid by the Company in advance of the final disposition
of the action, suit or proceeding as authorized by the Company's Board of
Directors upon receipt of an undertaking to repay the advance if it is
ultimately determined that such person is not entitled to indemnification.
The Company has a policy insuring it and its directors and
officers against certain liabilities, including liabilities under the Securities
Act.
Reference is made to Item 17 of this Registration Statement
for additional information regarding indemnification of directors and officers.
II-1
<PAGE>
Item 16. Exhibits
4.1 Specimen Stock Certificate [incorporated by reference to Exhibit 4.1 of
the Company's Registration Statement on Form S-1 (No. 333-3050) filed
with the Commission on April 1, 1996 (the "Registration Statement")].
4.2 Registration Rights Agreement between the Company and Heller Financial,
Inc. (the "Registration Rights Agreement", dated as of December 14,
1992 [incorporated by reference to Exhibit 6 of the Current Report on
Form 8-K filed with the Commission on December 24, 1992].
4.3 Amendment and Assignment of Registration Agreement by and among Heller
Financial, Inc., Heller and the Company, dated May 27, 1994
[incorporated by reference to Exhibit 10.30 of the Registration
Statement].
4.4 Second Amendment to Registration Agreement, dated as of December 29,
1995, between Heller and the Company [incorporated by reference to
Exhibit 10.31 of the Registration Statement].
4.5 Registration Agreement between the Company and Chemical Bank, dated
May 27, 1994 [incorporated by reference to Exhibit 10.32 of the
Registration Statement].
4.6 Letter Agreement dated May 23, 1996 between Robertson, Stephens &
Company LLC, Volpe, Welty & Company, and Pennsylvania Merchant Group
Ltd, as representatives of the several underwriters, and Heller,
regarding a lock-up period for the disposition of Common Stock. (2)
4.7 Letter Agreement dated May 23, 1996 between Heller and the Company
amending the Registration Rights Agreement. (2)
4.8 Letter Agreement dated March 29, 1996 between Robertson, Stephens &
Company LLC, Volpe, Welty & Company, and Pennsylvania Merchant Group
Ltd, as representatives of the several underwriters, and Chemical Bank,
regarding a lock-up period for the disposition of Common Stock. (1)
4.9 Warrant to Purchase Voting Common Stock issued to Chemical Bank, dated
as of May 27, 1994. (2)
5 Opinion of Pepper, Hamilton & Scheetz. (2)
23.1 Consent of Arthur Andersen LLP (included on page II-4 of this
Registration Statement).
23.2 Consent of Pepper, Hamilton & Scheetz (included in Exhibit 5 to this
Registration Statement).
24 Powers of Attorney (1)
- -------------------
(1) Previously filed.
(2) Filed herewith.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
II-2
<PAGE>
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
clauses is contained in periodic reports filed with or furnished to the
Commission by the Company pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in this Registration Statement;
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our report dated
February 23, 1996, included in MedQuist Inc.'s Form 10-K, as amended, for the
year ended December 31, 1995, and to all references to our firm included in
this registration statement.
Arthur Andersen LLP
Philadelphia, Pa.,
June 19, 1996
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Marlton, State of New Jersey, on June 18, 1996.
MEDQUIST INC.
By: /s/ DAVID A. COHEN
---------------------------------
David A. Cohen
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act, this
Registration Statement has been signed by the following persons on June 18,
1996 in the capacities indicated:
/s/ DAVID A. COHEN
------------------------------------
David A. Cohen
Director, President and Chief
Executive Officer
/s/ ROBERT F. GRAHAM
------------------------------------
Robert F. Graham
Vice President, Treasurer and
Chief Financial Officer
*
------------------------------------
James R. Emshoff
Chairman of the Board and Director
*
------------------------------------
William T. Carson, Jr.
Director
*
------------------------------------
Richard J. Censits
Director
*
------------------------------------
James F. Conway
Director
*
------------------------------------
Frederick S. Fox, III
Director
*
------------------------------------
A. Fred Ruttenberg
Director
*
------------------------------------
John H. Underwood
Director
By: /s/ DAVID A. COHEN
------------------------------------
David A. Cohen
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE NO.
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<S> <C> <C>
4.6 Letter Agreement dated May 23, 1996 between Robertson, Stephens &
Company LLC, Volpe, Welty & Company, and Pennsylvania Merchant Group
Ltd, as representatives of the several underwriters, and Heller,
regarding a lock-up period for the disposition of Common Stock.
4.7 Letter Agreement dated May 23, 1996 between Heller and the Company
amending the Registration Rights Agreement.
4.9 Warrant to Purchase Voting Common Stock issued to Chemical Bank,
dated as of May 27, 1994.
5 Opinion of Pepper, Hamilton & Scheetz.
23.1 Consent of Arthur Andersen LLP (included on page II-4 of this
Registration Statement).
23.2 Consent of Pepper, Hamilton & Scheetz (included in Exhibit 5 to this
Registration Statement).
</TABLE>
II-6
EXHIBIT 4.6
May 23, 1996
Robertson, Stephens & Company LLC
Volpe, Welty & Company
Pennsylvania Merchant Group Ltd.
as Representatives of the
Several Underwriters
c/o Robertson, Stephens & Company LLC
555 California Street
San Francisco, California 94104
Ladies and Gentlemen:
The undersigned understands that Robertson, Stephens & Company LLC, Volpe,
Welty & Company and Pennsylvania Merchant Group Ltd., as representatives (the
"Representatives") of the several underwriters (the "Underwriters"), propose to
enter into an Underwriting Agreement (the "Underwriting Agreement") with
MedQuist Inc. (the "Company"), providing for the public offering by the
Underwriters, including the Representatives, of common stock of the Company (the
"Public Offering").
In consideration of the Underwriters' agreement to purchase and undertake
the Public Offering and for other good and valuable consideration, the receipt
of which is hereby acknowledged, the undersigned agrees that, without the prior
written consent of Robertson, Stephens & Company LLC, the undersigned will not,
for the period ending 270 days after the consummation of the Public Offering
(the "Lock-Up Period"), directly or indirectly offer, sell, solicit an offer to
buy, make any short sale, pledge, grant any option to purchase, contract to sell
or otherwise dispose of or transfer (collectively, a "Disposition") any shares
of common stock of the Company ("Common Stock") (including, without limitation,
shares of Common Stock which may be deemed to be beneficially owned by the
undersigned in accordance with the rules and regulations of the Securities and
Exchange Commission) or any securities convertible into or exercisable or
exchangeable for, or any rights to purchase or acquire, shares of Common Stock
now owned or hereafter acquired directly by the undersigned or with respect to
which the undersigned has or hereafter acquires the power of Disposition
(collectively, "Securities"), otherwise than (i) as a bona fide gift or gifts,
provided the donee or donees thereof agree in writing to be bound by this
restriction for the remainder of the Lock-Up Period, (ii) as a distribution to
partners or stockholders of the undersigned, provided that the distributees
thereof agree in writing to be bound by the terms of this restriction for the
remainder of the Lock-Up Period, (iii) as a distribution or contribution to or
from any of the corporate affiliates of the
<PAGE>
Robertson, Stephens & Company LLC
Volpe, Welty & Company
Pennsylvania Merchant Group Ltd.
May 23, 1996
Page 2
undersigned, provided that the transferee affiliates agree in writing to be
bound by the terms of this restriction for the remainder of the Lock-Up Period,
or (iv) in privately-negotiated transactions, so long as the transferees agree
in writing to be bound by the terms of this restriction for the remainder of the
Lock-Up Period.
The undersigned acknowledges that the foregoing restrictions preclude the
undersigned from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a Disposition of Securities
during the Lock-Up Period, including, without limitation, any transfer of all or
a portion of the economic consequences associated with the ownership of
Securities, even if the Disposition of such Securities would be made by someone
other than the undersigned. Such prohibited hedging or other transactions
include, without limitation, any short sale (whether or not against the box) or
any purchase, sale or grant of any right (including, without limitation, any put
or call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities.
In addition, the undersigned agrees that the Company may, during the
Lock-Up Period, with respect to any Securities for which the undersigned is the
record or beneficial holder, cause the transfer agent for the Company to note
stop transfer instructions with respect to such shares on the transfer books and
records of the Company.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into this letter agreement, and that, upon
request, the undersigned will execute any additional documents necessary or
desirable in connection with the enforcement hereof. All authority herein
conferred or agreed to be conferred shall survive the death or incapacity of the
undersigned and all obligations of the undersigned created hereunder shall be
irrevocable and binding upon the heirs, personal representatives, successors,
and assigns of the undersigned.
In the event any of the Representatives consents to the sale or other
transaction by any party to a similar agreement with respect to the Public
Offering involving some or all of such party's holdings of Securities during a
period when such transaction would otherwise be prohibited by such agreement,
the undersigned will automatically be released from the restrictions of this
letter agreement with respect to the same number of Securities (regardless of
whether the undersigned then intends to effect any transaction involving
Securities). In the event
<PAGE>
Robertson, Stephens & Company LLC
Volpe, Welty & Company
Pennsylvania Merchant Group Ltd.
May 23, 1996
Page 3
any of the Representatives reduces the term of any restrictions contained
in a similar agreement with another party, the Lock-Up Period will be
automatically reduced in the same proportion.
Very truly yours,
HELLER EQUITY CAPITAL CORPORATION
By: /s/ J.H. UNDERWOOD
------------------------------
Title: Vice President
May 23, 1996
MedQuist Inc.
Five Greentree Centre
Suite 311
Marlton, New Jersey 08053
Attention: David A. Cohen, President and
Chief Executive Officer
Re: Offerings of Common Stock on Forms S-1 and S-3
Ladies and Gentlemen:
We are writing with respect to the letter agreement, dated March 29, 1996
(the "Letter Agreement"), by and between Heller Equity Capital Corporation, a
Delaware corporation ("Heller"), and MedQuist Inc., a New Jersey corporation
(the "Company"), and the Company's Registration Statements on Form S-1
(Securities and Exchange Commission File No. 333-3050), as amended by Amendments
Nos. 1, 2, 3 and 4 thereto (and as it may be further amended or supplemented
from time to time, the "S-1 Registration Statement") and on Form S-3 (originally
filed with the Securities and Exchange Commission on April 24, 1996) (as it may
be amended or supplemented from time to time, the "S-3 Registration Statement").
Capitalized terms which are used in this letter agreement without express
definition have the respective meanings ascribed to such terms in the Letter
Agreement.
1. Information Provided. In connection with the Company's preparation of
the S-3 Registration Statement, Heller has provided the following information
to the Company:
(a) Heller's principal executive offices are located at 500 West
Monroe Street, Suite 1000, Chicago Illinois 60661. Heller is a wholly-owned
subsidiary of Heller Financial, Inc., a Delaware corporation which is a
wholly-owned subsidiary of Heller International Corporation, a Delaware
corporation which is in turn a wholly-owned subsidiary of The Fuji Bank,
Limited, a Japanese banking corporation.
(b) Assuming the nine notices previously delivered by the Company to
Heller are all of the notices required to be delivered by the Company
pursuant to Sections 4.3(a) of the Class A Warrant and the Class B Warrant,
the Class A Warrant is exercisable as of the date hereof for 595,512.39
shares of Class A Preferred Stock and the Class B Warrant is exercisable
as of the date hereof for 367,163.30 shares of Class B Preferred Stock,
in each case at an exercise price per share of $7.2714.
(c) John H. Underwood is a Vice President of Heller.
(d) Heller has provided to the Company all of the information set
forth in the first, fifth, sixth, seventh and eighth paragraphs under the
caption "Plan of Distribution" in the prospectus included in the S-3
Registration Statement.
Except as specifically set forth in subsections (a), (b), (c) and (d) above,
Heller has not provided any information to the Company for inclusion in, or any
other use in connection with, the S-3 Registration Statement. Heller has
provided no information to the Company for inclusion in, or any other use in
connection with, the S-1 Registration Statement.
2. Certificate Denominations. Heller hereby waives reciept of certificates
evidencing the shares of Class A Preferred Stock and Class B Preferred Stock
issuable upon exercise of the Class A Warrant and the Class B Warrant. Heller
hereby requests that the 1,005,175 shares of Common Stock issuable by the
Company on the Effective Date to Heller pursuant to the Letter Agreement be
delivered in the form of 19 certificates evidencing 50,000 shares of Common
Stock each, a certificate evidencing 12,675 shares of Common Stock and a
certificate evidencing 42,500 shares of Common Stock. All certificates should be
registered in the name of "Heller Equity Capital Corporation."
3. Cash Amounts Due. Accrued but unpaid interest on the outstanding
principal amount of the Promissory Note, which is due and payable in cash
pursuant to Section 1(i) of the Letter Agreement, will be $72,138.87 as of May
24, 1996, $77,583.27 as of May 28, 1996 and $78,944.38 as of May 29, 1996. The
cash amount due on account of sixty-nine hundredths of a share of Common Stock
pursuant to Section 1(c) of the Letter Agreement will be based on the "Price to
Public" set forth on the front cover page of the final prospectus for the
Common Stock offered pursuant to the Registration Statement. These two cash
amounts will be paid to Heller on the Effective Date by electronic transfer of
immediately available funds to the following account:
Mellon Bank, N.A.
Pittsburgh, Pennsylvania
ABA No. 043-000-261
Account No. 194-2155
For credit to: Heller Equity Capital Corporation
Reference: MedQuist Inc.
The Company's payment of the amounts described in this Section 3 will not affect
any of the Company's obligations under Section 3 of the Letter Agreement or any
of the sections of the Loan Agreement and the Warrant Purchase Agreement
referred to in Section 1(f) of the Letter Agreement.
4. Consent and Waiver with Respect to Registration Agreements. Pursuant to
Paragraph 1(g) of the Registration Agreement, Heller hereby consents to the
Company's execution and delivery of the two Registration Rights Agreements, each
dated August 31, 1995, between the Company and each of Susan Stuart and
Elizabeth Kostick, and to the inclusion in the S-1 Registration Statement of
22,840 shares of Common Stock owned by those two individuals. Heller hereby
waives its rights under Section 9 of the Registration Agreement with respect to
the consummation of the offering pursuant to the S-1 Registration Statement.
5. Lock-Up Agreement. Concurrently with the execution and delivery of this
letter agreement, Heller is executing and delivering the lock-up agreement
provided for in Section 1(h) of the Letter Agreement.
6. Registration Agreement. The Registration Agreement is hereby amended by
inserting the word "except" immediately before the word "insofar" in the
eighteenth line of Paragraph 6(a) of the Registration Agreement. The execution
and delivery of this letter agreement and the Letter Agreement is not intended
by Heller and the Company to affect any of their respective rights and
obligations under the Registration Agreement, as amended hereby.
Very truly yours,
HELLER EQUITY CAPITAL CORPORATION
By: /s/ J.H. Underwood
--------------------------
Title: Vice President
Accepted and agreed to:
MEDQUIST INC.
By: /s/ David A. Cohen
-------------------------------
Title: President and Chief Executive Officer
THIS WARRANT AND ANY SHARES OF VOTING COMMON STOCK ISSUABLE UPON THE EXERCISE
OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND NEITHER THIS WARRANT NOR ANY SUCH SHARES MAY BE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT.
WARRANT
To Purchase Voting Common Stock of
MedQuist Inc.
(a New Jersey corporation)
THIS IS TO CERTIFY that Chemical Bank, a New York corporation having its
principal place of business at 633 Third Avenue, New York, New York 10017, or
its registered assigns, is entitled upon the due exercise hereof at any time
during the Exercise Period (as hereinafter defined) to purchase 75,351 shares of
Voting Common Stock, no par value, of MedQuist Inc., a New Jersey corporation,
at an Exercise Price of $6.74 per share (such Exercise Price and the number of
shares of Voting Common Stock purchasable hereunder being subject to adjustment
as provided herein), and to exercise the other rights, powers and privileges
hereinafter provided, all on the terms and subject to the conditions hereinafter
set forth.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I DEFINITIONS .................................................... 1
ARTICLE II EXERCISE OF WARRANT ........................................... 6
2.1 Right to Exercise ............................................... 6
2.2 Manner of Exercise; Issuance of Voting Common Stock ............. 6
2.3 Effectiveness of Exercise ....................................... 7
2.4 Fractional Shares ............................................... 7
2.5 Continued Validity .............................................. 7
2.6 Payment by Application of Liabilities ........................... 7
2.7 Cashless Exercise ............................................... 7
ARTICLE 3 REGISTRATION, TRANSFER AND EXCHANGE ............................ 8
3.1 Maintenance of Registration Books ............................... 8
3.2 Transfer and Exchange ........................................... 8
3.3 Replacement ..................................................... 8
3.4 Ownership ....................................................... 8
ARTICLE 4 ANTIDILUTION PROVISIONS ........................................ 9
4.1 Adjustment of Number of shares Purchasable ...................... 9
4.2 Adjustment of Exercise Price .................................... 9
(a) Stock Dividends, Subdivisions and Combinations ................. 9
(b) Issuance of Additional Shares of Participating Stock ........... 9
(c) Issuance of Stock Purchase Rights .............................. 10
(d) Issuance of Convertible Securities ............................. 11
(e) Minimum Adjustment ............................................. 11
(f) Readjustment of Exercise Price ................................. 12
(g) Reorganization, Reclassification or Recapitalization of Company. 12
(h) Dilution in Case of Other Securities ........................... 12
(i) Other Dilutive Events .......................................... 13
(j) Determination of Consideration ................................. 13
(k) Record Date .................................................... 15
(l) Shares Outstanding ............................................. 15
(m) Maximum Exercise Price ......................................... 15
(n) Application .................................................... 15
(o) No Adjustments under Certain Circumstances ..................... 16
<PAGE>
4.3 Certificates and Notices.......................................... 16
(a) Adjustments to Exercise Price .................................. 16
(b) Extraordinary Corporate Events ................................. 16
(c) Effect of Failure .............................................. 17
ARTICLE V RESTRICTIONS ON TRANSFER....................................... 17
5.1 Transfer Restrictions ........................................... 17
5.2 Notice of Proposed Transfer: Registration Not Required .......... 18
5.3 Legend on Warrants and Certificates ............................. 19
ARTICLE VI PARTICIPATION IN CORPORATE DISTRIBUTIONS ...................... 20
6.1 Company's Obligation to Make Payments ............................ 20
ARTICLE VII [INTENTIONALLY OMITTED] ...................................... 20
ARTICLE VIII FINANCIAL AND BUSINESS INFORMATION .......................... 20
8.1 Information ..................................................... 20
8.2 Adjustments for Restatements of Certain Financial Data .......... 20
ARTICLE IX REPRESENTATIONS AND WARRANTIES OF THE COMPANY ................. 21
9.1 Organzation and Qualification ................................... 21
9.2 Corporate Power; Binding Effect: Authorization, Governmental
Approvals ...................................................... 21
9.3 Capital Stock ................................................... 22
9.4 Validity of Shares .............................................. 22
ARTICLE X VARIOUS COVENANTS OF THE COMPANY ............................... 22
10.1 Certain Covenants ............................................... 22
10.2 Reservation of Participating Stock: Compliance with Laws ........ 24
10.3 Listing on Securities Exchange .................................. 24
10.4 Indemnification ................................................. 24
10.5 Regulatory Compliance Cooperation ............................... 24
ARTICLE XI [INTENTIONALLY OMITTED] ....................................... 25
ARTICLE XII MISCELLANEOUS ................................................ 25
12.1 Holder Not a Stockholder ........................................ 25
12.2 Like Tenor ...................................................... 25
12.3 Modifications, Amendments or Waivers ............................ 25
ii
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12.4 No Implied Waivers; Writing Required ............................ 26
12.5 Remedies ........................................................ 26
12.6 Successors and Assigns .......................................... 26
12.7 Reimbursement of Expenses; Taxes ................................ 26
12.8 Notices ......................................................... 26
12.9 Survival ........................................................ 27
12.10 Governing Law ................................................... 27
12.11 Severability .................................................... 27
12.12 Headings ........................................................ 27
12.13 Notice of Expiration; Extension of Time ......................... 27
12.14 Original Issue Discount ......................................... 27
Exhibit 2.2 .............................................................. 29
ASSIGNMENT FORM .......................................................... 30
EXHIBIT 11.1 ............................................................. 1
EXHIBIT 11.1 ............................................................. 1
</TABLE>
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ARTICLE I
DEFINITIONS
The terms defined in this ARTICLE I, whenever used in this Warrant, shall have
the respective meanings hereinafter specified.
"Affiliate" of any entity means a Person which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, such entity. The term "control," as used with respect to
any Person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise, and shall
include, without limitation, any officer or director of the Company or any of
its Subsidiaries.
"Assignment" means the form of Assignment appearing at the end
of this warrant.
"Class A Preferred" means shares of the Company's Class A Preferred Stock,
no par value, convertible into Voting Common Stock on a share-for-share basis,
any stock into which such stock shall have been changed pursuant to a
Recapitalization, merger or otherwise or any stock resulting
from any reclassification of such stock.
"Class B Preferred" means shares of the Company's Class B Preferred Stock,
no par value, convertible into Voting Common Stock on a share-for-share basis,
any stock into which such stock shall have been changed pursuant to a
recapitalization, merger or otherwise or any stock resulting
from any reclassification of such stock.
"Closing Date" means May 27, 1994.
"Commission" means the Securities and Exchange Commission or an other
Federal agency from time to time administering the Securities Act.
"Common Equivalent Shares" means the number of shares of Participating Stock
as determined based on the extent to which each share of any class or series of
Participating stock participates in the distribution of assets upon any
liquidation, dissolution or winding up of the Company relative to the
participation of each share of Voting Common Stock. For example, assume the
holder of a share of a class of the Company's preferred stock would be entitled
to receive upon liquidation $3 of profits for every $1 of profits received by
the holder of a share of Voting Common Stock. For purposes of this definition,
each share of such class of preferred stock would constitute three Common
Equivalent Shares.
"Common Equivalent Shares Deemed Outstanding" means, at any given time, the
number of Common Equivalent Shares with respect to all shares of Participating
Stock actually outstanding at such time, plus the number of Common Equivalent
Shares with respect to all shares of Participating Stock deemed to be
outstanding in the manner set forth in Subsections (c) and (d) of
<PAGE>
Section 4.2 (regardless of whether any Stock Purchase Rights and Convertible
Securities are actually exercisable or convertible at such time).
"Company" means MedQuist Inc., a New Jersey corporation, and any
successor corporation.
"Convertible Securities" means evidences of indebtedness, shares of stock
(other than Preferred Stock) or other securities which are convertible into or
exchangeable for, with or without payment of additional consideration,
additional shares of Participating Stock, either immediately or upon the arrival
of a specified date or the happening of a specified event.
"Current Market Price" as to any security on any date specified herein means
the average of the daily closing prices for such security for the thirty (30)
consecutive trading days before such date excluding any trades which are not
bona fide arm's length transactions. The closing price for each day shall be (i)
the mean between the closing high bid and low asked quotations of any such
security in the over-the-counter market as shown by the National Association of
Securities Dealers, Inc. Automated Quotation System, or any similar system of
automated dissemination of quotations of securities prices then in common use,
if so quoted, as reported in The Wall Street Journal, or, if not reported
therein, such similar publication of national recognition, or (ii) if not quoted
as described in clause (i), the mean between the high bid and low asked
quotations for any such security as reported by the National Quotation Bureau
Incorporated or any similar successor organization, as reported by any member
firm of the New York Stock Exchange selected by the Company, or (iii) if any
such security is listed or admitted for trading on any national securities
exchange or reported on the National Market System of the National Association
of Securities Dealers, Inc., the last sale price of any such security, regular
way, or the mean of the closing bid and asked prices thereof if no such sale
occurred, in each case as officially reported on the principal securities
exchange on which any such security is listed. If any such security is quoted on
a national securities or central market system in lieu of a market or quotation
system described above, the closing price shall be determined in the manner set
forth in clause (i) of the preceding sentence if bid and asked quotations are
reported but actual transactions are not, and in the manner set forth in clause
(iii) of the preceding sentence if actual transactions are reported.
"Default Rate" means the weighted average rate of interest charged on the
outstanding principal pursuant to the Loan Agreement plus 200 basis
points.
"Distribution" means any dividend or other distribution, whether in cash,
securities or other property, with respect to any shares of Participating Stock.
"Event of Default" means (a) the breach of any warranty, or the
inaccuracy of any representation, made by the Company herein, or (b) the
failure by the Company to comply with any covenant contained herein.
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"Exercise Period" means (subject to the provisions of Section 12.12 below)
the period commencing on the Closing Date and terminating on the seventh
anniversary of the Closing Date.
"Exercise Price" means the price per share of Voting Common Stock set forth
in the preamble to this Warrant, as such price may be adjusted
pursuant to ARTICLE IV or Section 8.2.
"Fair Value" means the fair value of the appropriate security, property,
assets, business or entity as determined by an opinion of an independent
investment banking firm in accordance with the following procedure: In the case
of any event which gives rise to a requirement to determine "Fair Value"
pursuant to the provisions hereof, whether in connection with an adjustment to
the Exercise Price or otherwise, the Company shall be responsible for initiating
the process by which Fair Value shall be determined as promptly as practicable
following such event, and if the procedures contemplated in connection with
obtaining such opinion have not been complied with fully, then any such
determination of Fair Value for any purpose of this Warrant (and any such
resulting adjustment to the Exercise Price) shall be deemed to be preliminary
and subject to adjustment pending full compliance with such procedures. The
independent investment banking firm shall be reasonably acceptable to the
Company and the holder of this Warrant. If the Company and the holder of this
Warrant are unable to agree promptly on an independent investment banking firm,
each such party shall each promptly select one independent investment banking
firm, which firms shall in turn promptly select a third independent investment
banking firm of national recognition. The firm so selected shall determine the
fair value of the security, property, assets, business or entity, as the case
may be, in question and deliver its opinion in writing to the Company and to
such holder. The determination so made shall be conclusive and binding on the
Company and the holder of this Warrant. The fees and expenses of any such
determination made by the independent investment banking firm selected by such
independent banking firms shall be borne by the Company. The Fair Value of the
Warrant Shares shall be determined without regard to the fact that the Warrant
Shares may constitute a minority ownership interest. Notwithstanding the
foregoing, so long as the Voting Common Stock is actively traded on a public
market, Fair Value means, with reference to the Warrant Shares, the Current
Market Price of the Voting Common Stock as of any date of determination.
"Initial Holder" means Chemical Bank.
"Issuable Warrant Shares" means the number of shares of Voting Common Stock
issuable (but not issued) from time to time upon exercise of this Warrant.
"Issued Warrant Shares" means (a) any shares of Voting Common Stock issued
from time to time upon exercise of the Warrant, plus (b) any Shares Of Voting
Common Stock issued as a stock dividend with respect to such shares or as part
of a stock split affecting such shares.
"Liabilities" means the Company's indebtedness and other liabilities and
obligations arising under the Loan Agreement.
3
<PAGE>
"Loan Agreement" means the Credit Agreement dated as of [May 27], 1994,
among the Initial Holder, as Agent, the Company, and the Lenders and Guarantors
named therein, as the same may be amended or modified from time to time.
"Notice of Exercise" means the form of notice of Exercise
appearing at the end of this Warrant.
"Opinion of Counsel" means an opinion of counsel experienced in Securities
Act or bank regulatory matters, as the case may be, chosen by the holder of this
Warrant or the holder of Issued Warrant Shares, which counsel may be counsel to
such holder (including any of such holder's in-house counsel having the
appropriate expertise).
"Other Securities" means any stock and other securities of the Company
(other than Participating Stock, Convertible Securities or Stock Purchase
Rights) or any other Person which shall become, directly or indirectly, subject
to issue or sale upon the conversion, redemption or exchange of any stock or
other securities of the Company or which are distributed with respect to any
stock or Other Securities of the Company (including, without limitation, as a
dividend or a return of capital) or which become subject to subscription,
purchase or other acquisition pursuant to any options or rights issued or
granted.
"Participating Stock" means Voting Common Stock, Class A Preferred and Class
B Preferred and any class of capital stock of the Company now or hereafter
authorized which is not limited to a fixed sum or percentage of par or stated
value in respect of the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company.
"Payment Shares" has the meaning set forth in Section 2.7 hereof.
"Person" shall mean any individual, corporation, partnership, company, joint
venture, unincorporated organization, sole proprietorship, association, bank,
trust company or trust, whether or not legal entities, or any governmental
entity or agency or political subdivision thereof.
"Preferred Stock" means the Class A Preferred and the Class B Preferred.
"Proposed Purchase Price" has the meaning set forth in ARTICLE V.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor Federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as he same shall be in effect from time to time.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor Federal statute, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect from time
to time.
4
<PAGE>
"Stock Purchase Rights" means any warrants, options or other rights to
subscribe for, purchase or otherwise acquire any shares of Participating Stock
or any Convertible Securities.
"Subsidiary" means any corporation or association (a) more than 50% (by
number of votes) of the Voting Stock of which is at the time owned, directly or
indirectly (including through possession of convertible or exercisable
securities), by the Company or by one or more Subsidiaries or by the Company and
one or more Subsidiaries. or any other business entity in which the Company or
one or more Subsidiaries or the Company and one or more Subsidiaries owns,
directly or indirectly (including through possession of convertible or
exercisable securities), more than a 50% interest in either the profits or
capital of such business entity or (b) whose net earnings, or portions thereof,
are consolidated with the net earnings of the Company and are recorded on the
books of the Company for financial reporting purposes in accordance with
generally accepted accounting principles.
"Underlying Common Shares" means (i) the Voting Common Stock issued or
issuable upon exercise of this Warrant and (ii) any Voting Common Stock issued
or issuable with respect to the securities referred to in clause (i) above by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. For
purposes of his definition (and its usage in this Warrant), any Person who holds
this Warrant shall be deemed to be the holder of the Underlying Common Shares
obtainable upon exercise of this Warrant regardless of any restriction or
limitation on the exercise of this Warrant. As to any particular shares of
Underlying Common Shares, such shares shall cease to be Underlying Common Shares
when they have been (a) effectively registered under the Securities Act and
disposed of in accordance with the registration statement covering them or (b)
distributed to the public through a broker, dealer or market maker pursuant to
Rule 144 under the Securities Act (or any similar provision then in force).
"Voting Common Stock" means shares of the Company's Common Stock, no par
value, any stock into which such stock shall have been changed pursuant to a
recapitalization, merger or otherwise or any stock resulting from any
reclassification of such stock.
"Voting Stock" means securities of any class or series of a corporation or
association the holders of which are ordinarily, in the absence of
contingencies, entitled to vote generally in matters put before the shareholders
or members of such corporation or association.
"Warrant" means the warrant dated as of Closing Date issued to the Initial
Holder for the purchase of Voting Common Stock and all warrants issued upon the
partial exercise, transfer or division of or in substitution for any Warrant and
all warrants issued pursuant to the last sentence of Section 8.2.
"Warrant Shares" means the Issuable Warrant Shares plus the
Issued Warrant Shares.
5
<PAGE>
Whenever used in this Warrant, any noun or pronoun shall be deemed to include
both the singular and plural and to cover all genders, and the words 'herein,"
"hereof," and "hereunder" and words of similar import shall refer to this
instrument as a whole, including any amendments hereto. When the word
"including" is used in this Warrant in connection with a listing of items within
a particular classification, that listing shall be interpreted as illustrative
only and not as a limitation on, or exclusive listing of, the items within that
classification.
ARTICLE II
EXERCISE OF WARRANT
2.1 Right to Exercise. On the terms and subject to the conditions of this
ARTICLE II, the holder hereof shall have the right, at its option, to exercise
this Warrant in whole or in part at any time and from time to time during the
Exercise Period.
2.2 Manner of Exercise; Issuance of Voting Common Stock. To exercise this
Warrant, the holder hereof shall deliver to the Company (a) a Notice of Exercise
in the form of Exhibit 2.2 hereto duly executed by the holder hereof specifying
the number of shares of Voting Common Stock to be purchased, (b) an amount equal
to the aggregate Exercise Price for all shares of Voting Common Stock as to
which this Warrant is then being exercised and (c) this Warrant. At the option
of the holder hereof, payment of the Exercise Price shall be made by (a) wire
transfer of funds to an account in a bank located in the United States
designated by the Company for such purpose, (b) by application of the
Liabilities as provided in Section 2.6 hereof, (c) by offset of the shares of
Voting Common Stock to be received upon exercise of this Warrant in whole or in
part as provided in Section 2.7 hereof or (d) by any combination of such
methods.
Upon receipt of the required deliveries, the Company shall, as promptly as
practicable, and in any event within five days thereafter, cause to be issued
and delivered to the holder hereof (or its nominee) or, subject to ARTICLE V,
the transferee designated in the Notice of Exercise, a certificate or
certificates representing shares of Voting Common Stock equal in the aggregate
to the number of shares of Voting Common Stock specified in the Notice of
Exercise (but not exceeding the maximum number of shares issuable upon exercise
of this Warrant). Such certificate or certificates shall be registered in the
name of the holder hereof (or its nominee) or in the name of such transferee, as
the case may be.
If this Warrant is exercised in part, the Company shall, at the time of
delivery of such certificate or certificates, unless the Exercise Period has
expired, issue and deliver to the holder hereof or, subject to ARTICLE V, the
transferee so designated in the Notice of Exercise, a new Warrant evidencing the
right of the holder hereof or such transferee to purchase the aggregate number
of shares of Voting Common Stock for which this Warrant shall not have been
exercised, and this Warrant shall be canceled.
6
<PAGE>
2.3 Effectiveness of Exercise. Unless otherwise requested by the holder
hereof, this Warrant shall be deemed to have been exercised and such certificate
or certificates shall be deemed to have been issued, and the older or transferee
so designated in the Notice of Exercise shall be deemed to have become the
holder of record of such shares for all purposes, as of the close of business on
the date the Notice of Exercise, together with payment of the Exercise Price and
this Warrant, is received by the Company.
2.4 Fractional Shares. The Company shall not issue fractional shares of
Voting Common Stock or scrip representing fractional shares of Voting Common
Stock upon any exercise of this Warrant. As to any fractional share of Voting
Common Stock which the holder hereof would otherwise be entitled to purchase
from the Company upon such exercise, the Company shall purchase from the holder
such fractional share at a price equal to an amount calculated by multiplying
such fractional share (calculated to the nearest .001 of a share) by the Fair
Value of such share of Voting Common Stock calculated as of the date of the
Notice of Exercise. Payment of such amount shall be made at the time of delivery
of any certificate or certificates deliverable upon such exercise in cash or by
check payable to the order of the holder hereof or, subject to ARTICLE V, the
transferee designated in the Notice of Exercise, as the case may be.
2.5 Continued Validity. The Company will, at the time of any exercise of
this Warrant, upon the request of the holder of the shares of Voting Common
Stock issued upon the exercise hereof, acknowledge in writing, in form
reasonably satisfactory to any such holder, its continuing obligation to afford
to any such holder only those rights expressly specified herein to which any
such holder shall continue to be entitled after such exercise of this Warrant;
provided, however, that if any such holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to afford
to such holder all such rights.
2.6 Payment by Application of Liabilities. Upon any exercise of this
Warrant, the holder hereof, if such holder is the Initial Holder or an Affiliate
of the Initial Holder, may, at its option, instruct the Company, by so
specifying in the form of Notice of Exercise submitted therewith, to apply to
the payment of the Exercise Price all or any part of the principal amount of the
Liabilities, in such order as the Initial Holder may determine.
2.7 Cashless Exercise. Upon any exercise of this Warrant, in whole or in
part, the holder hereof may, at its option, in lieu of delivering the Exercise
Price in cash, instruct the Company in the form of Notice of Exercise to retain,
in payment of the Exercise Price, a number of Shares of Voting Common Stock (the
"Payment Shares") equal to the quotient of the aggregate Exercise Price of the
Shares as to which this Warrant is then being exercised divided by the Current
Market Price of such shares as of the date of exercise, and to deduct the number
of Payment Shares from he shares to be delivered to the holder hereof.
7
<PAGE>
ARTICLE 3
REGISTRATION, TRANSFER AND EXCHANGE
3.1 Maintenance of Registration Books. The Company shall keep at its
principal office in Gibbsboro, New Jersey a register in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration, transfer and exchange of this Warrant. The Company shall not at
any time, except upon the dissolution, liquidation or winding up of the Company,
or except as required by applicable law, close such register so as to result in
preventing or delaying the exercise or transfer of this Warrant.
3.2 Transfer and Exchange. Upon surrender for registration of transfer of
this Warrant at such office, the Company shall execute and deliver, subject to
ARTICLE V, in the name of the designated transferee or transferees, one or more
new Warrants representing the right to purchase a like aggregate number of
shares of Class A Preferred. At the option of the holder hereof, this Warrant
may be exchanged for other Warrants representing the right to purchase a like
aggregate number of shares of Voting Common Stock upon surrender of this Warrant
at such office. Whenever this Warrant is so surrendered for exchange, the
Company shall execute and deliver the Warrants which the holder making the
exchange is entitled to receive.
Every Warrant presented or surrendered for registration of transfer or
exchange shall be accompanied by an Assignment duly executed by the holder
thereof or its attorney duly authorized in writing.
All Warrants issued upon any registration of transfer or exchange of a
Warrant shall be the valid obligations of the Company, evidencing the same
rights, and entitled to the same benefits, as the Warrant surrendered upon such
registration of transfer or exchange.
3.3 Replacement. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and (a) in
the case of any such loss, theft or destruction upon delivery of indemnity
reasonably satisfactory to the Company in form and amount or (b) in the case of
any such mutilation, upon surrender of such Warrant for cancellation at the
principal office of the Company, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant.
3.4 Ownership. The Company and any agent of the Company may treat the
Person in whose name this Warrant is registered on the register kept at the
principal office of the Company as the owner and holder thereof for all
purposes, notwithstanding any notice to the contrary, except that, if and when
this Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer thereof as the owner of this Warrant for all
purposes notwithstanding any notice to the contrary. This Warrant, if properly
assigned. may be exercised by a new holder without first having a new Warrant
issued.
8
<PAGE>
ARTICLE 4
ANTIDILUTION PROVISIONS
4.1 Adjustment of Number of Shares Purchasable. Upon any adjustment of the
Exercise Price as provided in Section 4.2, the holder hereof shall thereafter be
entitled to purchase, at the Exercise Price resulting from such adjustment, the
number of shares of Voting Common Stock (calculated to the nearest 1/1OOth of a
share) obtained by multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of shares of Voting Common Stock purchasable
hereunder immediately prior to such adjustment and dividing the product thereof
by the Exercise Price resulting from such adjustment.
4.2 Adjustment of Exercise Price. In addition to any adjustment required
under the provisions of Section 8.2 below. the Exercise Price shall be subject
to adjustment from time to time as hereinafter set forth.
(a) Stock Dividends, Subdivisions and Combinations. In the event that
the Company subsequent to the Closing Date shall:
(i) declare a dividend upon, or make any distribution in respect
of, any of its stock, payable in Participating Stock, Convertible Securities or
Stock Purchase Rights, or
(ii) subdivide its outstanding shares of any class of
Participating Stock into a larger number of shares of such class of
Participating Stock, or
(iii) combine its outstanding shares of any class of Participating
Stock into a smaller number of shares of any class of Participating Stock, then
the Exercise Price shall be adjusted to that price determined by multiplying the
Exercise Price per share of Voting Common Stock immediately prior to such event
by a fraction (A) the numerator of which shall be the total number of Common
Equivalent Shares Deemed Outstanding immediately prior to such event, and (B)
the denominator of which shall be the total number of Common Equivalent Shares
Deemed Outstanding immediately after such event.
(b) Issuance of Additional Shares of Participating Stock. In case the
Company shall issue or sell any shares of Participating Stock after the Closing
Date for a consideration less than the greater of (i) the Exercise Price per
share then in effect or (ii) the then Fair Value per share, the Exercise Price
upon each such issuance or sale shall be adjusted (to the nearest one-thousandth
of a cent) to the lowest price calculated pursuant to clauses (x) and (y) of
this Subsection (b) and shall be determined by:
(i) dividing (A) an amount equal to the sum of (1) the number of
Common Equivalent Shares Deemed Outstanding immediately prior to such issue or
sale multiplied by the then existing Exercise Price
9
<PAGE>
plus (2) the aggregate consideration, if any, received by the Company upon such
issue or sale, by (B) the total number of Common Equivalent Shares Deemed
Outstanding immediately after such issue or sale; or
(ii) multiplying the then existing Exercise Price by a fraction the
numerator of which is (A) the sum of (1) the number of shares of Common
Equivalent Shares Deemed Outstanding immediately prior to such issue or sale
multiplied by the Fair Value per share of Participating Stock immediately prior
to such issue or sale plus (2) the consideration received by the Company upon
such issue or sale, by (B) the total number of shares of Common Equivalent
Shares Deemed Outstanding immediately after such issue or sale, and the
denominator of which shall be the Fair Value per share of Participating Stock
immediately prior to such issue or sale.
For purposes of this Subsection (b). the date as of which the Fair Value per
share of Participating Stock shall be computed shall be the earlier of (i) the
date on which the Company shall enter into a firm contract for the issuance of
such shares (so long as such contract fixes the price for such shares) or (ii)
the date on which the Company shall issue such shares.
The provisions of this Subsection (b) shall not apply to any additional
shares of Participating Stock which are distributed to holders of Participating
Stock pursuant to a stock dividend or subdivision for which an adjustment is
provided for under Subsection (a) of this Section 4.2. No adjustment of the
Exercise Price shall be made under this Subsection upon the issuance of any
additional shares of Participating Stock which are issued pursuant to the
exercise of any Stock Purchase Rights or pursuant to the conversion or exchange
of any Convertible Securities to the extent that such adjustment shall
previously have been made upon the issuance of such Stock Purchase Rights or
Convertible Securities pursuant to Subsection (a), (c) or (d) of this Section
4.2.
(c) Issuance of Stock Purchase Rights. In case the Company shall issue
or sell any Stock Purchase Rights and the consideration per share for which
additional shares of Participating Stock may at any time thereafter be issuable
upon exercise thereof (or, in the case of Stock Purchase Rights exercisable for
the purchase of Convertible Securities, upon the subsequent conversion or
exchange of such Convertible Securities) shall be less than the greater of (i)
the Exercise Price per share then in effect or (ii) the then Fair Value per
share, the Exercise Price shall be adjusted as provided in Subsection (b) of
this Section 4.2 on the basis that (x) the maximum number of additional shares
of Participating Stock issuable upon exercise of such Stock Purchase Rights (or
upon conversion or exchange of such Convertible Securities following such
exercise) shall be deemed to have been issued as of the date of the
determination of the Exercise Price or Fair Value, as hereinafter provided, and
(y) the aggregate consideration received for such additional shares of
Participating Stock shall be deemed to be the minimum consideration received and
receivable by the Company in connection with the issuance and exercise of such
Stock Purchase Rights (or upon conversion or exchange of such Convertible
Securities).
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For the purposes of this Subsection (c), the date as of which the Exercise Price
and the Fair Value per share of Participating Stock shall be Computed shall be
the earlier of (i) the date on which the Company shall enter into a firm
contract for the issuance of such Stock Purchase Rights (so long as such
contract fixes the price for such Stock Purchase Rights). or (ii) the date of
actual issuance of such Stock Purchase Rights.
(d) Issuance of Convertible Securities. In case the Company shall issue
or sell any Convertible Securities and the consideration per share for which
additional shares of Participating Stock may at any time thereafter be issuable
pursuant to the terms of such Convertible Securities shall be less than the
greater of (i) the Exercise Price per share then in effect or (ii) the Fair
Value per share, the Exercise Price shall be adjusted as provided in Subsection
(b) of this Section 4.2 on the basis that (x) the maximum number of additional
shares of Participating Stock necessary to effect the conversion or exchange of
all such Convertible Securities shall be deemed to have been issued as of the
date for the determination of the Exercise Price or Fair Value, as hereinafter
provided, and (y) the aggregate consideration received for such additional
shares of Participating Stock shall be deemed to be equal to the minimum
consideration received and receivable by the Company in connection with the
issuance and exercise of such Convertible Securities. No adjustment of the
Exercise Price shall be made under this Subsection upon the issuance of any
Convertible Securities which are issued pursuant to the exercise of any Stock
Purchase Rights, if an adjustment shall previously have been made upon the
issuance of such Stock Purchase Rights pursuant to Subsection (c) of this
Section 4.2.
For the purposes of this Subsection (d), the date as of which the Exercise Price
and the Fair Value per share of Participating Stock shall be computed shall be
the earlier of (i) the date on which the Company shall enter into a firm
contract for the issuance of such Convertible Securities (so long as such
contract fixes the price for such Convertible Securities), or (ii) the date of
actual issuance of such Convertible Securities.
(e) Minimum Adjustment. In the event any adjustment of the Exercise
Price pursuant to this Section 4.2 shall result in an adjustment of less than
$.O1 per share of Voting Common Stock, no such adjustment shall be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forwards shall amount to $.O1 or more per share of Voting
Common Stock; provided, however, that upon any adjustment of the Exercise Price
resulting from (i) the declaration of a dividend upon, or the making of any
distribution in respect of, any stock of the Company payable in Participating
Stock, Stock Purchase Rights or Convertible Securities or (ii) the
reclassification by subdivision, combination or otherwise, of Participating
Stock into a greater or smaller number of shares, the foregoing figure of $.01
per share (or such figure as last adjusted) shall be proportionately adjusted,
and provided, further, upon the exercise of this Warrant, the Company shall make
all necessary adjustments (to the nearest .001 of a cent) not theretofore made
to the Exercise Price up to and including the date upon which this Warrant is
exercised.
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(f) Readjustment of Exercise Price. In the event there is a change
in (i) the purchase price payable for any Stock Purchase Rights or Convertible
Securities referred to in Subsection (c) or (d) above, (ii) the additional
consideration, if any, payable upon exercise of such Stock purchase Rights or
upon the conversion or exchange of such Convertible Securities or (iii) the rate
at which any Convertible securities above are convertible into or exchangeable
for additional shares of Participating Stock, the Exercise Price in effect at
the time of such event shall forthwith be readjusted to the Exercise Price which
would have been in effect at such time had such Stock Purchase Rights or
Convertible Securities provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold. On the expiration of any such Stock Purchase Rights not
exercised or of any such right to convert or exchange under any such Convertible
Securities not exercised, the Exercise Price then in effect hereunder shall
forthwith be increased to the Exercise price which would have been in effect at
the time of such expiration or termination had such Stock Purchase Rights or
Convertible Securities never been issued. No readjustment of the Exercise Price
pursuant to this Subsection (f) shall have the effect of increasing the Exercise
price by an amount in excess of the adjustment originally made to the Exercise
Price in respect of the issue, sale or grant of the applicable Stock Purchase
Rights or Convertible Securities.
(g) Reorganization, Reclassification or Recapitalization of Company. In
case of any capital reorganization or reclassification or recapitalization of
the capital stock of the Company (other than in the cases referred to in
Subsection (a) of this Section 4.2), or in case of the consolidation or merger
of the Company with or into another corporation, or in case of the sale or
transfer of the property of the Company as an entirety or substantially as an
entirety, there shall thereafter be deliverable upon the exercise of this
Warrant or any portion thereof (in lieu of or in addition to the number of
shares of Voting Common Stock theretofore deliverable, as appropriate) the
number of shares of stock or other securities or property to which the holder of
the number of shares of Voting Common Stock which would otherwise have been
deliverable upon the exercise of this Warrant or any portion thereof at the time
would have been entitled upon such capital reorganization or reclassification of
capital stock, consolidation, merger or sale, and at the same aggregate Exercise
Price.
Prior to and as a condition of the consummation of any transaction
described in the preceding sentence, the Company shall make equitable, written
adjustments in the application of the provisions herein set forth satisfactory
to the holder of this Warrant so that the provisions set forth herein shall
thereafter be applicable, as nearly as possible, in relation to any shares of
stock or other securities or other property thereafter deliverable upon exercise
of this Warrant. Any such adjustment shall be made by and set forth in a
supplemental agreement between the Company and/or the successor entity, as
applicable, which agreement shall bind each such entity, shall be accompanied by
an opinion of counsel as to the enforceability of such agreement and shall be
approved by the holder of this Warrant.
(h) Dilution in Case of Other Securities. In case any Other Securities
shall be issued, sold or distributed or shall become subject
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to issuance, sale or distribution by the Company or by any other issuer or
Person, including, without limitation, in connection with a transaction of the
type described in Subsection (g) above, for a consideration such as to dilute,
within the standards established in the other provisions of this ARTICLE IV, the
purchase rights granted by this Warrant, then, and in each such case, the
computations, adjustments and readjustments provided for in this ARTICLE IV with
respect to the Exercise Price shall be made as nearly as possible in the manner
so provided and applied to determine the amount of Other Securities from time to
time receivable upon he exercise of this Warrant, so as to protect the holders
of the Warrant against the effect of such dilution.
(i) Other Dilutive Events. In case any event shall occur as to which
the other provisions of this ARTICLE IV are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles hereof, then, in each such case, the Company shall appoint a firm of
independent public accountants of recognized national standing (which may be the
regular auditors of the Company), which shall give their opinion as to the
adjustment, if any, on a basis consistent with the essential intent and
principles established in this ARTICLE IV, necessary to preserve, without
dilution, the purchase rights represented by this Warrant. Upon receipt of such
opinion, the Company will promptly mail a copy thereof to the holder of this
Warrant and shall make the adjustments described therein. The foregoing shall
include, without limitation, the issuance by the Company of so-called phantom
stock, stock appreciation rights or similar interests or the issuance of any
security or instrument which contemplates payments to the holder thereof based
on the financial performance of the Company.
(j) Determination of Consideration. For purposes of this ARTICLE IV,
the consideration received or receivable by the Company for the issuance, sale,
grant or assumption of additional shares of Participating Stock, Stock Purchase
Rights or Convertible Securities, irrespective of the accounting treatment of
such consideration, shall be valued as follows:
(1) Cash Payment. In the case of cash, the gross amount received by
the Company without deduction of any accrued interest, dividends or any expenses
paid or incurred or any underwriting commissions or concessions paid or allowed
by the Company.
(2) Securities or Other Property. In the case of securities or
other property, at the lesser of (i) the Current Market Price of the security
for which such consideration was received, and (ii) the Fair Value of such
consideration (in both cases as of the date immediately preceding the issuance,
sale or grant in question); provided, however, that in the event Participating
Stock is issued exchange for securities or other property in connection with the
acquisition of the stock or other interests or assets of another business, the
Current Market Price of the security for which such consideration was received
shall be deemed, for purposes of this subsection, to equal the Fair Value of
such consideration received so long as (x) the Company is subject to the
reporting requirements of Section 12 or Section 15(d) of the Securities Exchange
Act, (y) the Company receives from an independent investment banking firm
reasonably acceptable to the holder of
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this Warrant a favorable fairness opinion with respect to the consideration paid
by the Company (i.e., the amount of Participating Stock issued by the Company)
in connection with such acquisition, and (z) no officer or director of the
Company or any of such officer's or director's family members or any entity
controlled by such officer or director shall own or control any securities of
the acquisition target.
(3) Allocation Related to Participating Stock. In the event
additional shares of Participating Stock are issued or sold together with other
securities or other assets of the Company for a consideration which covers both,
the consideration received (computed as provided in (l) and (2) above) shall be
allocable to such additional shares of Participating Stock as determined in good
faith by the Board of Directors of the Company.
(4) Allocation Related to Stock Purchase Rights and Convertible
Securities. In case any Stock Purchase Rights or Convertible Securities shall be
issued or sold together with other securities or other assets of the Company,
together comprising one integral transaction in which no specific consideration
is allocated to the Stock Purchase Rights or Convertible Securities, such Stock
Purchase Rights or Convertible Securities shall be deemed to have been issued at
Fair Value.
(5) Dividends in Securities: Public Offering. In case the Company
shall declare a dividend or make any other distribution upon any stock of the
Company (other than Participating Stock) payable in either case in Participating
Stock, Convertible Securities or Stock Purchase Rights, such Participating
Stock, Convertible Securities or Stock Purchase Rights, as the case may be,
issuable in payment of such dividend or distribution shall be deemed to have
been issued or sold without consideration. In case the Company issues
Participating Stock in a public offering, the amount received by the Company in
connection with such sale of Participating Stock shall be deemed to be the Fair
Value of such Participating Stock so long as (x) the Company is subject to the
reporting requirements of Section 12 or Section 15(d) of the Securities Exchange
Act, (y) the Company received from an independent investment banking firm
reasonably acceptable to the holder of this Warrant a favorable fairness opinion
with respect to the offering price of such Participating Stock or the offering
was an underwritten offering, and (z) no officer or director of the Company or
any of such officer's or director's family members or any entity controlled by
such officer or director acquires Participating Stock in such offering.
(6) Stock Purchase Rights and Convertible Securities. The
consideration for which shares of Participating Stock shall be deemed to be
issued upon the issuance of any Stock Purchase Rights or Convertible Securities
shall be determined by dividing (i) the total consideration, if any, received or
receivable by the Company as consideration for the granting of such Stock
Purchase Rights or the issuance of such Convertible Securities, plus the minimum
aggregate amount of additional consideration payable to the Company upon the
exercise of such Stock Purchase Rights, or, in the case of such Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable upon he conversion or exchange thereof, in each case after deducting any
accrued interest, dividends. or any expenses
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paid or incurred or any underwriting commissions or concessions paid or allowed
by the Company, by (ii) the maximum number of shares of Participating Stock
issuable upon the exercise of such Stock Purchase Rights or upon the conversion
or exchange of all such convertible Securities.
(7) Merger, Consolidation or Sale of Assets. In case any shares of
Participating Stock or Convertible Securities or any Stock Purchase Rights shall
be issued in connection with any merger or consolidation in which the Company is
the surviving corporation, the amount of consideration therefor shall be deemed
to be the Fair Value of such portion of the assets and business of the
nonsurviving corporation as shall be attributable to such Participating Stock,
Convertible Securities or Stock Purchase Rights, as the case may be. In the
event of any merger or consolidation of the Company in which the Company is not
the surviving corporation or in the event of any sale of all or substantially
all of the assets of the Company for stock or other securities of any
corporation, the Company shall be deemed to have issued a number of shares of
its Participating Stock for stock or securities of the other corporation
computed on the basis of the actual exchange ratio on which the transaction was
predicated and for a consideration equal to the Fair Value on the date of such
transaction of such stock or securities of the other corporation, and if any
such calculation results in adjustment of the Exercise Price, the determination
of the number of shares of Voting Common Stock issuable upon exercise of this
Warrant immediately prior to such merger, consolidation or sale, for the
purposes of Subsection (g) above, shall be made after giving effect to such
adjustment of the Exercise Price.
(k) Record Date. In case the Company shall take a record of the
holders of the Participating Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Participating Stock, Stock
Purchase Rights or in Convertible Securities or (ii) to subscribe for or
purchase Participating Stock, Stock Purchase Rights or Convertible Securities,
then all references in this ARTICLE IV to the date of the issue or sale of the
shares of Participating Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be, shall be deemed to be references to such record date.
(l) Shares Outstanding. The number of shares of Participating Stock
deemed to be outstanding at any given time shall not include shares of
Participating Stock in the treasury of the Company or held by any Subsidiary.
(m) Maximum Exercise Price. At no time shall the Exercise Price per
share of Voting Common Stock exceed the amount set forth in the Preamble of this
Warrant except as provided in Subsection (a) or (g) of this Section 4.2.
(n) Application. Except as otherwise provided herein, all Subsections
of this Section 4.2 are intended to operate independently of one another. If an
event occurs that requires the application of more than one Subsection, all
applicable Subsections shall be given independent effect.
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(o) No Adjustments under Certain Circumstances. Anything herein to the
contrary notwithstanding, the Company shall not be required to make any
adjustment of the Exercise Price in the case of:
(i) the issuance of shares of Voting Common Stock upon the exercise
in whole or part of this Warrant; or
(ii) the issuance of shares of Participating Stock pursuant to a
rights offering in which the holder hereof elects to participate under the
provisions of Article XI;
(iii) the issuance of shares of Voting Common Stock upon the
exercise of any Stock Purchase Rights issued by the Company prior to the Closing
Date which are outstanding as of the Closing Date; or
(iv) the issuance of options to purchase Voting Common Stock to
participants in the Company's stock option plans in existence on the date
hereof, so long as the exercise price under such options is equal to or greater
than the Fair Value of the Voting Common Stock.
4.3 Certificates and Notices.
(a) Adjustments to Exercise Price. Upon any adjustment under this
ARTICLE IV of the number of shares of Voting Common Stock purchasable upon
exercise of this Warrant or of the Exercise Price, a certificate, signed (i) by
the President or a Vice President and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary of the Company, or (ii) by any
independent firm of certified public accountants of recognized national standing
selected by, and at the expense of, the Company, setting forth in reasonable
detail the events requiring the adjustment and the method by which such
adjustment was calculated, shall be mailed to the holder of this Warrant
specifying the adjusted Exercise Price and the number of shares of Voting Common
Stock purchasable upon exercise of such holder's Warrant after giving effect to
such adjustment. The certificate of any independent firm of certified public
accountants of recognized national standing selected by the Board of Directors
of the Company shall be conclusive evidence of the correctness of any
computation made under ARTICLE IV.
(b) Extraordinary Corporate Events. In case the Company after the date
hereof shall propose to (i) pay any dividend payable in stock to the holders of
shares of Participating Stock or to make any other Distribution to the holders
of shares of Participating Stock, (ii) offer to the holders of shares of
Participating Stock rights to subscribe for or purchase any additional shares of
any class of stock or any other rights or options or (iii) effect any
reclassification of the Participating Stock (other than a reclassification
involving merely the subdivision or combination of outstanding shares of
Participating Stock), or any capital reorganization or any consolidation or
merger (other than a merger in which no distribution of securities or other
property is to be made to holders of shares of participating Stock), or any
sale, transfer or other disposition of its property, assets and business as an
entirety or substantially as an entirety,
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or the liquidation. dissolution or winding up of the Company, then, in each
such case, the Company shall mail to the holder of this Warrant notice of such
proposed action, which shall specify the date on which the stock transfer books
of the Company shall close, or a record shall be taken, for determining the
holders of Participating Stock entitled to receive such stock dividends or other
Distribution or such rights or options, or the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer, other
disposition liquidation, dissolution or winding up shall take place or commence,
as the case may be, and the date as of which it is expected that holders of
Participating Stock of record shall be entitled to receive securities or other
property deliverable upon such action, if any such date is to be fixed. Subject
to the Company's obligations under applicable law and applicable stock exchange
rules and regulations, such notice shall be mailed in the case of any action
covered by clause (i) or (ii) above at least ten (10) days prior to the record
date for determining holders of Participating Stock for purposes of receiving
such payment or offer, or in the case of any action covered by clause (iii)
above at least thirty (30) days prior to the date upon which such action takes
place and twenty (20) days prior to any record date to determine holders of
Participating Stock entitled to receive such securities or other property.
(c) Effect of Failure. Failure to file any certificate or notice or to
mail any notice, or any defect in any certificate or notice pursuant to this
Section 4.3 shall not affect the legality or validity of the adjustment of the
Exercise Price or the number of shares purchasable upon exercise of this
Warrant, or any transaction giving rise thereto.
ARTICLE V
RESTRICTIONS ON TRANSFER
5.1 Transfer Restrictions. Neither this Warrant, the shares of Voting
Common Stock issuable upon exercise hereof, nor any shares of Voting Stock of
the Company (including any Voting Stock issuable pursuant to any warrants,
options, convertible securities or other rights) issued pursuant to the terms of
this Warrant shall be transferable except (a) to a Person which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, the holder hereof (so long as the principal
operations of such transferee (without regard to any subsidiary thereof) are not
in direct competition with the Company on the date of such transfer), (b) to a
successor corporation to the holder hereof as a result of a merger or
consolidation with, or sale of all or substantially all of the assets of, the
holder hereof, (c) as is or may be required by the holder hereof to comply with
any Federal or state law or any rule or regulation of any governmental or public
body or authority, (d) on thirty (30) days prior written notice to the Company
for a period of ninety (90) days immediately following the date of such notice,
to any other Person, (e) in a public offerings pursuant to an effective
registration statement under the Securities Act, (f) to any banking institution,
insurance company, commercial finance company or other institutional lender
which is an assignee or transferee of or participant in all or any portion of
the rights of the Initial Holder or its Affiliates pursuant to the Loan
Agreement, or (g) in a single transaction to an
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independent third party who acquires a majority of the Voting Stock of the
Company without regard to this Warrant.
Any notice given pursuant to Subsection (d) of the immediately preceding
paragraph by the holder hereof or of any shares of Voting Common Stock or Voting
Stock of the Company referred to therein shall contain (i) the name and address
of the proposed bona fide purchaser, (ii) the proposed purchase price ("Proposed
Purchase Price"), (iii) the number of shares of Participating Stock or Voting
Stock proposed to be sold or subject to or issuable pursuant to the portion of
this Warrant proposed to be sold and (iv) a brief description of such proposed
transfer. At any time during the twenty (20) days following the receipt of such
notice, the Company shall have the right to acquire this Warrant (or portion
thereof) or the shares of Participating Stock or Voting Stock described in such
notice for an amount equal to the Proposed Purchase Price. In the event (a) the
proposed transaction involves the exercise of this Warrant (in whole or part)
incident to the sale of Participating Stock and (b) the Company exercises its
right set forth in the immediately preceding sentence to acquire all or a
portion of such Participating Stock, the holder selling such Participating Stock
may elect to sell to the Company that portion of this Warrant which such holder
intended to exercise incident to such sale for an amount equal to the Proposed
Purchase Price less an amount equal to Exercise Price of the portion of the
Warrant being sold to the Company.
The restrictions contained in this Section 5.1 upon the transferability of
this Warrant, or of Issuable Warrant Shares or Issued Warrant Shares, shall
cease upon the transfer of such securities pursuant to the subsection (d), (e)
or (g) of Section 5.1.
The conditions contained in the following Sections 5.2 and 5.3 of this
ARTICLE V are intended to ensure compliance with the Securities Act in respect
of the transfer of this Warrant or Participating Stock issuable upon the
exercise hereof. Reference in Sections 5.2 and 5.3 of this ARTICLE V to shares
of Participating Stock issuable upon the exercises of this Warrant includes
shares of Participating Stock theretofore issued upon the exercise of the
Warrant or otherwise which are then evidenced by certificates required to bear
the legend set forth in Section 5.3.
5.2 Notice of Proposed Transfer: Registration Not Required. The holder
hereof or the holder of any shares of Participating Stock issuable upon the
exercise of this Warrant, by acceptance hereof or thereof, agrees to give
written notice to the Company, prior to any transfer of this Warrant, such
shares of Participation Stock or any portion hereof or thereof, of its intention
to make such transfer as required by Subsection 5.1(d).
Such holder shall request an Opinion of Counsel (which shall be rendered by
counsel reasonably acceptable to the Company) that the proposed transfer may be
effected without registration or qualification under any Federal or state
securities or blue sky law. Counsel shall, as promptly as practicable, notify
the Company and the holder of such opinion and of the terms and conditions, if
any, to be observed in such transfer, whereupon the holder shall be entitled to
transfer this Warrant or such shares of
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Participating Stock (or portion thereof), in the event the Company does not
exercise its option to purchase this Warrant or such shares, after the
expiration of a twenty (20) day period in accordance with the terms of the
notice delivered to the Company. In the event this Warrant shall be exercised as
an incident to such transfer, such exercise shall relate back and for all
purposes of this Warrant be deemed to have occurred as of the date of such
notice regardless of delays incurred by reason of the provisions of Section 5.2
or 5.3 of this ARTICLE V which may result in the actual exercise on any later
date.
Notwithstanding the provisions of the foregoing paragraph, the holder
hereof or the holder of any shares of Participating Stock issuable upon the
exercise hereof shall be permitted to transfer this Warrant or any such shares
of Participating Stock without obtaining an Opinion of Counsel to a limited
number of institutional holders, provided that (i) each such holder represents
in writing that it is acquiring such securities for investment and not with a
view to the distribution thereof (subject, however, to any requirement of law
that the disposition thereof shall at all times be within the control of such
holder) and (ii) each such holder agrees in writing to be bound by all the
restrictions on transfer contained in Sections 5.2 and 5.3 of this ARTICLE V.
5.3 Legend on Warrants and Certificates. Each Warrant shall bear a legend
in substantially the following form:
"This Warrant and any shares of Voting Common Stock issuable upon the
exercise of this Warrant have not been registered under the Securities
Act of 1933, as amended, and neither this Warrant nor any such shares
may be transferred in the absence of such registration or an exemption
therefrom under such Act."
In case any shares are issued upon the exercise in whole or in part of this
Warrant or are thereafter transferred, in either case under such circumstances
that no registration under the Securities Act is required, each certificate
representing such shares shall bear on the face thereof the following legend:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and any transfer thereof
is subject to the conditions specified in the Warrant dated as of May
27, 1994 originally issued by MedQuist Inc. (the "Company") to Chemical
Bank to purchase shares of Voting Common Stock, no par value, of the
Company. A copy of the form of such Warrant is on file with the
Secretary of the Company at 20 East Clementon Road, Gibbsboro, New
Jersey, and will be furnished without charge by the Company to the
holder of this certificate upon written request to the Secretary of
the Company at such address."
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The restrictions imposed under Sections 5.2 and 5.3 of this ARTICLE V upon
the transferability of this Warrant, or of Issuable Warrant Shares or Issued
Warrant Shares, shall cease when (a) a registration statement covering such
Issuable Warrant Shares or Issued Warrant Shares becomes effective under the
Securities Act or (b) the Company receives an Opinion of Counsel that such
restrictions are no longer required in order to ensure compliance with the
Securities Act. When such restrictions terminate, the Company shall, or shall
instruct its transfer agent and registrar to, issue new certificates in the name
of the holder not bearing the legends required under Section 5.3.
ARTICLE VI
PARTICIPATION IN CORPORATE DISTRIBUTIONS
6.1 Company's Obligation to Make Payments. If the Company declares or pays
a dividend upon the Participating Stock payable otherwise than in cash out of
earnings or earned surplus (determined in accordance with generally accepted
accounting principles, consistently applied) except for a stock dividend payable
in shares of Participating Stock (a "Liquidating Dividend"), then the Company
shall pay to the holder of this Warrant at the time of payment thereof the
Liquidating Dividend which would have been paid to such holder on the Voting
Common Stock had this Warrant been fully exercised immediately prior to the date
on which a record is taken for such Liquidating Dividend, or, if no record is
taken, the date as of which the record holders of Participating Stock entitled
to such dividends are to be determined; provided that if the Liquidating
Dividends consist of voting securities, the Company shall make available to
the holder of this Warrant, at such holder's request, Liquidating Dividends
consisting of non-voting securities which are otherwise identical to the
Liquidating Dividends consisting of voting securities and which non-voting
securities are convertible into such voting securities on the same terms as the
Class A Preferred is convertible into Voting Common Stock.
ARTICLE VII
[INTENTIONALLY OMITTED]
ARTICLE VIII
FINANCIAL AND BUSINESS INFORMATION
8.1 Information. The Company shall deliver to the Initial Holder and each
holder of at least 10% of the Underlying Common Shares: (a) copies of all
financial statements and reports of or relating to the Company as are delivered
to its shareholders generally, and (b) copies of all reports, registration
statements and proxy statements filed with the Commission.
8.2 Adjustments for Restatements of Certain Financial Data. The Company
hereby acknowledges that the initial number of shares issuable upon exercise of
this Warrant was calculated based upon the representation of the Company that
the capitalization of the Company is as set forth In Section 9.3 below and that
the number of shares of Voting Common Stock outstanding on a
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fully diluted basis (including the Issuable Warrant Shares) as of the Closing
Date was 3,642,193 shares. If for any reason it shall hereafter be determined
that the actual number of shares of Voting Common Stock outstanding on a fully
diluted basis as of the Closing Date was different from the foregoing, the
holder of this Warrant, Issuable Warrant Shares and Issued Warrant Shares may
notify the Company of such determination and if the Company does not dispute the
same, the Company shall forthwith reissue this Warrant with appropriate
adjustments in the initial number of shares issuable upon the exercise hereof or
issue a new warrant representing the amount of such adjustment if any such
Person no longer holds the Warrant.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to the Initial Holder and each
subsequent holder of this Warrant that as of the Closing Date:
9.1 Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of New Jersey.
Other than those licenses, permits and authorizations, and foreign jurisdiction
qualifications, relating to the operation of the business of Transcriptions (as
defined in the Loan Agreement) which have not been obtained by, or assigned to
on, the Closing Date and which the Company will use its best efforts to obtain
as soon as practicable after the Closing Date, the Company has all material
licenses, permits and authorizations necessary to own its properties and to
carry on its businesses as now being conducted and as presently proposed to be
conducted and is duly qualified to do business as a foreign corporation in each
state or country, if any, in which failure to qualify would have a material
adverse effect on the operations, properties, financial conditions, operating
results or business prospects of the Company and its Subsidiaries taken as a
whole. The Company has provided the Initial Holder with true and correct copies
of its certificate of incorporation and bylaws.
9.2 Corporate Power; Binding Effect: Authorization, Governmental Approvals.
The Company has the requisite corporate power and authority to execute, deliver
and carry out the transactions contemplated by this Warrant. The Warrant and all
other instruments and agreements contemplated hereby to which the Company is a
party have been duly and validly executed and delivered by the Company and
constitute legal, valid and binding obligations of the Company, and all such
obligations of the Company are enforceable in accordance with their respective
terms. The execution, issuance and delivery of this Warrant and the issuance of
the Voting Common Stock upon exercise hereof, and the execution, delivery and
performance of all other instruments, documents and agreements contemplated or
required by the provisions hereof to be executed and delivered by the Company
(i) has each been duly authorized by all necessary corporate action on the part
of the Company, (ii) except as set forth on Exhibit 9, does not require any
authorization, consent, approval, license or exemption of, and no registration,
qualification, designation,
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declaration or filing with, any court, governmental or quasi-governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign (including, without limitation, the National Association of Securities
Dealers. Inc.), or the shareholders of the Company, and (iii) shall not (A)
conflict with, (B) result in a breach of, (C) constitute a default under, or (D)
result in the creation or imposition of any lien under, any of the terms,
conditions or provisions of (1) the certificate of incorporation or bylaws of
the Company or of any of its Subsidiaries, (2) any law or any regulation, order,
writ, injunction or decree of any court or governmental court, governmental or
quasi-governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign (including, without limitation, the
National Association of Securities Dealers, Inc.), or (3) any material agreement
or instrument to which the Company or any of its Subsidiaries is a party or by
which any of them or any of their respective properties is bound.
9.3 Capital Stock.
(a) As of the Closing Date and immediately thereafter, the authorized
capital stock of the Company shall consist of (a) 5,000,000 shares of preferred
stock, of which 577,361 shares shall be designated as Class A Preferred (of
which no shares are issued and outstanding and 577,361 shares have been reserved
for issuance) and 422,639 shares shall be designated as Class B Preferred (of
which no shares are issued and outstanding and 422,639 shares have been reserved
for issuance), and (b) 20,000,000 shares of Voting Common Stock (of which
2,231,360 shares shall be issued and outstanding and 115,000 shares are reserved
for issuance upon exercise of this Warrant). As of the Closing Date, neither the
Company nor any of its Subsidiaries shall have outstanding any Convertible
Securities or Stock Purchase Rights, except as set forth on Exhibit 9.
9.4 Validity of Shares. When issued upon the exercise of this Warrant, and
paid for, as contemplated herein. shares of Participating Stock will have been
validly issued and will be fully paid and nonassessable.
ARTICLE X
VARIOUS COVENANTS OF THE COMPANY
10.1 Certain Covenants. The Company shall not by any action including,
without limitation, amending its certificate of incorporation. any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate to protect against
impairment of the rights and relative priority of the holder hereof, the holders
of the Issuable Warrant Shares or the holders of the Issued Warrant Shares.
Without limiting the generality of the foregoing, the Company will:
(a) not increase the par value of any shares of Issuable Warrant
Shares above the then effective Exercise Price,
22
<PAGE>
(b) take all such action as may be necessary or appropriate in order
that the Company may validly issue fully paid and nonassessable shares of Voting
Common Stock upon the exercise of this Warrant,
(c) obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Warrant,
(d) not enter into, or permit any Subsidiary to enter into, any
transaction with any of its or any Subsidiary's officers, directors, employees
or Affiliates or any individual related by blood or marriage to any such Person
or any entity in which any such Person or individual owns a beneficial interest,
except for normal employment arrangements and benefit programs on reasonable
terms and except pursuant to the reasonable requirements of the Company's
business and upon fair and reasonable terms which are no less favorable to the
Company than would be obtained in a comparable arm's length transaction with a
Person which is not an Affiliate of the Company, and
(e) subject to its obligations under applicable law and securities
exchange rules and regulations, cooperate with the holder hereof and of Issued
Warrant Shares by using its best efforts to supply such information as may be
necessary for such holder to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of this
Warrant or such Issued Warrant Shares,
(f) at all times after the Company has filed a registration statement
with the Securities and Exchange Commission pursuant to the requirements of
either the Securities Act or the Securities Exchange Act, file all reports
required to be filed by it under the Securities Act and the Securities Exchange
Act and the rules and regulations adopted by the Securities and Exchange
Commission thereunder, and promptly furnish to the holders a written statement
as to the status of its filing requirements of the Commission under the
Securities Exchange Act, and
(g) not (i) sell, transfer, assign or otherwise convey any material
portion of the Transcriptions Assets (as defined in the Loan Agreement) unless
such assets are promptly replaced with assets of substantially equal or greater
value or utility, or (ii) sell, transfer, assign or otherwise convey, or permit
MedQuist Transcriptions, Inc. to issue, any shares of the capital stock of
MedQuist Transcriptions, Inc., and
(h) not (i) amend the Articles of Incorporation of the Company to
create capital stock having supermajority voting rights or (ii) issue any
capital stock having supermajority voting rights.
The covenants contained in Subsections (e) and (f) shall survive the
exercise of this Warrant in full.
23
<PAGE>
10.2 Reservation of Participating Stock: Compliance with Laws. The Company
will at all times reserve and keep available, solely for issuance, sale and
delivery upon the exercise of this Warrant, a number of shares of Voting Common
Stock equal to the number of shares of Voting Common Stock upon the exercise of
this Warrant. All such shares of Voting Common Stock shall be duly authorized
and, when issued upon exercise of, and paid for in accordance with, this
Warrant, shall be validly issued and fully paid and non-assessable with no
liability on the part of the holders thereof. The Company shall take all such
actions as may be necessary to assure that all such shares of Voting Common
Stock may be so issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Voting Common Stock may be listed (except for official notice of
issuance which shall be immediately transmitted by the Company upon issuance).
10.3 Listing on Securities Exchange. If the Company shall list any shares
of Participating Stock on any securities exchange it will, at its expense, list
thereon, maintain and increase when necessary such listing of, all Issued
Warrant Shares and, to the extent permissible under the applicable securities
exchange rules, all Issuable Warrant Shares, so long as any shares of
Participating Stock shall be so listed. The Company will also so list on each
securities exchange, and will maintain such listing of, any other securities
which the holder of this Warrant shall be entitled to receive upon the exercise
thereof if at the time any securities of the same class shall be listed on such
securities exchange by the Company.
10.4 Indemnification. The Company shall indemnify, save and hold harmless
the holder of this Warrant or the Issued Warrant Shares from and against any and
all liability, loss, cost, damage, reasonable attorneys' and accountants' fees
and expenses, court costs and all other out-of-pocket expenses incurred in
connection with or arising from an Event of Default. Any amounts owing hereunder
or otherwise as provided in this Warrant shall be payable upon demand. If the
Company fails to pay when due any amounts owing hereunder or otherwise as
provided in this Warrant, the Company shall pay to the holder of this Warrant or
the Issued Warrant Shares (a) interest at the Default Rate on any amounts not
paid when due and owing to such holder and (b) such further amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees and expenses incurred by such holder in collecting
any amounts due hereunder.
10.5 Regulatory Compliance Cooperation. Notwithstanding any other provision
of this Warrant, the Company will not, without the written consent of each
holder hereof and the holders of shares of Participating Stock issuable
hereunder, redeem, purchase or otherwise acquire, directly or indirectly, or
convert or take any action with respect to the voting rights of, any shares of
any class of its capital stock or any securities convertible into or
exchangeable for any shares of any class of its capital stock, so as to increase
the proportion of the Company's Voting Stock which this Warrant entitles the
holder to purchase or which the holder of shares of Participating Stock issuable
hereunder then owns. A holder may withhold such consent if, in an Opinion of
Counsel, after giving effect tO such action, the holder would have a "Regulatory
Problem" (as defined below). In addition, the Company will
24
<PAGE>
not be a party to any merger, consolidation, recapitalization or other
transaction pursuant to which the holder hereof or a holder of shares of
Participating Stock issuable hereunder would be required to take any voting
securities, or any securities convertible into voting securities, which might
reasonably be expected to cause such holder to have a Regulatory Problem. For
purposes of this paragraph, a Person will be deemed to have a "Regulatory
Problem" when such Person or such Person's affiliates would own, control or have
power, directly or indirectly, over a greater quantity of securities of any kind
issued by the Company than is permitted under any requirement of any
governmental authority binding on such Person. In connection with any transfer
of this Warrant or the Warrant Shares, the Company agrees to execute and deliver
such documents, instruments and certificates as the holder of this Warrant or
the Warrant Shares reasonably requests so that such holder may comply with
applicable law.
ARTICLE XI
[INTENTIONALLY OMITTED]
ARTICLE XII
MISCELLANEOUS
12.1 Holder Not a Stockholder. Prior to the exercise of this Warrant as
hereinbefore provided, the holder hereof shall not be entitled to any of the
rights of a stockholder of the Company including, without limitation, the right
as a stockholder to (a) vote on or consent to any proposed action of the Company
or (b) receive (i) dividends or any other distributions made to stockholders
(except as provided in Article VI hereof ), (ii) notice of or attend any
meetings of stockholders of the Company or (iii) notice of any other proceedings
of the Company (except as provided in ARTICLE IV).
12.2 Like Tenor. All Warrants shall at all times be identical, except as to
the Preamble.
12.3 Modifications, Amendments or Waivers.
(a) The provisions of this Warrant may be amended, modified or waived
with (and only with) the written consent of the Company and the Initial Holder
(or any permitted transferee of all of the Warrants); provided, however, if the
Initial Holder is no longer a holder of such amendment, modification or waiver
shall, without the written consent of the holders of a majority of the Warrants
at the time outstanding, (a) change the number of shares of Voting Common Stock
subject to purchase upon exercise of this Warrant, the Exercise Price or
provisions for payment thereof or (b) amend, modify or waive the provisions of
this Section or Article IV. Any such amendment, modification or waiver effected
pursuant to this Section shall be binding upon the holders of all Warrants and
Warrant Shares, upon each future holder thereof and upon the Company. In the
event of any such amendment, modification or waiver the Company shall give
prompt notice thereof to all
25
<PAGE>
holders of Warrants and, if appropriate, notation thereof shall be made on all
Warrants thereafter surrendered for registration of transfer or exchange.
12.4 No Implied Waivers; Writing Required. No delay or failure of any
Person in exercising any right, power or remedy hereunder shall affect or
operate as a waiver thereof, nor shall any single or partial exercise thereof or
any abandonment or discontinuance of steps to enforce such a right, power or
remedy preclude any further exercise thereof or of any other right, power or
remedy. Any waiver, permit, consent or approval of any kind or character
relating to this Warrant must be in writing and shall be effective only to the
extent in such writing specifically set forth.
l2.5 Remedies. The rights and remedies hereunder of the holder of the
Warrant Shares are cumulative and not exclusive of any rights or remedies which
such holder would otherwise have. The Company stipulates that the remedies at
law of the holder of this Warrant in the event of any default or threatened
default by the Company in the performance of or compliance with any of the terms
of this Warrant are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
12.6 Successors and Assigns. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Company, the holder hereof and (to the extent provided herein) the holders
of Issued Warrant Shares, and shall be enforceable by any such holder.
12.7 Reimbursement of Expenses; Taxes. The Company agrees upon demand to
pay or reimburse the holders of this Warrant or the Issued Warrant Shares for
all reasonable out-of-pocket expenses, including fees and expenses of counsel,
from time to time (a) arising in connection with the preparation and execution
of this Warrant and all other instruments and documents to be delivered
hereunder, (b) relating to any amendments, waivers or consents pursuant to the
provisions hereof, and (c) arising in connection with the enforcement of this
Warrant and all other agreements to be delivered hereunder. The Company shall
pay all expenses in connection with, and all taxes (other than stock transfer
taxes) and other governmental charges that may be imposed in respect of, the
issue, sale and delivery of (a) the Warrant or (b) the Issued Warrant Shares.
12.8 Notices. All notices and other communications given to or made upon
any party hereto in connection with this Warrant shall, except as otherwise
expressly herein provided, be in writing (including telexed or telegraphic
communication) telexed, sent by telecopy or delivered by hand or by reputable
overnight courier service to (a) the holder of this Warrant or Issued Warrant
Shares at its last known address appearing on the books of the Company
maintained for such purpose or (b) the Company at its principal office at 20
East Clementon Road, Gibbsboro, New Jersey 08026 Attention: President, or in
accordance with any subsequent written direction from the recipient party to the
sending party. All such notices and other communications shall, except as
otherwise expressly herein provided, be effective upon delivery if
26
<PAGE>
delivered by hand; one business day after deposit with a reputable courier
service, delivery charges prepaid; in the case of telex, when received; or in
the case of telecopy, upon telephonic confirmation of receipt (followed by
deposit of hard copy in first class mail, postage prepaid).
12.9 Survival. All representations, warranties, covenants and agreements of
the Company contained herein or made in writing in connection herewith shall
survive indefinitely the execution and delivery of this Warrant and the issuance
of Issued Warrant Shares.
12.10 Governing Law. This Warrant and the rights and obligations of the
parties hereto shall be deemed to be contracts under the laws of the State of
New York and for all purposes shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without giving effect to any
choice of law or conflict provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York; provided that the corporate law
of New Jersey shall govern all issues concerning the relative right of the
Company and its stockholders.
12.11 Severability. Whenever possible, each provision of this Warrant shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant is held to be prohibited by or invalid
under applicable law in any jurisdiction, such provision shall be ineffective
only to the extent of such prohibition or invalidity, without invalidating any
other provision of this Warrant.
12.12 Headings. Article, Section and Subsection headings in this Warrant
are included for convenience of reference only and shall not constitute a part
of this Warrant for any other purpose.
12.13 Notice of Expiration; Extension of Time. The Company will give the
holder of this Warrant no less than six (6) months nor more than nine (9) months
notice of the expiration of the right to exercise this Warrant. The right to
exercise this Warrant shall expire at the termination of the Exercise Period,
unless the Company shall fail to give such notice as aforesaid, in which event
the right to exercise this Warrant shall not expire until 5 P.M., New York Time,
on a date six (6) months after the date on which the Company shall give the
holder hereof notice of the expiration of the right to exercise this Warrant.
Whenever any dispute shall exist under any provision of this Warrant, the
Exercise Period shall be automatically extended for a period of time equal to
the period of time which it takes to resolve such dispute, and if any other
rights benefiting the holder of this Warrant would expire during the period of
time which it takes to resolve such dispute, then the relevant time period for
the exercise of such rights shall be similarly extended so that the holder is
not prejudiced by any delay in resolving the dispute.
12.14 Original Issue Discount. Under both generally accepted accounting
principles and the regulations of the Internal Revenue Service, the issuance of
Notes (as defined in the Loan Agreement) and this Warrant to the Initial Holder,
for an aggregate purchase price equal to the principal amount of such Notes,
will result in the creation of "original issue discount" on
27
<PAGE>
such Notes (which original issue discount may also be deemed to constitute the
value of this Warrant) and requires the determination of the value of this
Warrant. Accordingly, the Company and the Initial Holder agree that the amount
of original issue discount on the Notes issued to the Initial Holder and the
value of 100% of this Warrant (which original issue discount and value shall be
used by the Company and the Initial Holder, as well as any subsequent holder of
such Notes and this Warrant, for all purposes, including the preparation of tax
returns and the preparation of financial statements of the Company and its
Subsidiaries), shall be $0.
Dated as of May 27, 1994.
MEDQUIST INC.
By: /s/ Paul E. Weitzel, Jr.
----------------------------
Title: Senior Vice President
Attest:
/s/ John M. Suender
- ----------------------
Secretary
28
<PAGE>
Exhibit 2.2
NOTICE OF EXERCISE FORM
-----------------------
(To be executed only upon partial or full
exercise of the within Warrant)
The undersigned registered holder of the within Warrant irrevocably
exercises the within Warrant for and purchases shares of Voting Common Stock of
MedQuist Inc. (the "Company") and herewith makes payment therefor in the amount
of $____________ , all at the price and on the terms and conditions specified in
the within Warrant, and requests that a certificate (or ___________ certificates
in denominations of ____________ shares) for the shares of Voting Common Stock
of ____________ hereby purchased be issued in the name of and delivered to
(choose one) (a) the undersigned or (b) ______________________, whose address
is ______________________ and. if such shares of Voting Common Stock shall not
include all the shares of Voting Common Stock issuable as provided in the within
Warrant, that a new Warrant of like tenor for the number of shares of Voting
Common Stock of the Company not being purchased hereunder be issued in the name
of and delivered to (choose one) (a) the undersigned or (b)__________________ ,
whose address is______________________.
Dated:_________________________
Signature Guaranteed: By:_______________________________
(Signature of Registered
Holder)
- ------------------------------
By:
---------------------------
(Title:)
NOTICE: The signature to this Notice of Exercise must correspond With the name
as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatever.
The signature to this Notice of Exercise must be guaranteed by a
commercial bank or trust company in the United States or a member firm
of the New York Stock Exchange.
29
<PAGE>
ASSIGNMENT FORM
---------------
(To be executed only upon the assignment
of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered holder of the within Warrant
hereby sells. assigns and transfers unto ____________________ whose address
is _______________ , all of the rights of the undersigned under the within
Warrant, with respect to ___________________ shares of Voting Common Stock of
(THE COMPANY) (the "Company") and, if such shares of Voting Common Stock shall
not include all the shares of Voting Common Stock issuable as provided in the
within Warrant, that a new Warrant of like tenor for the number of shares of
Voting Common Stock of the Company not being transferred hereunder be issued in
the name of and delivered to the undersigned, and does hereby irrevocably
constitute and appoint ___________________ Attorney to register such transfer on
the books of the Company maintained for the purpose, with full power of
substitution in the premises.
Dated:________________________
Signature Guaranteed: By:_______________________________
(Signature of Registered
Holder)
- ------------------------------
By:
---------------------------
(Title:)
By:
(Title:)
NOTICE: The signature to this Assignment must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatever.
The signature to this Assignment must be guaranteed by a commercial
bank or trust company in the United States or a member firm of the New
York Stock Exchange.
30
<PAGE>
EXHIBIT 11.1
Stock Purchase Rights
Convertible Securities, Etc.
<TABLE>
<CAPTION>
MedQuist, Inc.
Stock Options
As of May 1, 1994
Grant Date 1/1/88 1/1/89 1/1/90 1/1/91 12/1/91 11/4/92
------ ------ ------ ------ ------- -------
Name Price/Share $2.00 $3.40 $4.00 $5.00 $6.70 $6.00
----- ----- ----- ----- ----- -----
Corporate:
- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard Censits, Chairman, President & CEO 50,000
Paul Wetzel, SVP & COO 5,000
Pat Freebern, VP Corporate Relations 10,000 15,000 5,000
John Suender, VP Secretary & General Counsel
Robert Graharn, VP Treasurer & CFO
Laura Andersen, Manager H R 6,000
Bruce Van Fossen, Asst. Corporate Controller 4,000 1,000 1,000
MaryAnne Pace, Director -- Sales
Theresa Rife, Director -- HRS
Consulting Services:
- --------------------
Rick Garrison, Director Consulting Services 7,500 7,500 5,000
Terry Johnson, Account Executive -- Consulting Services 5,000
Receivables Management Division:
- --------------------------------
William Eschrich -- VP Rec. Mgt. Div. -- Southwest Region
Ed Boone -- VP Rec. Mgt. Div. -- Midwest Region
Pat Collins -- VP Rec. Mgt. Div. -- Northeast Region
Lloyd Colley -- VP Rec. Mgt. Div. -- Southeast Region
Board of Directors 41,600 10,400 18,000
Heller Warrants
Other Employees 0 11,000 2,000 25,500 0 5,000
- ------ ----- ------ - -----
17,500 67,500 6,000 79,100 10,400 33,000
------ ------ ----- ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
MedQuist, Inc.
Stock Options
As of May 1, 1994
Grant Date 11/4/92 6/1/93 1/1/94 4/28/94 5/1/94 12/14/92 Total
------- ------ ------ ------- ------ -------- -----
Name Price/Share $5.80 $5.25 $4.69 $6.44 $6.50 $7.50
----- ----- ----- ----- ----- -----
Corporate:
- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard Censits, Chairman, President & CEO 75,000 125,000
Paul Wetzel, SVO & COO 30,000 25,000 60,000
Pat Freebern, VP Corporate Relations 3,000 33,000
John Suender, VP Secretary & General Counsel 3,000 3,000
Robert Graharn, VP Treasurer & CFO 5,000 5,000
Laura Andersen, Manager H R 6,000
Bruce Van Fossen, Asst. Corporate Controller 6,000
MaryAnne Pace, Director -- Sales 2,000 2,000
Theresa Rife, Director -- HRS 2,000 2,000
Consulting Services:
- --------------------
Rick Garrison, Director Consulting Services 5,000 25,000
Terry Johnson, Account Executive -- Consulting Services 5,000
Receivables Management Division:
- --------------------------------
William Eschrich -- VP Rec. Mgt. Div. -- Southwest Region 15,000 15,000
Ed Boone -- VP Rec. Mgt. Div. -- Midwest Region 5,000 5,000
Pat Collins -- VP Rec. Mgt. Div. -- Northeast Region 5,000 5,000
Lloyd Colley -- VP Rec. Mgt. Div. -- Southeast Region 5,000 5,000
Board of Directors 18,000 88,000
Heller Warrants 933,333 933,333
Other Employees 2,000 0 7,000 0 0 0 52,500
----- - ----- - - - ------
2,000 18,000 160,000 2,000 25,000 933,333 1,375,833
----- ------ ------- ----- ------ ------- ---------
</TABLE>
EXHIBIT 5
(215) 981-4368
June 18, 1996
MedQuist Inc.
Five Greentree Centre
Suite 311
Marlton, New Jersey 08053
Re: Registration Statement on Form S-3
Gentleman:
Reference is made to the Registration Statement on Form S-3 of MedQuist
Inc., a New Jersey Corporation (the "Company"), Registration Statement No.
333-3974, as amended by Amendment No. 1 thereto, to which this opinion is
attached as an exhibit (as so amended, the "Registration Statement"). The
Registration Statement relates to the offering and sale by certain Selling
Shareholders of up to an aggregate of 1,038,026 shares of common stock, no par
value (the "Shares"), of the Company which are currently outstanding.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Registration Statement.
In this connection, we have examined the Registration Statement, including
the exhibits thereto, the originals or copies, certified or otherwise identified
to our satisfaction, of the Articles of Incorporation and the By-Laws of the
Company as amended to date, and such other documents and corporate records
relating to the Company as we have deemed appropriate for the purpose of
rendering the opinion expressed herein. In addition, we have examined the
Warrant to Purchase Voting Common Stock of the Company issued to Chemical Bank,
dated as of May 27, 1994 (the "Chemical Warrant"). The opinion expressed herein
is based exclusively on the applicable provisions of the New Jersey Business
Corporation Act. For the purposes of this opinion, we have assumed that the
Chemical Warrant has been exercised and that 75,351 shares of
<PAGE>
MedQuist Inc.
Page 2
June 18, 1996
Common Stock have been issued to Chemical Bank in conformity with the terms of
the Chemical Warrant.
On the basis of the foregoing, we are of the opinion that the Shares have
been legally issued and are fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. Such consent does not constitute a consent under Section
7 of the Securities Act, since we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission promulgated thereunder.
Very truly yours,
PEPPER, HAMILTON & SCHEETZ
By: /s/ James D. Epstein
-------------------------
A Partner
