UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13-D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO 13d-2(a)
(Amendment No. )(1)
Digital Dictation, Inc.
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock
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(Title of Class of Securities)
25384Q 10 5
- --------------------------------------------------------------------------------
(Cusip Number)
John M. Suender,
Vice President and General Counsel MedQuist Inc.
Five Greentree Centre, Suite 311,
Marlton, New Jersey 08053
Telephone: 800-355-6337
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
May 28, 1998
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d- 1(b)(3) or (4), check the following box | |
Note. Schedules filed in paper format shall include a signed original and
five copies of the schedule, including all exhibits. See Rule 13d-7(b) for
other parties to whom copies are to be sent.
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(1) The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 or otherwise subject to the liabilities of that section of the Act but
shall be subject to all other provisions of the Act (however, see the Notes).
Page 1 of 3 pages
<PAGE>
SCHEDULE 13D
CUSIP NO. 25384Q 10 5
1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
MedQuist Inc.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) | |
(b) | |
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS | |
REQUIRED PURSUANT TO ITEM 2(d) or 2(e)
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New Jersey
7. SOLE VOTING POWER
NUMBER OF -0-
SHARES
BENEFICIALLY 8. SHARED VOTING POWER
OWNED BY 5,901,273*
EACH
REPORTING
PERSON 9. SOLE DISPOSITIVE POWER
WITH -0-
10. SHARED DISPOSITIVE POWER
5,901,273*
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
5,901,273*
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) | |
EXCLUDES CERTAIN SHARES*
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
93.3%*
14 TYPE OF REPORTING PERSON*
CO
Page 2 of 3 pages
<PAGE>
SCHEDULE 13D
CUSIP NO. 25384Q 10 5
1 NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Transcriptions, Ltd.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) | |
(b) | |
3 SEC USE ONLY
4 SOURCE OF FUNDS*
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS | |
REQUIRED PURSUANT TO ITEM 2(d) or 2(e)
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New Jersey
7. SOLE VOTING POWER
NUMBER OF -0-
SHARES
BENEFICIALLY 8. SHARED VOTING POWER
OWNED BY 5,901,273*
EACH
REPORTING
PERSON 9. SOLE DISPOSITIVE POWER
WITH -0-
10. SHARED DISPOSITIVE POWER
5,901,273*
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
5,901,273*
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) | |
EXCLUDES CERTAIN SHARES*
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
93.3%*
14 TYPE OF REPORTING PERSON*
CO
* MedQuist and Transcriptions, Ltd. intend to acquire the remaining 424,230
outstanding shares of common stock of Digital Dictation, Inc. pursuant to
the Agreement and Plan of Merger described in Item 4 herein.
Page 3 of 3 pages
<PAGE>
SCHEDULE 13D STATEMENT
Item 1. Security and Issuer.
Common Stock, par value $.01 per share ("DDI Common Stock").
Digital Dictation, Inc.
8230 Old Courthouse Road
Vienna, Virginia 22182
Item 2. Identity and Background.
(a) MedQuist Inc. ("MedQuist") and Transcriptions, Ltd.
("TL"), both New Jersey corporations.
(b) Five Greentree Centre, Suite 311, Marlton, New Jersey
08503
(c) The principal business of MedQuist is providing
electronic transcription and data management services
to the healthcare industry. TL, a wholly-owned
subsidiary of MedQuist, is engaged in the same
business.
The name, residence or business address and principal
occupation or employment (and the name, principal
business and address of any corporation or other
organization in which such employment is conducted)
of each director and executive officer of MedQuist
and TL is set forth on Schedule 1 hereto.
(d),(e) To the best of MedQuist's knowledge, neither
MedQuist nor any of its directors or executive
officers has, during the past five years: (i) been
convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or (ii) been a
party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as
a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities
subject to, Federal or State securities laws or
finding any violation with respect to such laws. To
the best of TL's knowledge, neither TL nor any of its
directors or executive officers has, during the past
five years: (i) been convicted in a criminal
proceeding (excluding traffic violations or similar
misdemeanors) or (ii) been a party to a civil
proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or
final order enjoining future violations of, or
prohibiting or mandating activities subject to,
Federal or State securities laws of finding any
violation with respect to such laws.
<PAGE>
(f) Not applicable
Item 3. Source and Amount of Funds or Other Consideration.
On May 28, 1998, pursuant to an Agreement and Plan of Merger
described in Item 4, TL acquired 5,901,273 shares of DDI
Common Stock in exchange for 425,688 shares of common stock of
MedQuist, no par value per share (MedQuist Common Stock").
TL intends to acquire the remaining 424,230 outstanding
shares of DDI Common Stock pursuant to the same Agreement and
Plan of Merger.
Item 4. Purpose of Transaction.
On May 28, 1998, MedQuist and TL entered into an Agreement and
Plan of Merger among MedQuist, TL, Digital Dictation, Inc.
("DDI"), Proactive Partners, L.P. ("Proactive"), Lagunitas
Partners, L.P. ("Lagunitas"), Gruber & McBaine International
("G&B") and Richard D. Cameron ("Cameron"), a copy of which is
attached hereto as Exhibit A (the "Merger Agreement"). Under
the Merger Agreement, TL acquired approximately 93.3% of the
outstanding shares of DDI through a share exchange with
Proactive, Lagunitas, G&B and Cameron. Moreover, pursuant to
the Merger Agreement, DDI will merger with and into TL (the
"Merger"), with TL being the surviving corporation of the
merger. Upon consumation of the Merger, the holders of DDI
Common Stock, other than TL, will receive 0.0720449 shares of
MedQuist Common Stock in exchange for each share of DDI Common
Stock held by such stockholders. Outstanding options to
purchase DDI Common Stock will be exchanged on an equivalent
basis for options to purchase MedQuist Common Stock. MedQuist
Common Stock is listed on the Nasdaq National Market System
under the symbol "MEDQ."
In connection with the execution of the Merger Agreement,
the executive officers and directors of DDI resigned, and
the current executive officers and directors of TL became
the executive officers and directors of DDI. As a result of
the Merger (i) TL will acquire all of the outstanding
shares of DDI Common Stock, (ii) the separate corporate
existence of DDI will cease, (iii) the registration of DDI
Common Stock with the Securities and Exchange Commission
will be terminated pursuant to Section 12(g)(4) of the
Securities Act, and (iv) there will no longer be a public
market for DDI Common Stock. The Certificate of
Incorporation and Bylaws of TL, as in effect immediately
prior to the effective time of the Merger, shall be the
Certificate of Incorporation and Bylaws of the surviving
corporation.
Item 5. Interest in Securities of the Issuer.
(a) As of May 28, 1998, MedQuist and TL each had
beneficial ownership of an aggregate of 5,901,273
shares of DDI Common Stock, which constituted
approximately 93.3% of the outstanding shares of DDI
Common Stock at that time.
(b) MedQuist and TL each have shared power to vote and
shared power to dispose of all the shares described
in paragraph (a) above.
(c) Except as described in the response to Items 3 and 4
hereof, there were no transactions in DDI Common
Stock effected by MedQuist or TL during the past
sixty days.
To the best knowledge of MedQuist and TL, no director
or executive officer of MedQuist or TL beneficially
owns any shares of DDI Common Stock or other
securities of DDI. Neither MedQuist nor TL is aware
of
<PAGE>
any transaction in such securities during the past
sixty (60) days by any of its executive officers or
directors.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer.
Other than the Merger Agreement described in Item 4 above,
there are no contracts, arrangements, understandings or
relationships among the persons named in Item 2 and between
such persons and any person with respect to any securities of
DDI.
Item 7. Materials to be Filed as Exhibits.
The Merger Agreement described in Item 4 above is attached
hereto as Exhibit A.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
MEDQUIST INC.
By: /s/ John M. Suender
-------------------------------
Name: John M. Suender
Title: Vice President and General Counsel
TRANSCRIPTIONS, LTD.
By: /s/ John M. Suender
------------------------------
Name: John M. Suender
Title: Vice President - Acquisitions
<PAGE>
SCHEDULE 1
Board of Directors and Executive Officers of
MedQuist Inc.
<TABLE>
<CAPTION>
Name Business Address Principal Occupation
- ---- ---------------- --------------------
<S> <C> <C>
David A. Cohen MedQuist President, Chief Executive
Five Greentree Centre Officer and Chairman of the
Suite 311 Board of MedQuist
Marlton, New Jersey 08503
John A. Donohoe, Jr MedQuist Executive Vice President and
Five Greentree Centre Chief Operating Officer
Suite 311 of MedQuist
Marlton, New Jersey 08503
John R. Emery MedQuist Vice President, Treasurer and
Five Greentree Centre Chief Financial Officer of
Suite 311 MedQuist
Marlton, New Jersey 08503
Ronald F. Scarpone MedQuist Vice President and Chief
Five Greentree Centre Information Officer of
Suite 311 MedQuist
Marlton, New Jersey 08503
John M. Suender MedQuist Vice President, General
Five Greentree Centre Counsel and Secretary of
Suite 311 MedQuist
Marlton, New Jersey 08503
James R. Emshoff IndeCap Enterprises, Inc. Chairman and Chief
161 Shawford Way Executive Officer of IndeCap
Lake Forest, IL 60045 Enterprises, Inc.
William T. Carson, c/o MedQuist Business consultant and
Jr. Five Greentree Centre Chairman of CIC Investment
Suite 311 Co.
Marlton, New Jersey 08503
John T. Casey Physician Reliance Network, Inc. Chairman and Chief
5420 LBJ Freeway, Suite 900 Executive Officer of
Dallas, TX 75240 Physician Reliance Network,
Inc.
Richard J. Censits c/o MedQuist Retired (serves as director of
Five Greentree Centre Checkpoint Systems, Inc.)
Suite 311
Marlton, New Jersey 08503
<PAGE>
Terrence J. Mulligan 801 E. McCormick Drive Management consultant and
Lake Forest, IL 60045 private investor.
A. Fred Ruttenberg Blank, Rome, Comisky & McCawley Partner with law firm of
Woodland Falls Corporate Park Blank, Rome, Comisky &
210 Lake Drive East McCauley.
Cherry Hill, NJ 08002
R. Timothy Stack Borgess Health Alliance President and Chief
1521 Gull Road Executive Officer of Borgess
Kalamazoo, MI 49001 Health Alliance.
John H. Underwood Pfingsten Partners LLC Managing Director with
520 Lake Cook Road, Suite 375 Pfingsten Partners, L.L.C.
Deerfield, IL 60015
</TABLE>
Board of Directors and Executive Officers of
Transcriptions, Ltd.
<TABLE>
<CAPTION>
Name Business Address Principal Occupation
- ---- ---------------- --------------------
<S> <C> <C>
David A. Cohen MedQuist President, Chief Executive
Five Greentree Centre Officer and Chairman of the
Suite 311 Board of MedQuist
Marlton, New Jersey 08503
John A. Donohoe, Jr MedQuist Executive Vice President and
Five Greentree Centre Chief Operating Officer of MedQuist
Suite 311
Marlton, New Jersey 08503
John R. Emery MedQuist Vice President, Treasurer and
Five Greentree Centre Chief Financial Officer of
Suite 311 MedQuist
Marlton, New Jersey 08503
John M. Suender MedQuist Vice President, General
Five Greentree Centre Counsel and Secretary of
Suite 311 MedQuist
Marlton, New Jersey 08503
</TABLE>
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
<PAGE>
===============================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
TRANSCRIPTIONS, LTD.
AND
MEDQUIST INC.
AND
DIGITAL DICTATION, INC.,
PROACTIVE PARTNERS, L.P.,
LAGUNITAS PARTNERS, L.P.,
GRUBER & MC BAINE INTERNATIONAL,
AND
RICHARD D. CAMERON
===============================================================================
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is made on May __,
1998, by and among MedQuist Inc., a New Jersey corporation ("MedQuist"),
Transcriptions, Ltd., a New Jersey corporation and a wholly-owned subsidiary of
MedQuist ("TL"), Digital Dictation, Inc., a Delaware corporation (the
"Company"), and Proactive Partners, L.P. ("Proactive"), Lagunitas Partners,
L.P., Gruber & McBaine International and Richard D. Cameron ("Cameron")
(collectively, the "Principal Shareholders").
BACKGROUND
TL and the Company desire to combine and merge pursuant to the terms of
this Agreement. The respective Boards of Directors of TL and the Company have
approved the merger of the Company into TL subject to the terms of this
Agreement (the "Merger"). The Principal Shareholders own Five Million Nine
Hundred Eight Thousand Six Hundred Seventy-Three (5,908,673) shares of the
issued and outstanding capital stock of the Company, constituting Ninety-Four
percent (94%) of the issued and outstanding capital stock of the Company
("Principal Shareholders' Common Stock") and options to purchase Three Hundred
Thousand (300,000) shares of the capital stock of the Company ("Principal
Options"), and prior to the Merger at the First Closing desire to exchange the
Principal Shareholders' Common Stock for shares of MedQuist Common, subject to
the terms of this Agreement. It is the intention of the parties to this
Agreement that the exchange and Merger for accounting purposes shall qualify for
treatment as a pooling-of-interests.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, covenants, representations, warranties, and agreements herein
contained, and intending to be legally bound, the parties hereby agree as
follows:
ARTICLE 1
DEFINED TERMS
1.1. Certain Defined Terms. As used in this Agreement, the following terms
will have the meanings given to them below:
"Act" will mean the Securities Act of 1933, as amended.
-1-
<PAGE>
"Action" will mean any and all actions, suits, investigations,
proceedings, demands, assessments, audits, judgments and claims (including
employment-related claims) relating to a Person.
"Aggregate Merger Consideration" will mean that number of shares of
MedQuist Common having a Value equal to the sum of (i) the product of (X) Three
Dollars and Two Thousand Thirty-Three Ten Thousandth Cents ($3.2033), multiplied
by (Y) the Outstanding Shares, and (ii) the Option Value; subject to adjustment
as provided in this Agreement and further subject to proportional adjustment for
any stock splits, stock dividends or recapitalizations of MedQuist.
"Assets" will mean all of the assets of the Company, whether real,
personal or mixed, owned or leased as of the date of this Agreement and such
other assets acquired after the date of this Agreement and on or prior to the
First Closing Date.
"Auditor" will mean Arthur Andersen LLP.
"Benefit Plans" will have the meaning given to it in Section 3.14 of
this Agreement.
"Claim" will have the meaning given to it in Section 7.2 of this
Agreement.
"Claim Notice" will have the meaning given to it in Section 7.2 of this
Agreement.
"Closing Date" will mean the date on which the First Closing or the
Second Closing is scheduled to occur.
"Closing" will mean the closing of the transactions contemplated at the
First Closing or Second Closing under this Agreement on the respective Closing
Date.
"Code" will mean the Internal Revenue Code of 1986, as amended.
"Company Closing Balance Sheet" will mean the unaudited balance sheet
statement of the Company to be prepared in accordance with Section 5.5 hereof.
"Company Common Stock" will mean the common stock of the Company, $.01
par value per share.
-2-
<PAGE>
"Company Options" will mean the vested and unvested options to purchase
Company Stock under the terms of the 1996 Non-Qualified Option Plan, as amended
September 22, 1997 that are outstanding at the Effective Time.
"Contracts" will mean all contracts, agreements, arrangements,
commitments, purchase orders, sales orders and understandings to which the
Company is a party or by which any of its properties or assets may be bound,
whether written or oral.
"Creditor's Rights Laws" will have the meaning given to it in Section
3.2 of this Agreement.
"Damages" will mean any and all damages, losses, obligations,
deficiencies, liabilities, claims, encumbrances, penalties, costs, and expenses,
including, without limitation, reasonable attorneys' fees and disbursements and
expert and consulting fees, costs and expenses.
"Dispute Notice" will have the meaning given to it in Section 7.3 of
this Agreement.
"Effective Time" will mean the time of filing of (or the designated
effective date set forth in) the certificates of merger of TL and the Company in
accordance with applicable laws as delivered at the Second Closing.
"Encumbrances" will mean any claim, mortgage, assignment, conditional
sale, lease, easement, consignment, bailment, contingent interest, pledge, lien,
option, charge, security interest, preemptive right, right of first refusal,
encumbrance or other restrictions of any kind or nature whatsoever.
"Environmental Laws" will mean any federal, state or local law
(including but not limited to the Clean Water Act, 33 U.S.C. ss.ss. 1251 et
seq., the Toxic Substances Control Act, 15 U.S.C. ss.ss. 2601 et seq., the Clean
Air Act, 42 U.S.C. ss.ss. 7401 et seq., the Safe Drinking Water Act, 42 U.S.C.
ss.ss. 300f et seq., the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. ss.ss. 9601 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. ss.ss. 6901 et seq., the River and Harbor Act, 33 U.S.C.
ss.ss. 407 et seq., and the Occupational Safety and Health Act, 29 U.S.C. ss.ss.
651 et seq., each as may be amended from time to time), court order (whether or
not by consent), any duties imposed by applicable common law and any applicable
provision or condition of any permit relating to (i) the protection of the
environment, employees or the public welfare from actual or potential exposure
(or the effects of exposure) to any actual or potential release, discharge,
disposal or emission (whether past or present) of any Hazardous Substance or
(ii) the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of any Hazardous Substance.
-3-
D)
<PAGE>
"ERISA" will mean the Employee Retirement Income Security Act of 1974,
as amended.
"Escrow Agent" will mean Crestar Bank.
"Escrow Agreement" will mean the Escrow Agreement among TL, the Company,
the Principal Shareholders, for themselves and on behalf of the Public
Shareholders, and the Escrow Agent, substantially in the form attached hereto as
Exhibit B.
"Escrowed Shares" will mean the Principal Shareholders' Escrowed Shares
together with the Public Escrowed Shares.
"Exchange Agent" will mean American Stock Transfer & Trust Co.
"Exercise Price" will mean the amount due from the option holder upon
the exercise of a particular option to purchase Company Common Stock from the
Company under the Option Plan.
"Financial Statements" will mean the financial statements of the Company
as at December 31, 1997, 1996 and 1995, including balance sheet statements and
income statements of the Company for each of the periods then ended, together
with any notes thereto, the Company's financial statements for each month of
1998 prior to the First Closing Date, and the March 31, 1998 Balance Sheet.
"First Closing" will mean the Closing of the exchange of Company Common
Stock held by the Principal Shareholders for MedQuist Common in accordance with
this Agreement.
"First Closing Date" will mean the date hereof or, if all conditions to
the First Closing have not been satisfied, on the date hereof as soon as
practical following the date such conditions have been satisfied, subject to the
provisions for termination set forth in Section 9.1 of this Agreement.
"GAAP" will mean generally accepted accounting principles consistently
applied.
"Governmental Entity" will mean any federal, state or local department,
official, commission, authority, board, bureau, agency or other public body,
domestic or foreign.
"Hazardous Substances" will mean any toxic or hazardous gaseous, liquid
or solid material or waste that may or could pose a hazard to the environment or
human health or
-4-
<PAGE>
safety including (i) any "hazardous substances" as defined by the
federal Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. ss.ss. 9601 et seq., (ii) any "extremely hazardous substance," "hazardous
chemical" or "toxic chemical" as those terms are defined by the federal
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. ss.ss. 11001 et
seq., (iii) any "hazardous waste," as defined under the federal Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act, 42
U.S.C. ss.ss. 6901 et seq., (iv) any "pollutant," as defined under the federal
Water Pollution Control Act, 33 U.S.C. ss.ss. 1251 et seq., as any of such laws
in clauses (i) through (iv) may be amended from time to time, and (v) any
regulated substance or waste under any laws that currently exist or that may be
enacted, promulgated or issued in the future by any federal, state or local
governmental authorities concerning protection of the environment or the public
welfare.
"Indemnified Parties" will have the meaning given it in Section 10.1 of
this Agreement.
"Intellectual Properties" will mean all trademarks, trade names, assumed
names, service marks, logos, patents, patent rights, copyrights, drawings, trade
secrets, technology, know-how and processes, applications of or relating to any
of the foregoing or any other intellectual property necessary in the conduct of
the Company's business in the manner conducted at or prior to the First Closing.
"IRS" will mean the Internal Revenue Service.
"Labor Dispute" will mean any actual or threatened union organization
campaign, strike, slow down, work stoppage or other labor disturbance.
"Material Adverse Effect" will mean a material adverse effect on the
business, operations, financial or other condition or prospect of the Company or
TL, as the case may be, taken as a whole.
"March 31, 1998 Balance Sheet" will mean the balance sheet of the
Company as of March 31, 1998.
"MedQuist Common" will mean the common stock, no par value, of
MedQuist.
"MedQuist Option" will have the meaning given to it in Section 2.10 of
this Agreement.
"MedQuist SEC Documents" will have the meaning given to it in Section
4.6 of this Agreement.
-5-
<PAGE>
"Merger" will have the meaning given to it in Background section of this
Agreement.
"Net Worth" will mean the sum of the total assets less the total
liabilities of the Company, determined in accordance with GAAP.
"Option Plan" will mean the Company's 1996 Non-Qualified Option Plan, as
amended September 22, 1997.
"Option Value" will mean the summation of (i) the difference between
Three Dollars and Two Thousand One Hundred Sixty-Eight Ten Thousandths ($3.2168)
and (ii) the Exercise Price, for each Company Option.
"Outstanding Shares" will mean the number of shares of Company Common
Stock set forth in Section 3.4 of the Disclosure Schedules, such number being
six million three hundred twenty-five thousand five hundred three (6,325,503).
"Permits" will mean all surety bonds, permits, licenses, zoning
variances, approvals, exemptions, and other authorizations for the operation of
the businesses of the Company as presently operated.
"Per Share Merger Consideration" shall mean (i) Three Dollars and Two
Thousand Thirty-Three Ten Thousandth Cents ($3.2033), subject to adjustment as
provided in this Agreement, divided by (ii) the Value.
"Person" will mean any natural person, corporation, partnership,
unincorporated association, trust, Governmental Entity, joint venture or trade
group, or any individual, entity or group that is a part of, or associated with,
any of the foregoing.
"Premises" will mean the real property located at 8230 Old Courthouse
Road, Vienna, Virginia.
"Principal Options" will have the meaning given to it in the Background
section of this Agreement.
"Principal Shareholders' Common Stock" will have the meaning given to it
in the Background section of this Agreement.
"Principal Shareholders' Escrowed Shares" will have the meaning given to
it in Section 2.2 of this Agreement.
-6-
<PAGE>
"Public Escrowed Shares" will have the meaning given to it in Section
2.5 of this Agreement.
"Public Shareholders" will mean all of the shareholders of Company
Common on the Second Closing Date together with persons and entities holding
rights to acquire Company Common Stock or securities exchangeable for,
convertible into, or representing the right to receive, Company Common Stock
other than the Principal Shareholders.
"Public Stock Certificates" will have the meaning given it in Section
2.6(b) of the Agreement.
"SEC" will mean the U.S. Securities and Exchange Commission.
"Second Closing" will mean the consummation of the transactions
contemplated to occur in connection with the Merger of TL and the Company.
"Second Closing Date" will mean the date on which all conditions to the
First Closing and the Second Closing have been satisfied, or as soon as
practical thereafter, subject to the provisions for termination set forth in
Section 9.1 of this Agreement.
"Securities Laws" will mean the Act and any federal or state securities
laws, rules and regulations.
"Shareholders" will mean together the Principal Shareholders and Public
Shareholders.
"Shareholders Agreement" will mean the Shareholders' Agreement dated
October 9, 1995 among the Company, Cameron and Proactive.
"Surviving Corporation" will have the meaning given it in Section 2.3 of
this Agreement.
"Surviving Warranty" will have the meaning given it in Section 7.1 of
this Agreement.
"Survival Period" will have the meaning given it in Section 7.1 of this
Agreement.
"Taxes" will mean all taxes, fees, levies, duties, charges or other like
assessments including, without limitation, income, withholding, gross receipts,
excise, real or personal property, asset, sales, use, license, payroll,
transaction, capital, net worth and franchise
-7-
D)
<PAGE>
taxes imposed by or payable to any federal, state, county, local or
foreign government, taxing authority, subdivision or agency thereof, including
interest, penalties, additions to tax or additional amounts thereto.
"Tax Return" will mean any report, return, declaration or other
information required to be supplied to a taxing authority in connection with
Taxes.
"Value" shall mean the value of a single share of MedQuist Common equal
to the Bloomberg weighted average price of MedQuist Common for the ten (10)
trading days immediately preceding the First Closing Date.
"Voting Agreements" will mean all voting trusts, voting agreements,
proxies and other voting restrictions of any kind or nature whatsoever.
ARTICLE 2
THE FIRST CLOSING, MERGER AND RELATED MATTERS
2.1. First Closing. Subject to the terms and conditions of this Agreement,
on the First Closing Date, each of the Principal Shareholders shall exchange all
of the shares of the Principal Shareholders' Common Stock, and TL shall exchange
therefor that number of shares of MedQuist Common equal to the Per Share Merger
Consideration for each such share of Company Common Stock so exchanged. TL shall
pay cash in lieu of any fractional shares of MedQuist Common which, but for this
provision, would be issued as part of the Aggregate Merger Consideration
pursuant to this Section 2.1.
2.2. Exchange of Principal Shareholders' Certificates. On the First Closing
Date, the Principal Shareholders shall surrender and deliver to TL the stock
certificates representing all of the Principal Shareholders' Common Stock in
exchange for the consideration set forth in Section 2.1 above; provided,
however, that ten percent (10%) of the shares representing such consideration
("Principal Shareholders' Escrowed Shares") shall be deposited with, and held
by, the Escrow Agent pursuant to the Escrow Agreement and subject to the
provisions of Article 7 of this Agreement. If the Escrow Agreement is not
executed at the time of the First Closing, then MedQuist shall hold the
Principal Shareholders' Escrowed Shares in reserve until such time as the Escrow
Agreement is executed. Upon execution of the Escrow Agreement, MedQuist shall
deliver to the Escrow Agent the Principal Shareholders' Escrowed Shares. The
Principal Shareholders shall be entitled to vote the Principal Shareholders'
Escrowed Shares while such shares are in the possession of MedQuist or the
Escrow Agent. Any dividends declared on the Principal Shareholders' Escrowed
Shares shall attach to such shares and shall be distributed to the Person to
whom the Escrow Agent delivers such shares.
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2.3. Second Closing; the Merger. Subject to the terms and conditions of
this Agreement, on the Second Closing Date, TL and the Company shall duly
execute, acknowledge and file certificates or articles of merger in their
respective jurisdictions of incorporation and all other documentation necessary
to consummate the Merger of Company into TL. As of the Effective Time, the
separate corporate existence of the Company shall cease and TL shall continue as
the surviving corporation under and pursuant to the laws of the State of New
Jersey under the name Transcriptions, Ltd. (the "Surviving Corporation").
2.4. Consideration; Conversion of Stock. At the Effective Time, each share
of Company Common Stock then issued and outstanding shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into and represent the right to receive the Per Share Merger Consideration;
provided that any Company Shares held by TL or any Affiliate of TL shall be
canceled and shall not be entitled to receive any Per Share Merger
Consideration. TL shall pay cash in lieu of any fractional shares of MedQuist
Common which, but for this provision, would be issued as part of the Aggregate
Merger Consideration pursuant to this Section 2.4.
2.5. Public Escrowed Shares. On the Second Closing Date, ten percent (10%)
of the shares representing the consideration set forth in Section 2.4 above (the
"Public Escrowed Shares") shall be deposited with the Escrow Agent pursuant to
the terms of the Escrow Agreement and subject to the provisions of Article 7
hereof. Each Public Shareholder shall be entitled to vote those of the Public
Escrowed Shares that would be payable to him upon the release of the entire
number of Public Escrowed Shares to the Public Shareholder while such shares are
in the possession of the Escrow Agent. Any dividends declared on the Public
Escrowed Shares shall attach to such shares, and shall be distributed to the
Person to whom the Escrow Agent delivers such shares.
2.6. Exchange of Public Shareholders' Certificates.
(a) Subject to the terms and conditions hereof, immediately prior to the
Effective Time, TL shall deposit the shares MedQuist Common issuable under
Section 2.4 less the Public Escrowed Shares, plus an amount of cash to be paid
in lieu of fractional shares, with the Exchange Agent.
(b) Promptly after the Effective Time, the Exchange Agent shall mail to
each record holder of Company Common Stock a letter of transmittal and
instructions for use in surrendering certificates representing the shares of
Company Common Stock (including lost share affidavits in a form reasonably
acceptable to MedQuist, the "Public Stock Certificates") and receiving the Per
Share Merger Consideration therefor. Upon the surrender of each Public Stock
Certificate, together with such letter of transmittal duly executed and
completed in accordance with the instructions thereto, the holder of such
certificate shall be entitled to receive
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D)
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in exchange therefor ninety percent (90%) of the product of (i) the Per Share
Merger Consideration multiplied by (ii) the number of shares of Company Common
Stock represented by such Public Stock Certificate, and such Public Stock
Certificate shall be canceled. Until so surrendered and exchanged, each such
Public Stock Certificate shall represent solely the right to receive hereunder
the Per Share Merger Consideration multiplied by the number of shares of Company
Common Stock that are represented by such Public Stock Certificate. If any
shares of MedQuist Common are to be issued to a person other than the person in
whose name the Public Stock Certificate surrendered in exchange therefor is
registered, it shall be a condition to such exchange that the Public Stock
Certificate so surrendered be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange shall pay to the Exchange
Agent any transfer or other similar taxes required by reason of the issuance of
such shares to a person other than the registered holder of the Public Stock
Certificate surrendered, or such person shall establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not applicable.
(c) After the Effective Time there shall be no transfers on the stock
transfer books of the Company or the Surviving Corporation of any shares of
Company Common Stock. If, after the Effective Time, Public Stock Certificates
are presented to the Surviving Corporation or the Exchange Agent, they shall be
canceled and exchanged for the Per Share Merger Consideration, as provided in
this Article 2.
2.7. Effect of Exchange and Merger; Officers and Directors. The
Certificate of Incorporation and Bylaws of TL, as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation and Bylaws of the
Surviving Corporation. From and after the First Closing, the persons serving as
the directors and officers of the Company immediately prior to the First Closing
shall resign and persons designated by TL shall be the directors and officers of
the Company.
2.8. Books and Records. On the First Closing Date, the Company shall
deliver to TL all minute books, stock record books and corporate seals of the
Company, and the original copies of all books of account, written Contracts,
securities, customer lists, files and other documents, instruments and papers of
all kind and nature belonging to or relating to the business of the Company and
necessary or desirable in TL's judgment for the on-going conduct of the Company
and its business, whether in the possession of the Principal Shareholders or the
Company. TL shall provide the Principal Shareholders with access to such records
in accordance with Article 8 hereof.
2.9. Closing. The Closings will be held at 10:00 A.M. on the respective
Closing Date at the offices of Pepper Hamilton LLP, 3000 Two Logan Square,
Philadelphia, Pennsylvania 19103.
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2.10. Options Conversion. At the Effective Time, each of the Company
Options shall be converted automatically into an option to purchase shares of
MedQuist Common (a "MedQuist Option") in an amount and at an exercise price
determined as follows:
(a) The number of shares of MedQuist Common to be subject to the
MedQuist Options issuable in exchange for, and upon cancellation of, each
Company Option shall be equal to the product of (i) the number of shares of
Company Common Stock issuable upon the exercise of the Company Options and (ii)
the Per Share Merger Consideration; provided, however, that any fractional
shares of MedQuist Common resulting from such multiplication shall be rounded
down to the nearest share; and
(b) The exercise price per share of each MedQuist Option shall be equal
to the product of (i) (A) the respective Exercise Price of the respective
Company Option for which the MedQuist Option is being converted and issued in
place thereof divided by (B) Three Dollars and Two Thousand Thirty-Three Ten
Thousandth Cents ($3.2033), multiplied by (ii) the Value; provided, however,
that such exercise price shall be rounded up to the nearest cent.
The duration and other terms of each MedQuist Option shall be the same
as that of each Company Option exchanged therefor.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE PRINCIPAL SHAREHOLDERS
Except as specifically disclosed to TL on the Disclosure Schedules
attached to this Agreement as Exhibit A, the Company and the Principal
Shareholders, jointly and severally, represent and warrant and, where
applicable, covenant, as provided in each Section of this Article 3:
3.1. Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as presently conducted. The Company is
duly qualified or licensed, and in good standing to do business, in each
jurisdiction in which the property owned, leased or operated by the Company, or
the nature of the business conducted by the Company, makes such qualification or
licensing necessary, except in such jurisdictions where the failure to be so
duly qualified or licensed and in good standing would not have a Material
Adverse Effect.
3.2. Power and Authority. The Principal Shareholders each have the legal
capacity, and the Company has the requisite power and authority, to execute and
deliver this
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Agreement, to perform their respective obligations hereunder and to consummate
the transactions contemplated by this Agreement. The Board of Directors of the
Company has duly and validly authorized and approved the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby and no other proceedings or actions on the part of the
Principal Shareholders or the Company are necessary to authorize the execution
and delivery of this Agreement or to consummate the transactions contemplated by
this Agreement. The Principal Shareholders and the Company each has duly and
validly executed and delivered this Agreement, which is the valid and binding
agreement of the Principal Shareholders and the Company enforceable against the
Principal Shareholders and the Company in accordance with their respective
terms, except as such enforcement may be limited by applicable bankruptcy,
insolvency, moratorium, or similar laws affecting the enforcement of creditors'
rights generally, or by general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity) (collectively,
"Creditor's Rights Laws").
3.3. Consents and Approvals; No Violations. Assuming the filing of any
and all documents necessary to consummate the Merger, no filing with, and no
Permit, authorization, consent or approval of any Governmental Entity is
necessary for the consummation of transactions contemplated by this Agreement.
The execution, delivery and performance of this Agreement will not (i) conflict
with or result in any breach of any provision of the Certificate of
Incorporation or Bylaws of the Company or any agreement or other document
binding on the Principal Shareholders, (ii) except as set forth in Section 3.3
of the Disclosure Schedules, result in a violation or breach of, or constitute
with or without due notice or lapse of time or both a default under, or give
rise to any right of termination, cancellation or acceleration under, or result
in the forfeiture of any rights, entitlements or privileges under, or create any
right or entitlement under, or require the consent or approval of any Person
under, any of the terms, conditions or provisions of any Contract, (iii) violate
any order, writ, injunction, decree, statute, treaty, rule or regulation
applicable to the Principal Shareholders or the Company, or any of their
properties or assets, or (iv) result in the creation of or imposition of any
Encumbrance upon any property or assets of the Company.
3.4. Capitalization. Section 3.4 of the Disclosure Schedules sets forth
all of the authorized capital stock and classes of capital stock of the Company
and the respective ownership interests of the Principal Shareholders and
aggregate number of such shares owned by Public Shareholders and the number of
registered Public Shareholders and the identities and interest held of any other
person having an ownership interest in the Company. All of the issued and
outstanding shares of Company Common Stock are validly issued, fully paid and
nonassessable, and are not subject to any Encumbrances or Voting Agreements.
Except as set forth on Section 3.4 of the Disclosure Schedules, there are no
outstanding subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or commitments (contingent or otherwise) of any
character relating to the issued or unissued Company Common Stock or other
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capital stock or securities of the Company, or otherwise obligating the Company
to issue, transfer, register or sell any such securities. The Company has no
direct or indirect, legal or beneficial interest in any corporation,
partnership, trust or other entity. The Company has not made, and as of the
First Closing Date will not have made, any redemptions of, or distributions with
respect to, any of its shares of capital stock.
3.5. Financial Statements; Reports. The Company has previously delivered
to TL true and correct copies of all of the Financial Statements. The Financial
Statements have been prepared from the applicable books and records of the
Company in accordance with GAAP, consistently applied during the related
periods. The balance sheets contained in each of the Financial Statements fairly
present the financial condition of the Company as of the respective periods set
forth therein, and each income statement included in each of the Financial
Statements fairly presents the results of operations of the Company for the
respective periods set forth therein except as described below. The Company
Closing Balance Sheet shall be prepared from the applicable books and records of
the Company in accordance with GAAP, consistently applied, and shall be true and
correct in all material respects and shall fairly present the financial
condition of the Company as of the First Closing Date. The Financial Statements,
other than the Financial Statements for 1998, have been audited by Hozik &
Charin and include the unqualified opinion of such firm.
3.6. No Undisclosed Liabilities. The Company has no material liabilities
or obligations, absolute, accrued, fixed, contingent, liquidated, unliquidated
or otherwise, except for (i) those reflected or reserved against which reserves
are adequate on the March 31, 1998 Balance Sheet and (ii) those which are
specifically disclosed in this Agreement or in the Disclosure Schedules. To the
best knowledge of the Principal Shareholders, there is no basis for the
assertion against the Company as of the date hereof or as of the First Closing
Date of any liability of any material nature or in any material amount not fully
reflected or reserved against in the Company's March 31, 1998 Balance Sheet.
Since March 31, 1998, the Company has not incurred any liabilities or
obligations whether absolute, accrued, fixed, contingent, liquidated,
unliquidated or otherwise, other than liabilities incurred in the ordinary
course of business consistent with past practice.
3.7. Absence of Certain Changes. Since January 1, 1998, the Company has
operated only in the ordinary course of business and there has not occurred: (a)
any transaction in which the Company incurred any material debts, liabilities or
obligations except in the ordinary course of business and reflected on the March
31, 1998 Balance Sheet, (b) any transaction in which the Company discharged or
satisfied any Encumbrances except in the ordinary course of business, (c) any
transaction in which the Company mortgaged, pledged or subjected to Encumbrance
any of the Assets, (d) any transaction in which the Company sold or transferred
any of the Assets or canceled any debts or claims, (e) any transaction in which
the Company suffered any extraordinary losses or waived any rights of
substantial value, (f) any material
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<PAGE>
damage, destruction or loss (whether or not covered by insurance) or any
condemnation by governmental authorities which has or may affect the business or
the properties of the Company, (g) any declaration, setting aside or payment of
any dividend or other distribution in respect of any of the capital stock of the
Company, or any direct or indirect redemption, purchase or other acquisition of
the capital stock of the Company, (h) any increase not in the ordinary course of
business in the compensation payable or to become payable by the Company, or (i)
any undertaking or any change in any existing obligation of any kind of the
Company other than in the ordinary course of business.
3.8. No Default. Neither the Principal Shareholders, Public Shareholders
nor the Company is in default or violation, and no event has occurred which with
notice or the lapse of time or both would constitute a material default or
violation, of any material term, condition or provision of (i) the Certificate
of Incorporation or Bylaws of the Company, or (ii) any material Contract other
than with respect to required document turnaround times as described on Section
3.8 of the Disclosure Schedules.
3.9. Litigation; Compliance with Laws; Permits. There are no Actions
pending or, to the best knowledge of the Principal Shareholders, threatened
against or related to the Company. There is not and has not been any failure by
the Company or the Principal Shareholders to comply with, nor any default under,
any law, ordinance, requirement, regulation, or order applicable to the Company,
which failure to comply or default would have a Material Adverse Effect on the
Company. There is no violation of, default with respect to, or failure to comply
with any order, writ, injunction, judgment, or decree of any court or
Governmental Entity or other instrumentality, issued or pending against the
Company. The Company has obtained all Permits necessary for the operation of its
business as presently operated, and all such Permits are set forth on Section
3.9 of the Disclosure Schedules. The Company is in compliance with all relevant
Permits and the Permits are presently valid and in full force and effect and no
renovation, cancellation, or withdrawal thereof has been effected or, to the
best knowledge of the Principal Shareholders, threatened. The Company has not
made any illegal kickbacks, bribes or political contributions to any Person.
3.10. Intellectual Property. Section 3.10 of the Disclosure Schedules
sets forth a list and a brief description of all of the Intellectual Property of
the Company. No claim is pending, or, to the best knowledge of the Principal
Shareholders, threatened, relating to the ownership or present or past use of
the Intellectual Property, or conflicts with or infringes upon any rights of any
third party with respect to any Intellectual Property.
3.11. Contracts. Section 3.11 of the Disclosure Schedules sets forth a
complete and accurate list of each of the Company's material Contracts other
than the Contracts set forth on Schedule 3.12. True, complete and correct copies
of all written Contracts, including all
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<PAGE>
amendments, modifications or extensions thereof have been previously provided
to TL. Each Contract is valid and binding and in full force and effect.
3.12. Employee and Management Agreements. Section 3.12 of the Disclosure
Schedules sets forth a complete and correct list of all Contracts relating to
employment, compensation, severance, change-in-control, consulting,
indemnification, service, purchase or any other matter between or among the
Company and its present or former employees, officers, directors and consultants
pursuant to which the Company has any continuing obligations thereunder. True
and correct copies of all such agreements have been provided to TL.
3.13. Taxes. The Company has duly filed, in compliance with applicable
laws, all Tax Returns required to be filed by the Company prior to the date
hereof, and the Company has duly paid, caused to be paid or made adequate
provision and has reserved for the payment of all Taxes required to be paid in
respect of the periods covered by such Tax Returns and has made adequate
provision for payment of all Taxes anticipated to be payable in respect of all
taxable periods since the periods covered by such returns. The Company has
complied with the requirements of all applicable laws relating to the payment
and withholding of Taxes (including, without limitation, withholding of Taxes
pursuant to Sections 1441 and 1442 of the Code) and have, within the time and in
the manner prescribed by applicable laws, withheld from employee wages and paid
over, in a timely manner, to the proper taxing authorities all amounts required
to be so withheld and paid over under applicable laws. No claims for Taxes have
been asserted against the Company, and no deficiency for any Taxes has been
proposed, asserted or assessed which has not been resolved or paid in full. To
the best knowledge of the Principal Shareholders, no Tax Return or taxable
period of the Company is under examination and the Company has not received
notice of any pending audit. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any Tax Return for
any period of the Company. There are no liens or encumbrances of any kind for
Taxes upon any assets or properties of the Company other than for Taxes not yet
due and payable. The Company has no obligation or liability to pay Taxes of or
attributable to any other person or entity. No issue or claim has been asserted
for Taxes by any taxing authority. The Company has not filed any consent
pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of
the Code apply to any disposition of a subsection (f) asset owned by the
Company.
3.14. Employee Benefit Matters.
(a) Section 3.14(a) of the Disclosure Schedules sets forth a true and
complete list of all plans, programs or arrangements which provide (i) employee
benefits or fringe benefits maintained by the Company or its Affiliates or (ii)
with respect to which contributions are made by the Company or its Affiliates
(including health, life insurance and other benefit plans maintained for
retirees), including without limitation (a) all plans, programs and arrangements
providing any form of deferred compensation, pension, profit sharing, stock
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option, stock purchase, savings, thrift, group insurance, accident, sickness,
medical, dental or disability benefits; (b) all vacation and severance pay; (c)
all incentive compensation, consulting and bonus agreements; and (d) all
benefits relating to the use of Company vehicles; whether or not such plans,
programs and arrangements constitute "employee benefit plans" within the meaning
of Section 3(3) of ERISA, and whether or not such plans, programs and
arrangements are in the nature of formal or informal understandings, and whether
or not pursuant to any collective bargaining arrangements. Said plans, programs
and arrangements sometimes are referred to collectively in this Agreement as the
"Benefit Plans." Neither the Company nor any of its Affiliates is a member,
whether or not incorporated, under common control (within the meaning of Section
414(c) of the Code) and all affiliated service groups (within the meaning of
Section 414(m) of the Code) is, or has ever been, a party to any pension plan or
welfare benefit plan that is a "multiemployer plan" (within the meaning of
Section 3(37) of ERISA).
(b) Each Benefit Plan complies in all material respects and has been
administered in accordance with the applicable provisions of ERISA and the Code.
No facts or circumstances exist which could result in any liability against the
Company or any Benefit Plan or any fiduciary of a Benefit Plan under any
provision of ERISA, the Code or any other applicable law by reason of any action
or failure to act in connection with any Benefit Plan, including, but not
limited to, any liability by reason of any payment of, or failure to pay,
benefits or any other amounts, or by reason of any credit or failure to give
credit for any benefits or rights in connection with any Benefit Plan. There has
not been asserted by any Benefit Plan participant, beneficiary or other person
any facts or circumstances which could result in any liability under any Benefit
Plan or any fiduciary of a Benefit Plan under any provision of ERISA, the Code
or any other applicable law by reason of any action or failure to act in
connection with any Benefit Plan, including but not limited to any liability by
reason of any payment of, or failure to pay, benefits or any other amounts, or
by reason of any credit or failure to give credit for any benefits or rights in
connection with any Benefit Plan.
(c) Except as set forth in Section 3.14(c) of the Disclosure
Statements, the Company does not have any severance agreements or arrangements,
or any formal or informal severance plan or practice, pursuant to which
any liability for severance payments to employees of the Company may arise,
regardless of whether separation from service occurs before, at the time of, or
after the First Closing Date.
3.15. Environmental Matters. The Company is in compliance with all
Environmental Laws.
3.16. Assets. Section 3.16 of the Disclosure Schedules sets
forth all of the Assets necessary to the business conducted by the Company as
presently conducted, all of which are in good operating condition. The Company
has good and marketable title to all Assets or a valid leasehold interest in all
property leased by the Company. All of the Assets are owned or
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held under lease free and clear of all Encumbrances. The Company owns or leases
all of the Assets necessary to carry on the businesses and operations of the
Company as presently conducted.
3.17. Labor Relations. The Company is not a party to any contract or
other agreement with any labor union and is not experiencing, the subject of,
or, to the Principal Shareholders' knowledge, threatened by, any union
organization campaign or any strike, slowdown, picketing, work stoppage, or
other labor disturbance by any labor union or group of employees. The Company
does not have and for the past three (3) years has not had (a) any unfair labor
practice charge or complaint or other proceeding pending or, to the best
knowledge of the Principal Shareholders, threatened against the Company before
the National Labor Relations Board or (b) any arbitrations, grievances, suits or
administrative proceedings before any Government Entity (including, without
limitation, the Equal Employment Opportunity Commission ("EEOC")) relating to
labor or employment matters involving any employees of the Company. The Company
is and has been in compliance for the past three years with all applicable laws
relating to employment and employment practices, terms and conditions of
employment, wages and hours, occupational safety and health and notice and the
requirements of the Worker Adjustment Retraining Act of 1988 or similar state or
local law.
3.18. Principal Shareholders' Brokers or Finders and Fees.
Except as set forth in Section 3.18 of the Disclosure Schedules, no agent,
broker, investment banker, financial advisor or other firm or person is or will
be entitled to any brokers' or finders' fee or any other commission or similar
fee from the Principal Shareholders or the Company in connection with this
Agreement. Section 3.18 sets forth a complete list of all fees, including all
broker's, finders', investment bankers', legal and accounting fees, incurred by
the Principal Shareholders and the Company in connection with the transactions
contemplated by this Agreement, and which have been or will be charged to the
Company.
3.19. Insurance. Section 3.19 of the Disclosure Schedules sets forth a
true and correct schedule of all policies of fire, liability, and other forms of
insurance, excluding the Benefit Plans, pursuant to which the Company or any of
the Assets are insured (whether or not held by the Company) or with respect to
which the Company directly or indirectly pays all or part of the premium
including the identity of the carrier, the policy number, the amounts and types
of coverage, the premium and the expiration date of each such policy. All of the
Assets of the Company are insured against fire and other casualty under the
policies and in the amounts and types of coverage set forth in Section 3.19 of
the Disclosure Schedules, and such policies are outstanding and duly in force
and the premiums thereon fully paid. No notice of cancellation or non-renewal
with respect to any insurance policy has been received by the Company. The
insurance policies are sufficient for compliance with all statutes, laws,
ordinances, regulations, orders, rules or other requirements of any Governmental
Entity, including, but not limited to, those covering safety, health,
transportation, recordkeeping, zoning, employment, wage and hour
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and price and wage control matters. The Company has not been refused any
insurance with respect to its assets or operations and no claim by the Company
under the insurance policies has been refused coverage by any insurer. There are
no pending claims against such insurance policies. There is no default by the
Company with respect to any provision contained in any insurance policy and all
claims made or, to the best knowledge of the Principal Shareholders, threatened
against the Company have been properly filed by the Company. The Company has
notified its insurance carrier of all pending and, to the best knowledge of the
Principal Shareholders, threatened litigation and claims, all of which are set
forth on Section 3.19 of the Disclosure Schedules. The Company has not received
any notice from its insurance carrier disclaiming coverage as to any of the
foregoing.
3.20. Bank Accounts. Section 3.20 of the Disclosure Schedules lists the
names and addresses of every bank and other financial institution in which the
Company maintains an account (whether checking, savings or otherwise), lock box
or safe deposit box, and the account numbers and names of persons having signing
authority or other access thereto. The Principal Shareholders acknowledge that
no such persons shall be authorized signatories after the First Closing.
3.21. Real Property. The Company owns no real property and the only real
property leased by the Company is the Premises.
3.22. Accounts Receivable. All of the accounts and notes receivable of
the Company as set forth on the March 31, 1998 Balance Sheet or arising since
the date thereof (a) are valid and genuine; (b) have arisen only in the ordinary
course of business; and (c) except to the extent of any reserves with respect
thereto are not subject to valid defenses, set-offs or counterclaims and have
been (or will be in the ordinary course of business) billed. Section 3.22 of the
Disclosure Schedules sets forth a true, correct and complete list of all
accounts receivable as of March 31, 1998. The allowance for doubtful accounts
reflected on the March 31, 1998 Balance Sheet has been determined in accordance
with GAAP. The Principal Shareholders do not know of any facts or circumstances
that are likely to result in any material increase in the uncollectibility of
such accounts and notes receivable in excess of any allowance therefor set forth
on the March 31, 1998 Balance Sheet.
3.23. Net Worth. The Net Worth of the Company as of March 31, 1998 was,
and as of the First Closing Date shall be no less than, One Million Nine Hundred
Fifty-Nine Thousand Five Hundred Eighty-One Dollars ($1,959,581).
3.24. Loans to Principal Shareholders, Employees and Others. Except as
set forth in Section 3.24 of the Disclosure Schedules, there are no outstanding
loans made by the Company to any shareholder, employee, director or officer of
the Company or to any other Person.
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3.25. Relations with Clients. Except as set forth in Section 3.25 of the
Disclosure Schedules, the Company has not received written or oral notice of
cancellation (or non-renewal) of any Contract for medical transcription services
and, to the best knowledge of the Principal Shareholders, no client is
contemplating the cancellation (or non-renewal) of any such Contract or altering
materially the amount of business done with the Company. Section 3.25 of the
Disclosure Schedules sets forth the name of the twenty (20) clients of the
Company, for each of the fiscal years 1996, 1997 and for the first four months
of 1998 were the largest dollar volume customers of the Company.
3.26. Compliance with Securities Laws. The Principal Shareholders
acknowledge that the MedQuist Common being exchanged hereunder for Company Stock
at the First Closing has not been registered under any Securities Law. The
Principal Shareholders are each acquiring the MedQuist Common pursuant to this
Agreement solely for their respective accounts, for investment purposes, and not
with the intent to distribute it to an unrelated third party, and pursuant to an
exemption from registration under the Act and applicable Securities Laws. Each
of the Principal Shareholders has such knowledge and experience in financial and
business matters and investments in general that makes such shareholder capable
of evaluating the merits and risks of the ownership and acquisition of the
MedQuist Common and has counseled with such shareholder's accountants, lawyers
and other financial advisors with respect to this Agreement, the Merger and the
transactions contemplated hereunder. Each of the Principal Shareholders and such
shareholder's advisors has been afforded the opportunity to ask such questions
and obtain such additional information regarding the Company as such shareholder
or such shareholder's advisors have considered necessary to enable them to
understand the nature of this investment in the shares of MedQuist Common. Each
of the Principal Shareholders and such shareholder's respective advisors are
aware that MedQuist is a publicly traded corporation subject to the filing
requirements of the Securities Laws and have been afforded the opportunity to
review or request copies of any forms, reports and documents relating to
MedQuist filed with the Securities and Exchange Commission and acknowledge
receipt of MedQuist's 1998 Proxy Statement and 1997 Annual Report on Form 10-K
and Form 10-Q for the quarter ended March 31, 1998 and that MedQuist and TL have
complied with any request made by any Principal Shareholder.
The Principal Shareholders acknowledge and agree that the MedQuist
Common Stock issued to them pursuant to this Agreement will contain the
following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY OTHER STATE OR FEDERAL
SECURITIES STATUTE. NO REOFFER, SALE,
TRANSFER, PLEDGE OR OTHER DISPOSITION
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THEREOF MAY BE MADE UNLESS THE SHARES ARE REGISTERED
UNDER THE ACT AND ANY OTHER APPLICABLE SECURITIES
STATUTE, OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS IS APPLICABLE TO SUCH TRANSACTION.
The Principal Shareholders each have full power and authority to vote
their respective shares of the Company Common Stock and have not granted the
right to vote such shares to any other Person prior to the First Closing.
3.27. Accounting Matters. The Principal Shareholders, having consulted
with their respective accountants, lawyers and financial advisors, have no
knowledge of any action taken or agreed to be taken by the Company or the
Principal Shareholders, or of any fact or circumstance, that is reasonably
likely to prevent the Merger from qualifying for pooling-of-interests accounting
treatment.
3.28. Statements True and Correct. No statement made by the Principal
Shareholders or the Company in this Agreement or Exhibits attached to this
Agreement or any document, instrument or certificate furnished or to be
furnished by the Principal Shareholders, Company, or any director or officer of
the Company contains or will contain any untrue statement of material fact or
omits or will omit to state a material fact required to be stated herein or
therein, or necessary in order to make the statements therein not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF TL
TL and MedQuist hereby represent and warrant to the Company and the
Principal Shareholders as of the date of this Agreement as follows:
4.1. Organization and Good Standing. TL is a corporation duly organized,
validly existing and in good standing under the laws of the State of New Jersey
and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as presently conducted. TL is duly
qualified or licensed and in good standing to do business, in each jurisdiction
in which the property owned, leased or operated by the Company, or the nature of
the business conducted by the Company, makes such qualification or licensing
necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed and in good standing would not have a Material Adverse
Effect.
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4.2. Corporate Power and Authority. TL has full corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement, including without limitation the full corporate
power and authority to purchase and take title to the Company Common Stock upon
the terms and conditions set forth in this Agreement. TL has duly and validly
authorized the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, and no other corporate action on the part
of TL is necessary to authorize the execution and delivery of this Agreement or
to consummate the transactions contemplated by this Agreement. TL has duly and
validly executed and delivered this Agreement, and this Agreement is the valid
and binding obligation of TL, enforceable against TL in accordance with its
terms, except as such enforcement may be limited by applicable Creditor's Rights
Laws.
4.3. Validity of Contemplated Transactions, Etc. Assuming the filing of
any and all documents necessary to consummate the Merger, no filing with, and no
Permit, authorization, consent or approval of any Governmental Entity is
necessary for the consummation of transactions contemplated by this Agreement.
The execution, delivery and performance of this Agreement will not (i) conflict
with or result in any breach of any provision of the Certificate of
Incorporation or Bylaws of TL or any agreement or other document binding on TL,
(ii) result in a violation or breach of, or constitute with or without due
notice or lapse of time or both a default under, or give rise to any right of
termination, cancellation or acceleration under, or result in the forfeiture of
any rights, entitlements or privileges under, or create any right or entitlement
under, or require the consent or approval of any Person under, any of the terms,
conditions or provisions of any Contract, or (iii) violate any order, writ,
injunction, decree, statute, treaty, rule or regulation applicable to TL, or any
of its properties or assets.
4.4. Validity of Shares to be Issued. The shares of MedQuist Common to
be issued to the Principal Shareholders in connection with the First Closing and
to the Public Shareholders in connection with the Second Closing pursuant to
Article 2 hereof have been duly authorized and, when issued by MedQuist in
accordance with the terms of this Agreement, will be validly issued, fully paid
and non-assessable.
4.5. Capitalization of MedQuist. The authorized capital stock of
MedQuist consists of Sixty Million (60,000,000) shares of MedQuist Common and
Twelve Million One Hundred Eleven Thousand Nine Hundred Seventy-Five
(12,111,975) shares of preferred stock. As of May 22, 1998, (i) Eleven Million
Eighteen Thousand Nine Hundred Twenty-Eight (11,018,928) shares of MedQuist
Common were issued and outstanding; (ii) no shares of preferred stock of
MedQuist were issued and outstanding; (iii) no shares were held by MedQuist in
its treasury; (iv) approximately Six Hundred Four Thousand (604,000) MedQuist
Options were outstanding; and (v) approximately Three Hundred Twelve Thousand
(312,000) MedQuist Options were available for grant under MedQuist's stock
option plan. Except as set forth in the
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preceding sentence, at the close of business on May 1, 1998, no shares of
capital stock or other voting securities of MedQuist were issued, reserved for
issuance or outstanding.
4.6. SEC Documents. MedQuist has heretofore provided to the Company or
otherwise made available all reports, schedules, forms, statements and other
documents filed with the SEC since December 31, 1996 (the "MedQuist SEC
Documents"). As of their respective dates, the MedQuist SEC Documents complied
in all material respects with the requirements of the Securities Laws applicable
to such MedQuist SEC Documents, and, to the knowledge of MedQuist, none of the
MedQuist SEC Documents when filed contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. There has been no material change,
financial or otherwise, in the condition of MedQuist since the date of
MedQuist's Form 10-Q for the quarter ended March 31, 1998.
4.7. TL's Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any brokers'
or finders' fee or any other commission or similar fee from TL in connection
with this Agreement and the transactions contemplated by this Agreement.
ARTICLE 5
ACTIVITIES PRIOR TO THE FIRST CLOSING DATE
BY THE COMPANY AND THE PRINCIPAL SHAREHOLDERS
5.1. Operation of Business. From and after the date of this Agreement to
the First Closing Date, except with the consent of TL or as otherwise
specifically contemplated by this Agreement, the Company shall conduct its
business solely in the ordinary course and shall:
(a) not amend the Company's Certificate of Incorporation or Bylaws
except as may be necessary to carry out this Agreement, the Merger or as
required by law;
(b) not make any changes in the management of the Company without the
consent of TL;
(c) not declare or pay any dividend of any kind or make any other
distribution or payment in respect of any capital stock of the Company, or
repurchase or agree to repurchase any of the capital stock, or issue any shares
of the capital stock of Company whether or not presently authorized, or change
any of the characteristics of the capital stock of Company or subject the
capital stock of the Company to any Encumbrance or voting agreement, or merge
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or consolidate the Company with any other corporation or allow the
Company, its Assets or any part of its business to be acquired by any Person;
(d) not sell, transfer, or otherwise dispose of any Assets without
the prior written consent of TL, except in the ordinary course of business;
(e) not allow the Company to create, incur, assume, or guarantee any
indebtedness for money borrowed or create any Encumbrance on any of its Assets,
except in the ordinary course of business, and shall discharge prior to the
First Closing any other Encumbrance;
(f) maintain the Assets in good operating repair, order, and
condition, reasonable wear and tear excepted, and notify TL immediately
upon any material loss of, damage to, or destruction of any of the Assets;
(g) maintain in full force and effect the insurance coverage of the
types and in the amounts set forth in Section 3.19 of the Disclosure Schedules
and apply the proceeds received under any insurance policy or as a result of any
loss or destruction of or damage to any Assets or operations of the Company to
the repair or replacement of such Assets;
(h) preserve the Company's business organization intact and preserve
the good will of its customers, suppliers and others having business relations
with it;
(i) not discount, pre-bill or accept prepayment for any work to be
performed on or after the First Closing Date or otherwise invoice or bill
clients inconsistent with past practices; and
(j) promptly advise TL in writing of the commencement of, and of any
known threat to commence any Action or tax audit against the Company or of the
occurrence (or failure to occur) of any fact or circumstance which may become
known to the Principal Shareholders or the Company that would cause any of the
Principal Shareholders' or the Company's representations or warranties to be
inaccurate in any material respect.
5.2. Access to Information. The Principal Shareholders and the Company
will cooperate fully with TL and will provide TL and its accountants, counsel,
and other representatives, during normal business hours, full access to the
books and records of the Company and to the Assets, and full opportunity to
discuss the Company's business, affairs, and Assets with its officers,
employees, and independent accountants, and furnish to TL and its
representatives copies of such documents, records, and information with respect
to the affairs of the Company as TL or its representatives may reasonably
request.
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5.3. The Company's and the Principal Shareholders' Representations and
Warranties. The Company and the Principal Shareholders shall use their best
efforts to maintain the truth and accuracy of all of the Company's and the
Principal Shareholders' representations and warranties set forth in this
Agreement and shall immediately notify TL of any fact or event of which the
Principal Shareholders have knowledge causing any of such representations or
warranties to be inaccurate and shall use best efforts to cure the same as soon
as practical, but in no event later than the First Closing Date.
5.4. Consents Required of the Principal Shareholders or the Company.
Prior to the First Closing Date, the Principal Shareholders shall obtain all
consents as may be necessary to authorize, approve or permit the full and
complete consummation of the transactions herein contemplated to occur at the
First Closing, including, without limitation, consents to the assignment of any
capital leases and the lease of the Premises and any Contracts.
5.5. Closing Balance Sheet. At or prior to the First Closing, the
Company shall deliver to TL the Company Closing Balance Sheet certified by the
Principal Shareholders as being true and correct and fairly presenting the
financial condition of the Company and estimating balances as of May 31, 1998.
Within thirty (30) days after the First Closing Date, the Company may deliver a
revised Company Closing Balance Sheet to TL, which shall replace the Company
Closing Balance Sheet previously delivered, reflecting any changes from the
estimated amounts, which revised balance sheet shall be considered the Company
Closing Balance Sheet hereunder for all purposes subject to further adjustment
during the Survival Period as a result of the audit of the Company Closing
Balance Sheet or a valid Claim. If the Net Worth of the Company reflected on
such Company Closing Balance Sheet is less than the amount disclosed as such in
Section 3.23 of this Agreement, such difference shall be deemed a Claim for the
purpose of Section 7.2 of this Agreement. The amount of any severance payments
to Gerald Gruber or Jennifer Lunsford that are incurred by the Company shall not
be included in the calculation of the Company's Net Worth as reflected on the
Company Closing Balance Sheet.
5.6. Accounting Treatment. The Principal Shareholders and the Company
shall take no action which would cause the Merger not to qualify for treatment
as a pooling-of-interests for accounting purposes.
5.7. Best Efforts. Subject to the other provisions of this Agreement,
the Principal Shareholders and the Company shall use their best efforts to cause
the conditions listed in Section 6.1 hereof to be satisfied as of the First
Closing Date. TL shall use its best efforts to cause the conditions listed in
Section 6.2 hereof to be satisfied as of the First Closing Date.
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ARTICLE 6
CONDITIONS PRECEDENT TO THE CLOSINGS
6.1. Conditions Precedent to TL's Obligation in Respect of the First
Closing. The obligation of TL to consummate the First Closing shall be subject
to the satisfaction, or the waiver by TL, of the following conditions on or
prior to the respective Closing Date:
(a) Representations and Warranties; Compliance with Agreement. The
representations and warranties of the Company and the Principal Shareholders set
forth in this Agreement shall have been true and correct on the date of this
Agreement and shall be true and correct as of the First Closing Date as though
made on and as of such Closing Date, except for representations and warranties
that speak as of a specific date before the First Closing Date, and the
Principal Shareholders shall have performed in all material respects all
covenants and agreements to be performed by the Principal Shareholders under
this Agreement on or prior to the First Closing Date, and the Principal
Shareholders shall have delivered to TL a certificate to such effect dated such
Closing Date signed by the Principal Shareholders which certificate will be in
form and substance satisfactory to TL's counsel;
(b) Litigation Affecting Closing. On the First Closing Date, no
Action will be pending or threatened before any court or Governmental
Entity in which it is sought to restrain or prohibit or to obtain Damages or
other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby, and no investigation that might eventuate in
any such Action will be pending or, to the best knowledge of the Principal
Shareholders, threatened;
(c) Required Consents. On or prior to the First Closing, the holders
of any indebtedness of the Company, the lessors of any Assets leased by
the Company, the parties to any Contract, any Governmental Entity or any other
Person which owns or has authority to grant any franchise, license, Permit,
easement, right or other authorization necessary for the business or operations
of the Company, and any Governmental Entity having jurisdiction over the Company
or the Principal Shareholders, to the extent that consent or approval of any of
the foregoing is required under the pertinent debt, lease, contract, commitment
or agreement or other document or instrument or under applicable laws for the
consummation of the transactions in the manner in this Agreement provided (or
without whose consent there would be a default under such debt, lease, contract,
commitment or agreement or other document or instrument or under applicable
Laws), have granted such consent or approval or, in the case of required filings
or certifications to Governmental Entities, the Principal Shareholders and the
Company shall have made such filings or certifications;
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(d) Due Diligence Investigation. TL and its representatives are
satisfied with the results of their due diligence investigation of the Company
on or prior to the First Closing;
(e) Opinion of Counsel for the Company. Hogan & Hartson LLP, counsel
for the Company, shall have delivered to TL an opinion, dated as of the
First Closing Date, in the form attached to this Agreement as Exhibit 6.1(e);
(f) Opinion of Counsel for the Principal Shareholders. Gibson Dunn &
Crutcher LLP, counsel for the Principal Shareholders (other than Cameron), shall
have delivered to TL an opinion, dated as of the First Closing Date, in the form
attached to this Agreement as Exhibit 6.1(f);
(g) No Damage to Business. On or prior to the First Closing, the
Company shall not have suffered, and there shall not be, or likely to
be, a Material Adverse Effect and the Assets shall not have been and shall not
be threatened to be adversely affected in any way as a result of fire,
explosion, earthquake, disaster, accident, labor dispute, any action by any
Governmental Entity, flood, drought, embargo, riot, civil disturbance, uprising,
activity of armed forces or act of God or public enemy;
(h) Approval of Counsel; Corporate Matters. All actions, proceedings,
resolutions, instruments and documents required to carry out this Agreement, or
incidental hereto, and all other related legal matters shall have been approved
on the First Closing Date by counsel for TL in the exercise of his reasonable
judgment;
(i) Escrow Agreement. The Escrow Agreement will have been duly
executed and delivered by the appropriate parties;
(j) Pooling Letter. TL shall have received a letter in a form and
substance satisfactory to TL from the Auditor dated as of the First Closing Date
stating that the Merger will qualify as a pooling-of-interests under Opinion 16
of the Accounting Principles Board;
(k) Minimum Share Values. The Value of a share of MedQuist Common
shall be no less than Thirty-Eight Dollars ($38.00); and
(l) Resignations. The officers and directors of the Company shall
have tendered their unconditional resignations from the Company.
6.2. Obligation of the Principal Shareholders in Respect of the First
Closing. The obligation of the Principal Shareholders to consummate the First
Closing shall be subject to
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the satisfaction by TL or the waiver by the Principal Shareholders of the
following conditions on or prior to the First Closing Date:
(a) Representations and Warranties. The representations and
warranties of TL set forth in Article 4 of this Agreement shall have
been true and correct as of the date of this Agreement and shall be true and
correct as of the First Closing Date as though made on and as of the First
Closing Date, except for representations and warranties that speak as of a
specific date before the First Closing Date, and TL shall have performed in all
material respects all covenants and agreements to be performed by it under this
Agreement on or prior to the First Closing Date, and TL shall have delivered to
the Principal Shareholders a certificate to such effect, dated the First Closing
Date and signed by an authorized officer, which certificate will be in form and
substance satisfactory to the Principal Shareholders and their counsel;
(b) Litigation Affecting Closing. On the First Closing Date, no
Action will be pending or threatened before any court or Governmental
Entity in which it is sought to restrain or prohibit or to obtain Damages or
other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby, and no investigation that might eventuate in
any such Action will be pending or threatened; and
(c) Maximum Share Values. The Value of a share of MedQuist Common
shall be no greater than Fifty-Two Dollars ($52.00).
6.3. Conditions Precedent in Respect of the Second Closing. The
obligation of MedQuist, TL and the Company to consummate the Second Closing
shall be subject to the Securities and Exchange Commission having declared
effective the registration statement of MedQuist on Form S-4 necessary to
register under the Act the shares of MedQuist Common issuable to the Public
Shareholders in connection with the Merger.
ARTICLE 7
SURVIVAL AND SHARE ADJUSTMENT
7.1. Survival of Representations and Warranties; Insurance Proceeds. The
representations and warranties of the Company, the Principal Shareholders and TL
under this Agreement will terminate at the First Closing, except that the
representations and warranties with respect to Sections 3.5 (Financial
Statements; Reports), 3.6 (No Undisclosed Liabilities) 3.13 (Taxes), 3.16
(Assets), 3.22 (Accounts Receivable) and 3.23 (Net Worth) (each a "Surviving
Warranty") shall survive the First Closing until the earlier of (a) the
completion of the first independent audit, following the First Closing Date, of
the consolidated financial statements of MedQuist in which the Surviving
Corporation's financial statements are included, or (b) one (1) year from the
date of this Agreement (the "Survival Period").
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7.2. Adjustment of Shares. If, prior to the expiration of the Survival
Period, TL in good faith determines that the Company or the Principal
Shareholders breached a Surviving Warranty as of the First Closing Date and TL
incurs, or becomes reasonably likely to incur, Damages as a result of such
breach (a "Claim"), then TL shall deliver a notice of Claim ("Claim Notice") to
the Escrow Agent and the Principal Shareholders setting forth the nature of such
Claim and the estimated amount of Damages from such Claim. If the Principal
Shareholders do not object or are deemed not to have objected pursuant to
Section 7.3 below, TL shall be entitled to have the Escrow Agent return and the
Escrow Agent shall return to TL such number of the Escrowed Shares having a
Value equal to the aggregate dollar amount of TL's Damages set forth in the
Claim Notice, up to the total number of Escrowed Shares then held by the Escrow
Agent. If the Principal Shareholders dispute the amount of Damages set forth in
any Claim Notice, the Escrow Agent shall return to TL such of the Escrowed
Shares as are not subject to such dispute and the number of Escrowed Shares that
are the subject of such dispute shall be held by the Escrow Agent until such
dispute is resolved hereunder. If any of such Escrowed Shares are returned to TL
in accordance with the preceding two sentences, then such action shall be
considered an adjustment to the Aggregate Merger Consideration. At the
expiration of the Survival Period, the Escrow Agent shall deliver to the
Shareholders any of the Escrowed Shares then in the Escrow Agent's possession;
provided, however, that if there is any pending or asserted Claim pursuant to
which a Claim Notice has been delivered by TL prior to the expiration of the
Survival Period the Escrow Agent shall not deliver the Shareholders such number
of Escrowed Shares as is equal to the lesser of (i) the product of (A) the
number of Escrowed Shares multiplied by (B) the Value and (ii) such number of
Escrowed Shares multiplied by the Value as is equal to the amount of such Claim
set forth in the Claim Notice, until such Claim is resolved.
7.3. Dispute Notice. The Principal Shareholders will, within twenty (20)
days after receipt of a Claim Notice, deliver to TL and the Escrow Agent a
written notice ("Dispute Notice") stating either that the Principal Shareholders
agree with TL's Claim or that they object in good faith to the validity of such
Claim and setting forth in reasonable detail the grounds on which the Principal
Shareholders are contesting the validity of the Claim. Any failure of the
Principal Shareholders to deliver such Dispute Notice within such twenty (20)
day period shall be conclusively deemed to be acceptance of such adjustment. In
the event the Principal Shareholders do not withdraw their Dispute Notice or the
Claim set forth in any Claim Notice has not been conclusively resolved prior to
the expiration of the Survival Period, the Escrow Agent shall continue to retain
under the Escrow Agreement the number of Escrowed Shares determined under the
proviso of the last sentence of Section 7.2.
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ARTICLE 8
CONDUCT OF THE PRINCIPAL SHAREHOLDERS AND TL AFTER CLOSING
8.1. Additional Actions and Cooperation. TL and the Principal
Shareholders will cooperate upon and after the First Closing Date in effecting
the orderly combination of the Company and TL pursuant to the Merger. In
addition, after the First Closing Date, at the request of either party, the
other party will execute and deliver from time to time such further instruments
of assignment, conveyance and transfer, will cooperate in the conduct of
litigation and the processing and collection of insurance claims, and will take
such other actions as may reasonably be required to effect the Merger and
otherwise to accomplish the orderly combination of the Company and TL as
contemplated by this Agreement.
8.2. Registration Statements. As soon as reasonably practicable after
the First Closing Date, MedQuist shall prepare and file with the SEC (a) a
Registration Statement on Form S-3 for the purpose of registering for resale the
shares of MedQuist Common issued to the Principal Shareholders pursuant to this
Agreement, and (b) a Registration Statement on Form S-4 for the purpose of
registering the shares of MedQuist Common to be issued to the Public
Shareholders pursuant to this Agreement. MedQuist shall use commercially
reasonable efforts to (i) respond promptly to SEC comments, if any, and (ii)
cause such registration statements to be declared effective by the SEC.
8.3. Closing Balance Sheet Audit. At any time following the First
Closing Date, but no later than the completion of the first independent audit,
following the First Closing Date, of the consolidated financial statements of
MedQuist in which the Surviving Corporation's financial statements are included,
TL shall have the right to cause the Auditor to complete an audit of the Company
Closing Balance Sheet.
8.4. Taxes and Tax Returns. The Principal Shareholders and TL will each
provide the other (i) such assistance as may reasonably be requested by any of
them in connection with the preparation of any return, audit or other
examination by any taxing authority or judicial or administrative proceeding
relating to liability for Taxes, (ii) copies of all notices from any taxing
authority or other governmental agency or authority concerning Taxes and (iii)
such assistance as may reasonably be requested by any of them in connection with
the preparation and filing on or before July 31, 1998 of Tax Returns and Form
W-2's for employees of the Company relating to periods on or prior to the First
Closing Date. Except to the extent reflected on the Company Closing Balance
Sheet, the Principal Shareholders shall be responsible for the payment of all
Taxes relating to the operation of the Company at any time prior to the First
Closing Date.
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8.5. Retention of Shares by Principal Shareholders. Following the First
Closing, the Principal Shareholders shall not sell, assign, transfer, pledge,
grant options with respect to, acquire the right to put to another Person, or in
any other way reduce their risk relative to any shares of MedQuist Common
received in connection with the exchange at the First Closing until such time as
the financial results covering at least thirty (30) days of consolidated
operations of MedQuist following the First Closing, including the Surviving
Corporation for such thirty (30) day period, have been publicly reported by
MedQuist or enter into any agreement with respect to the foregoing.
ARTICLE 9
TERMINATION OF AGREEMENT
9.1. Termination. This Agreement may be terminated prior to the First
Closing as follows:
(a) at the election of the Principal Shareholders, if any one or more
of the conditions to its obligation to complete the First Closing as set
forth in Section 6.2 above has not been fulfilled by June 30, 1998;
(b) at the election of TL, if any one or more of the conditions to
its obligation to complete the First Closing as set forth in Section 6.1
above has not been fulfilled by June 30, 1998;
(c) at the election of the Principal Shareholders, if TL has
materially breached any material representation, warranty, covenant or
agreement contained herein required to occur or be performed on or prior to the
First Closing Date;
(d) at the election of TL, if any of the Company or the Principal
Shareholders has materially breached any material representation, warranty,
covenant or agreement contained herein;
(e) at the election of any of the parties if any action shall have
been instituted and be continuing by any Governmental Authority with
proper authority to restrain, modify or prohibited carrying out of the
transactions contemplated hereby; or
(f) at any time on or prior to the First Closing Date, by mutual
written consent of the Principal Shareholders and TL.
If TL or the Principal Shareholders, as the case may be, elects to
terminate this Agreement pursuant to Section 9.1(a), (b), (c), (d), or (e)
hereof, the terminating party shall
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deliver a notice to the other party hereto declaring its election to so
terminate this Agreement in accordance with the provisions of Section 9.1(a),
(b), (c), (d), or (e), as the case may be, and setting forth therein the basis
for such termination.
If this Agreement so terminates, it shall become null and void and have
no further force or effect, except as provided in Section 9.2 hereof.
9.2. Survival. If this Agreement is terminated, this Agreement shall
become void and of no further force and effect, except for the provisions of
this Article 9 and Article 11 hereof; which provisions shall survive the
termination hereof. None of the parties hereto shall have any liability in
respect to a termination of this Agreement pursuant to this Article 9, except to
the extent that a party's failure to satisfy the conditions of Article 6,
results from the intentional or willful breach or violation of the
representations, warranties, covenants or agreements of such party under this
Agreement. For purposes of the preceding sentence, the failure of any party to
comply with, or perform, its respective obligations under Article 2 promptly
after all conditions to such compliance shall have been fulfilled, shall
constitute an intentional or willful violation of the agreement herein contained
by such failing party.
ARTICLE 10
INDEMNIFICATION
10.1. Director and Officer Indemnification.
(a) From and after the First Closing Date, TL and MedQuist agree to
assume any obligation of the Company existing on the date hereof, to the extent
of any such obligation, to indemnify and hold harmless each present and former
director and officer of the Company (the "Indemnified Parties"), against Damages
incurred in connection with claims, actions, suits, proceedings or
investigations, whether civil, criminal, administrative or investigative,
asserted or instituted not later than the third (3rd) anniversary of the
Effective Time and arising out of or pertaining to matters arising out of or in
connection with such party's position as, or actions taken as, a director or
officer of the Company at or prior to the Effective Time, to the fullest extent
permitted by the Company's certificate of incorporation and bylaws, as in effect
on the date hereof, (and also advance expenses incurred to the fullest extent
provided thereunder upon receipt of any undertaking permitted by applicable law
or such certificate of incorporation and bylaws); provided, however, that TL or
MedQuist shall not have any obligation hereunder to any Indemnified Party when
and if a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and nonappealable, that the
indemnification of such Indemnified Party in the manner contemplated hereby is
not required. If such indemnity is determined not to be available, then TL or
MedQuist and each of the Indemnified Parties shall contribute to the amount
payable in such proportion as is appropriate to reflect relative faults and
benefits and other relevant equitable considerations.
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(b) Any Indemnified Party wishing to claim indemnification under
Section 10.1(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify TL and MedQuist thereof, but the failure to
so notify shall not relieve TL and MedQuist of any liability it may have to such
Indemnified Party if such failure does not materially prejudice TL and MedQuist.
In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time): (i) TL and MedQuist shall
have the right to assume the defense thereof and TL and MedQuist shall not be
liable to such Indemnified Parties for any legal expenses of other counsel or
any other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof; (ii) the Indemnified Parties will cooperate
in the defense of any such matter; and (iii) TL and MedQuist shall not be liable
for any settlement affected without its prior written consent, which shall not
be unreasonably withheld.
(c) TL and MedQuist shall have the right, but not the obligation, to
purchase and maintain such insurance as it deems appropriate to cover all or any
part of its obligations under this Article 10.
ARTICLE 11
GENERAL
11.1. Entire Agreement; Amendments. This Agreement constitutes the
entire understanding among the parties with respect to the subject matter
contained in this Agreement and therein and supersedes any prior understandings
and agreements among them respecting such subject matter. This Agreement may be
amended or supplemented only by a written instrument duly executed by all of the
parties.
11.2. Headings. The headings in this Agreement are for convenience of
reference only and will not affect its interpretation.
11.3. Gender; Number. Words of gender may be read as masculine,
feminine, or neuter, as required by context. Words of number may be read as
singular or plural, as required by context.
11.4. Exhibits and Schedules. Each Exhibit and Schedule referred to in
this Agreement is incorporated into this Agreement by such reference.
11.5. Severability. If any provision of this Agreement is held illegal,
invalid, or unenforceable, such illegality, invalidity, or unenforceability will
not affect any other provision hereof. This Agreement will, in such
circumstances, be deemed modified to the extent necessary to render enforceable
the provisions hereof.
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<PAGE>
11.6. Notices. All notices and other communications hereunder will be in
writing and will be given to the person either personally or by sending a copy
thereof by first class mail, courier services, charges prepaid, hand delivery,
or by telecopier, to such party's address (or to such party's telecopier
number). If the notice is sent by courier services, it will be deemed to have
been given to the person entitled thereto when deposited with the courier
service for delivery to that person or, in all other cases, when dispatched.
If to MedQuist or TL to:
MedQuist Inc.
Five Greentree Centre
Suite 311
Marlton, NJ 08053
Attention: John M. Suender,
Vice President Acquisitions
Telecopy: 609-596-6337
Telephone: 609-596-8877
with a copy to:
James D. Rosener
Pepper Hamilton LLP
1235 Westlakes Drive
Suite 400
Berwyn, PA 19312
Telecopy: 610-640-7835
Telephone: 610-640-7817
If to the Principal Shareholders to:
Proactive Partners L.P.
50 Osgood Place
San Francisco, CA 94133
Telecopy:
Telephone:
- and -
Richard D. Cameron
1914 Beulah Road
Vienna, VA 22182
Telecopy: 713-319-8186
Telephone: 703-319-2091
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with a copy to:
David Martin
Hogan & Hartson
13th Street, NW
Washington, DC 20004
Telephone: 202-637-5910
Telecopy: 202-637-6858
Notice of any change in any such address will also be given in the
manner set forth above. Whenever the giving of notice is required, the giving of
such notice may be waived by the party entitled to receive such notice.
11.7. Waiver. The failure of any party to insist upon strict performance
of any of the terms or conditions of this Agreement will not constitute a waiver
of any of its rights hereunder.
11.8. Assignment. No party may assign any of its rights or delegate any
of its obligations hereunder without the prior written consent of the other
parties, except that TL shall have the right to assign its rights hereunder to a
corporation owned or controlled by TL or which owns or controls TL.
11.9. Successors and Assigns. Except as set forth in Section 11.8, this
Agreement binds, inures to the benefit of, and is enforceable by the successors,
assigns, heirs and personal representatives of the parties, and does not confer
any rights on any other persons or entities.
11.10. Governing Law. This Agreement will be construed and enforced in
accordance with the laws of the State of New Jersey, notwithstanding the
conflict of laws principles of any jurisdiction.
11.11. No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of the
parties hereto and their successors and assigns, and they will not be construed
as conferring and are not intended to confer any rights on any other persons.
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<PAGE>
11.12. Public Announcements. Except as required under applicable laws,
and for any joint press releases of the Company, the Principal Shareholders TL
and MedQuist, no party shall issue a report, statement or press release with
respect to the execution or closing of this Agreement prior to the consultation
with and approval of the other party.
11.13. Counterparts. This Agreement may be executed in any
number of counterparts and any party hereto may execute any such counterpart,
each of which when executed and delivered will be deemed to be an original and
all of which counterparts taken together will constitute but one and the same
instrument. The execution of this Agreement by any party hereto will not become
effective until counterparts hereof have been executed by all the parties
hereto. It will not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
TRANSCRIPTIONS, LTD.
/s/ David A. Cohen
--------------------------------
David A. Cohen, President
MEDQUIST INC.
/s/ David A. Cohen
--------------------------------
Name: David A. Cohen
Title: President
DIGITAL DICTATION, INC.
/s/ Richard D. Cameron
--------------------------------
Richard D. Cameron, President
PROACTIVE PARTNERS, L.P.
By: Proactive Investment Managers, L.P.,
General Partner
By: /s/ Charles C. McGettigan
----------------------------
Charles C. McGettigan,
General Partner
[SIGNATURES CONTINUE ON FOLLOWING PAGE]
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LAGUNITAS PARTNERS, L.P.
By: Gruber & McBaine
Capital Management, LLC,
----------------------------
General Partner
By: /s/ Jon D. Gruber
----------------------------
Jon D. Gruber, Manager
GRUBER & MCBAINE INTERNATIONAL
By: /s/ Robert T. Arnott
---------------------------
Name: Robert T. Arnott
Title: Director
/s/ Richard D. Cameron
--------------------------------
RICHARD D. CAMERON
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