As Filed Pursuant to Rule 424(b)(3)
Registration No. 333-3974
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 April 15, 1997, the last sale
price of Common Stock, as reported by the Nasdaq National Market was $23.75 per
share.
The date of this Prospectus is April 16, 1997.
-1-
<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.
-2-
<PAGE>
(h) In addition, all documents filed since June 19, 1996 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
-3-
<PAGE>
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 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.
-4-
<PAGE>
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 indication of future results of
operations. In addition, the Company's transcription business has experienced
substantial growth in recent periods and there can he 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
-5-
<PAGE>
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 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,
-6-
<PAGE>
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 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
-7-
<PAGE>
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.
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.
-8-
<PAGE>
<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>
(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 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
-9-
<PAGE>
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 LLP, Philadelphia,
Pennsylvania.
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>
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
-11-
<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.....................................8
Use of Proceeds........................................ 8
Selling Shareholders....................................8
Plan of Distribution....................................9
Legal Matters......................................... 10
Experts................................................10
MEDQUIST INC.
-----------------
PROSPECTUS
-----------------
April 16, 1997
