-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bqiyd5SxR+snxjlui4Q6wejyLGjYZsHYPYoBq4mSWVTct6dMLeCf2UxQGHEajma5 4E9OHubzmZrjU6+/kzzCrA== 0000950115-96-000904.txt : 19960620 0000950115-96-000904.hdr.sgml : 19960620 ACCESSION NUMBER: 0000950115-96-000904 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19960619 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDQUIST INC CENTRAL INDEX KEY: 0000884497 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 222531298 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-03974 FILM NUMBER: 96582809 BUSINESS ADDRESS: STREET 1: FIVE GREENTREE CENTRE STE 311 STREET 2: STATE HIGHWAY 73 N CITY: MARLTON STATE: NJ ZIP: 08053 BUSINESS PHONE: 6097820300 MAIL ADDRESS: STREET 1: 5 GREENTREE CENTRE SUITE 311 STREET 2: 5 GREENTREE CENTRE SUITE 311 CITY: MARLTON STATE: NJ ZIP: 08053 S-3/A 1 AMENDMENT NO. 1 As Filed with the Securities and Exchange Commission on June 19, 1996 Registration No. 333-3974 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 --------------- AMENDMENT NO. 1 TO FORM S-3/A REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 --------------- MEDQUIST INC. (Exact Name of Registrant as Specified in Charter) New Jersey 23-2531298 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Identification Organization) Number) Five Greentree Centre Suite 311 Marlton, New Jersey 08053 (609) 596-8877 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) John M. Suender Vice President & General Counsel MedQuist Inc. Five Greentree Centre Suite 311 Marlton, New Jersey 08053 (609) 596-8877 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) --------------- WITH A COPY TO: James D. Epstein, Esq. Pepper, Hamilton & Scheetz 3000 Two Logan Square Philadelphia, PA 19103-2799 (215) 981-4000 --------------- Approximate date of commencement of proposed sale to public: As soon as practicable after the effectiveness of this Registration Statement. --------------- If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. /X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION, DATED JUNE 19, 1996 PROSPECTUS MEDQUIST INC. This Prospectus relates to the sale by certain shareholders of the Company (the "Selling Shareholders") of 1,038,026 shares (the "Offered Shares") of MedQuist Inc.'s (the "Company") common stock, no par value per share ("Common Stock"), including: (1) 962,675 shares of Common Stock owned by Heller Equity Capital Corporation ("Heller"); and (2) 75,351 shares of Common Stock which may be issued by the Company upon the exercise by Chemical Bank of outstanding warrants (the "Chemical Warrants") to purchase shares of Common Stock. The issuance of shares of Common Stock upon the exercise of the Chemical Warrants is not covered by this Prospectus, which only covers the sale of the Offered Shares of Common Stock by the Selling Shareholders. There is no assurance that the Chemical Warrants will be exercised, and therefore there is no assurance that the Company will receive any proceeds thereunder. The Company will not receive any proceeds from the sale of the Offered Shares of Common Stock by the Selling Shareholders. See "Selling Shareholders." No underwriter is initially being utilized in connection with this offering. The Company will pay all expenses incurred in connection with this offering other than fees and expenses (including underwriting fees and selling commissions) of the Selling Shareholders. See "Plan of Distribution." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------- Prospective Purchasers Should Consider The Risks Set Forth Under "Risk Factors" Commencing on Page 3. The sale, transfer and/or distribution of the Offered Shares of Common Stock by the Selling Shareholders, or by their pledgees, donees, transferees or other successors in interest, may be effected from time to time through brokers, agents, dealers or underwriters in one or more transactions (which may involve crosses and principal trades, including block transactions), in special offerings, negotiated transactions, exchange distributions or secondary distributions, or in connection with short-sale transactions, or otherwise, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. In addition, any Offered Shares of Common Stock that qualify for sale pursuant to Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), may be sold under Rule 144 rather than pursuant to this Prospectus. The foregoing is subject to lock-up agreements executed by Heller and Chemical Bank restricting the public sale of the Offered Shares for 270 and 180 days, respectively, from May 30, 1996. The Selling Shareholders may pay commissions or other compensation to broker-dealers in connection with such sales, which may be in excess of customary commissions charged for Nasdaq National Market transactions. See "Plan of Distribution." The Common Stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol "MEDQ". On June 17, 1996, the last sale price of Common Stock, as reported by the Nasdaq National Market was $18.875 per share. The date of this Prospectus is June , 1996. AVAILABLE INFORMATION The Company has filed a registration statement on Form S-3 (the "Registration Statement") with the Securities and Exchange Commission (the "Commission") relating to the shares of Common Stock offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and in the amendments, exhibits and schedules thereto, certain portions of which have been omitted pursuant to the rules and regulations of the Commission. Reference is hereby made to the Registration Statement and to the amendments, exhibits and schedules thereto for further information with respect to the Company and the securities offered hereby. Any statements contained herein concerning the provisions of any document filed as an exhibit to the Registration Statement or otherwise filed with the Commission are not necessarily complete, and in each instance reference is made to the copy of such document so filed. Each such statement shall be qualified in its entirety by such reference. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance therewith, files reports, proxy and information statements, and other information with the Commission. Proxy and information statements concerning the Company, reports and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices in New York (Seven World Trade Center, Suite 1300, New York, New York 10048) and Chicago (Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511). Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Common Stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol "MEDQ". Report, proxy statements and other information concerning the Company may be inspected at the offices of The Nasdaq Stock Market, Inc. located at 1735 K Street NW, Washington, DC 20006-1500. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The following documents and information filed by the Company with the Commission (Commission File No. 0-19941) are incorporated in this Prospectus by reference and made a part hereof: (a) The Company's Annual Report on Form 10-K for the year ended December 31, 1995. (b) Amendment No. 1 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1995. (c) Amendment No. 2 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1995. (d) The Company's Current Report on Form 8-K filed with the Commission on April 5, 1996. (e) The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. (f) Amendment No. 1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. (g) The description of Common Stock registered under Section 12 of the Exchange Act contained in the Company's Registration Statement on Form S-1 filed with the Commission on April 1, 1996 (File No. 333-3050), including any amendments or reports filed for the purpose of updating such description. -2- (h) In addition, all documents subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering shall be deemed to be incorporated by reference herein from their respective dates of filing. Any statements contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is incorporated or deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will furnish, without charge, to any person to whom a copy of this Prospectus is delivered, including any beneficial owner, upon such person's written or oral request, a copy of any and all of the documents that have been incorporated by reference in this Prospectus (not including exhibits to the information that has been incorporated by reference unless such exhibits are specifically incorporated by reference into the information that the prospectus incorporates). Any such request should be directed to the Chief Financial Officer, MedQuist Inc., Five Greentree Centre, Suite 311, Marlton, New Jersey 08053, phone number: (609) 596-8877. SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS This Prospectus contains certain statements of a forward-looking nature relating to future events or the future financial performance of the Company. Prospective investors are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider the various factors identified in this Prospectus, including the matters set forth under the caption "Risk Factors," which could cause actual results to differ materially from those indicated by such forward-looking statements. THE COMPANY The Company is a national provider of electronic transcription and document management services to the healthcare industry. The Company was incorporated in New Jersey in 1987 as a group of outpatient healthcare businesses affiliated with a non-profit healthcare provider. During the last several years, the Company sold its outpatient businesses, acquired Transcriptions, Ltd. in May 1994 and two other small transcription businesses in 1995, and sold its receivables management division in December 1995. As used herein, the term the "Company" includes all of its subsidiaries, including its current subsidiary Transcriptions, Ltd., as well as Transcriptions, Ltd., the predecessor acquired by the Company in May 1994. The Company's principal executive offices are located at Five Greentree Centre, Suite 311, Marlton, New Jersey 08053, and its telephone number is (609) 596-8877. RISK FACTORS In addition to the other information contained in this Prospectus, the following risk factors should be considered carefully in evaluating the Company and its business. This Prospectus contains forward-looking statements which involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the following risk factors and elsewhere in this Prospectus. See "Special Note Concerning Forward-Looking Statements" above for additional factors relating to such statements. Risks Associated With the Business Dependence on Single Line of Business The Company's revenues are derived primarily from the provision of electronic transcription services to hospitals and other healthcare organizations on an outsourced basis. The Company's future success will -3- depend on the continued market acceptance of its transcription services and the continued trend towards outsourcing of transcription services. A reduction in demand or increase in competition in the market for its transcription services would have a material adverse effect on the Company's business, financial condition and results of operations. Rapid Technological Change The healthcare information services industry is characterized by rapid technological change, evolving client needs and emerging technical standards. The introduction of competing services or products incorporating new technologies, such as voice recognition capabilities and the emergence of new technical standards could render some or all of the Company's services unmarketable. The Company believes that its future success depends on its ability to enhance its current services and develop new services that address the increasingly sophisticated needs of its customers. The failure of the Company to develop and introduce service enhancements and new services in a timely and cost-effective manner in response to changing technologies or client requirements would have a material adverse effect on the Company's business, financial condition and results of operations. Inability to Expand Into New Markets To date, the Company's services have been provided primarily to the medical record departments of hospitals. However, healthcare services are increasingly being provided at sites other than hospitals, such as outpatient clinics and physician practice groups. As part of its strategy, the Company intends to increase its presence in these new markets and to expand its services to direct patient care departments within hospitals. However, the Company has limited experience in such markets and departments which may require significant modifications to the Company's services or adjustments to its pricing. The Company's business, financial condition and results of operations may be materially and adversely affected if its efforts to expand into new markets and departments are not successful. Dependence on Key Personnel The Company's future success depends upon its ability to attract and retain its key managerial personnel. The loss of services of certain of the Company's executive officers or the inability of the Company to attract additional management personnel could have a material adverse effect upon the Company's business, financial condition and results of operations. Certain of its key executive officers, including David A. Cohen, the President and Chief Executive Officer, John A. Donohoe, Jr., the Chief Operating Officer, and Ronald Scarpone, the Chief Information Officer, have employment agreements with the Company. Mr. Scarpone's employment agreement terminates on December 31, 1997, and Mr. Cohen's and Mr. Donohoe's employment agreements terminate on December 31, 1998. Each such agreement permits the executive to resign, at any time, by giving the Company at least three months prior notice. The Company does not have key-man insurance on any of its executive officers. Potential for Significant Fluctuations in Quarterly Operating Results The Company has experienced, and may in the future experience, significant quarter to quarter fluctuations in its results of operations. Such fluctuations may result in volatility in the price of Common Stock. Quarterly results of operations may fluctuate as a result of a variety of factors, including demand for the Company's services, the opening of new offices, the timing of introduction of new services and service enhancements by the Company or its competitors, the market acceptance of new services, the size and timing of client contracts, changes in client budgets, the size and timing of acquisitions, the integration of acquired businesses into the Company's operations, the number and timing of new hires, competitive conditions in the industry and general economic conditions. Further, the Company's contracts generally involve significant client commitment and may require time-consuming authorization procedures within the client's organization. For these and other reasons, the sales cycles for the Company's services are typically lengthy and subject to a number of factors outside of the Company's control. As a result, the Company's revenues are difficult to forecast, and the Company believes that period to period comparisons of results of operations are not necessarily meaningful and should not be relied upon as an -4- indication of future results of operations. In addition, the Company's transcription business has experienced substantial growth in recent periods and there can be no assurance that such rate of growth in revenues and profits can be maintained in the future. Due to the foregoing factors, it is possible that in future quarters the Company's operating results will be below the expectations of public market analysts and investors. Such an event could have a material adverse effect on the price of Common Stock. Ability to Attract and Retain Qualified Transcriptionists The Company's future success depends upon its ability to attract and retain qualified transcriptionists. Competition for transcriptionists is intense, and no assurance can be given that the Company will be successful in attracting and retaining the personnel necessary to conduct its business successfully. The inability of the Company to attract, hire and retain such personnel would have a material adverse effect upon the Company's business, financial condition and results of operations. The Company takes the position that its transcriptionists are independent contractors for state tax, benefits and unemployment purposes and statutory employees for federal income tax purposes. A successful challenge to the Company's position or a change in applicable law could result in the incurrence of liability for withholding taxes, disability payments, unemployment payments, interest and penalties by the Company, and could have a material adverse effect on the Company's costs of hiring and retaining transcriptionists. Risks Associated With Acquisitions The Company acquired Transcriptions, Ltd. in May 1994, made two other acquisitions of smaller transcription companies in 1995, and intends to seek other acquisitions which will likely require the consent of its senior lenders. There can be no assurance that the Company will be successful in identifying suitable acquisition candidates, financing such acquisitions, negotiating terms favorable to the Company, consummating acquisitions or integrating the acquired businesses into the Company's operations. Moreover, in connection with acquisitions, the Company may be required to incur additional indebtedness or other liabilities which could have a material adverse effect on the Company's liquidity and capital resources, or to issue shares of its capital stock, which could result in dilution to its shareholders. Management of Changing Business The Company has experienced significant changes, including the acquisition and growth of its transcription business and the divestiture of its other business. Such changes have placed and may continue to place a significant strain on the Company's management, client service personnel and operations. In order to manage such changes in the future, the Company must continue to implement and improve its operational, financial and management information systems, and hire, train and manage its employees. If the Company is unable to implement such systems and manage such changes effectively, the Company's business, financial condition and results of operations could be materially and adversely affected. Competition The transcription services industry is highly fragmented and primarily consists of small regional or local companies, and a limited number of national companies, with which the Company currently competes directly. The Company believes that its ability to compete successfully depends upon many factors within and outside of its control, including the timing and market acceptance of new services and service enhancements developed by the Company and its competitors, service quality, performance, price, reliability and client support. In addition, the healthcare information industry includes a number of companies with substantially greater financial, technical and marketing resources than the Company. Such companies, if they were to enter the transcription business, could respond more quickly than the Company to evolving technological developments, changing client needs or emerging technical standards, or could devote greater resources to the development, marketing and sale of their services. Competition may increase due to consolidation of transcription companies, and current and potential competitors may establish cooperative relationships among themselves or with third parties to increase their ability -5- to address the needs of the Company's current and prospective clients. Increased competition may result in price reductions for the Company's services, reduced operating margins and the inability of the Company to increase its market share. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competitive pressures will not have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the market available to the Company is limited by healthcare organizations which maintain in-house transcription departments. Changes in the Healthcare Industry The healthcare industry is subject to changing political, economic and regulatory influences that may affect the outsourcing arrangements of healthcare providers. Federal and state legislators have proposed programs to reform the United States healthcare system and other proposals are in the development stage. In general, these programs and proposals tend to emphasize managed care, seek to lower reimbursement rates and otherwise attempt to control the environment in which healthcare providers operate. Healthcare providers may react to these proposals and the uncertainty surrounding such proposals by curtailing outsourcing arrangements or deferring decisions regarding the use of outsourced services. Many healthcare providers are consolidating to create larger healthcare delivery organizations. This consolidation reduces the number of potential clients for the Company's services and increases the bargaining power of these organizations which could lead to reductions in the amounts paid for the Company's services. The impact of these developments in the healthcare industry is difficult to predict and could have a material adverse effect on the Company's business, financial condition and results of operations. Dependence on Proprietary Rights; Risks of Infringement The Company's success depends upon its proprietary technology. The Company regards the software underlying its services as proprietary and relies primarily on a combination of contract, copyright and trademark law, trade secrets, confidentiality agreements and contractual provisions to protect its proprietary rights. The Company has not registered its Medical Transcription System (an integrated transcription and document management system based upon proprietary software), Dictation Tracking System (a tracking system for patient data and transcribed reports), or Transcriptions, Ltd. trademarks and has no patents or patent applications pending. Existing trade secrets and copyright laws afford the Company limited protection. Despite the Company's efforts to protect its proprietary rights, unauthorized parties may attempt to copy aspects of the Company's software or to obtain and use information that the Company regards as proprietary. Policing unauthorized use of the Company's software is difficult. There can be no assurance that the obligations to maintain the confidentiality of the Company's trade secrets and proprietary information will effectively prevent disclosure of the Company's confidential information or provide meaningful protection for the Company's confidential information, or that the Company's trade secrets or proprietary information will not be independently developed by the Company's competitors. There can be no assurance that copyrights owned by the Company will provide competitive advantages or will not be challenged or circumvented by its competitors. Litigation may be necessary for the Company to defend against claims of infringement, to enforce copyrights or to protect trade secrets and could result in substantial cost to, and diversion of management efforts by, the Company. There can be no assurance that the Company would prevail in any such litigation. The Company is not aware that any of its software, trademarks or other proprietary rights infringe the proprietary rights of third parties. However, there can be no assurance that third parties will not assert infringement claims against the Company in the future. Any such claims, with or without merit, can be time consuming and expensive to defend and may require the Company to enter into royalty or licensing agreements or cease the infringing activities. The failure to obtain such royalty agreements, if required, and the Company's involvement in such litigation could have a material adverse effect on the Company's financial condition and results of operations. Confidentiality Requirements The medical information transcribed by the Company is of an extremely sensitive nature. In providing its services, the Company is subject to certain statutory, regulatory and common law requirements -6- regarding the confidentiality of medical information. Failure to comply with such confidentiality requirements could result in material liability to the Company. Risks Associated With the Offering of Common Stock Potential Volatility of Stock Price The market price of Common Stock has been, and may in the future be, highly volatile. Factors such as acquisitions, technological innovations, new products or services, changes in government regulation and healthcare legislation, fluctuations in the Company's operating results and general market and economic conditions could cause the market price of Common Stock to fluctuate substantially. In addition, the stock market in general has experienced extreme price and volume fluctuations which has resulted in substantial volatility of the market prices of healthcare service companies that has often been unrelated to the operating performance of these companies. These or other factors may adversely affect the market price of Common Stock. Certain Anti-Takeover Provisions The New Jersey Shareholders Protection Act prohibits the Company from entering into certain business combination transactions with any shareholder of the Company which owns 10% or more of the outstanding voting securities of the Company, except under certain limited circumstances. In addition, the Company's Amended and Restated Certificate of Incorporation gives the Board of Directors the authority without shareholder approval to issue up to 3,950,000 shares of Preferred Stock, in one or more series, with rights, preferences and limitations that could adversely affect the voting power and the other rights of the holders of Common Stock. The Company's Amended and Restated Certificate of Incorporation also provides for staggered terms for the members of the Board of Directors such that no more than one-third of its members stands for reelection in any one year. The Company has entered into certain severance arrangements which provide for payments to certain of its officers upon a "change in control" (as defined therein) of the Company. Moreover, the terms of the Company's 1992 Stock Option Plan provide that outstanding options automatically vest and become exercisable upon a "change in control" (as defined therein) of the Company. These provisions and arrangements may have the effect of delaying, deferring or making more costly a change in control of the Company, including transactions in which shareholders might otherwise receive a premium for their shares over the then current market price, and, therefore, could adversely affect the market price of Common Stock. RECENT DEVELOPMENTS On May 23, 1996, the Company sold 2,200,000 shares of Common Stock at $17.00 per share in a public offering pursuant to a registration statement on Form S-1 (No. 333-3050) through Robertson, Stephens & Company LLC, Volpe, Welty & Company, and Pennsylvania Merchant Group, Ltd, as representatives of the several underwriters. The net proceeds from the sale of such shares are estimated to be $34.8 million based on the public offering price of $17.00 per share, less estimated underwriting discounts and commissions, and estimated expenses payable by the Company. The Company used $18,145,858 of the net proceeds to pay the debt portion of the deferred purchase price payable to related parties in connection with the acquisition of Transcriptions, Ltd., a current subsidiary of the Company. In addition, the Company applied $10,842,292 of the net proceeds to repay in full the borrowings outstanding under the Company's senior credit facility with certain lenders including Chemical Bank. The remaining net proceeds will be used by the Company for general working capital purposes. Concurrently with the consummation of the public offering, Heller exercised two warrants to purchase convertible preferred stock of the Company, and simultaneously converted the preferred stock into Common Stock. The Offered Shares owned by Heller are 962,675 of the 1,005,175 shares of Common Stock received by Heller in that transaction. -7- USE OF PROCEEDS The Company will not receive any proceeds from the sale of the Offered Shares of Common Stock. SELLING SHAREHOLDERS The following table sets forth the names of the Selling Shareholders and certain information regarding the beneficial ownership of Common Stock by the Selling Shareholders as of June 17, 1996, and as adjusted to reflect the sale of all of the Offered Shares of Common Stock. However, there can be no assurance that any of the Selling Shareholders will in fact sell any or all of the Offered Shares of Common Stock.
Beneficial Ownership After Offering(1) Number of -------------------- Shares Number Percent of Beneficially of Class (if Owned Prior Shares Number Greater to Registration Registered of Shares than 1%) --------------- ---------- --------- ---------- Heller Equity Capital Corporation 1,005,175(2) 962,675 42,500 -- Chemical Bank 75,351(3) 75,351 0 --
- ------------------- (1) Beneficial ownership is determined in accordance with the rules of the Commission, and includes voting or investment power with respect to the shares beneficially owned. Shares of Common Stock subject to options or warrants currently exercisable or exercisable within 60 days after June 17, 1996 are deemed outstanding for computing the percentage ownership of the person holding such options or warrants, but are not deemed outstanding for computing the percentage ownership of any other person. (2) Heller is a wholly-owned subsidiary of Heller Financial, Inc., a Delaware corporation which is an indirect wholly-owned subsidiary of The Fuji Bank, Limited, a Japanese banking corporation. John H. Underwood is a director of the Company and a Senior Vice President of Heller. Mr. Underwood may be deemed to be the beneficial owner of such shares of Common Stock, though he disclaims beneficial ownership of such shares. Mr. Underwood has been a director of the Company since July 1994. Mr. Underwood was originally nominated to the Company's Board of Directors in 1994 pursuant to the terms of certain credit arrangements between the Company and Heller. (3) Consists of 75,351 shares of Common Stock issuable to Chemical Bank upon the exercise of the Chemical Warrants. Heller and Chemical Bank have agreed with Robertson, Stephens & Company LLC that, until 270 and 180 days, respectively, from May 30, 1996, they will not make any public sale of shares of Common Stock, any options or warrants to purchase shares of Common Stock or any securities convertible into or exchangeable for shares of Common Stock now owned or hereafter acquired by them, other than with the prior written consent of Robertson, Stephens & Company LLC. PLAN OF DISTRIBUTION The Selling Shareholders or their pledgees, donees, transferees or other successors in interest, may sell all, a portion or none of the securities offered by them hereby from time to time. Any such sales may be in one or more transactions on the Nasdaq National Market at prices prevailing at the times of such sales or in private sales of the securities at prices related to the prevailing market prices or at negotiated prices. The sales may involve (a) a block transaction in which the broker or dealer so engaged will attempt to sell the shares as agent but may -8- position and resell a portion of the block as principal to facilitate the transaction, (b) a purchase by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this Prospectus, or (c) ordinary brokerage transactions in which the broker solicits purchasers. Broker-dealers may receive compensation in the form of underwriting discounts, concessions or commissions (which compensation may be in excess of customary commissions). The Selling Shareholders and any broker-dealers that participate in the distribution of the shares may be deemed to be underwriters and any commissions received by them and any profit on the resale positioned by them might be deemed to be underwriting discounts and commissions under the Securities Act. Heller and Chemical Bank have agreed with Robertson, Stephens & Company LLC that, until 270 and 180 days, respectively, from May 30, 1996, they will not make any public sale of shares of Common Stock, any options or warrants to purchase shares of Common Stock or any securities convertible into or exchangeable for shares of Common Stock now owned or hereafter acquired by them, other than with the prior written consent of Robertson, Stephens & Company LLC (collectively, the "Lock-Up Agreements"). There can be no assurance that the Selling Shareholders will sell any or all of their shares of Common Stock offered hereby. The Company will receive no proceeds from any sales of Common Stock hereunder by the Selling Shareholders. The Registration Statement of which this Prospectus is a part has been filed with the Commission by the Company in accordance with an agreement between the Company and the Selling Shareholders, pursuant to which the Company has agreed to pay the filing fees, costs and expenses associated with the Registration Statement. The Company has agreed to indemnify the Selling Shareholders against certain liabilities, including liabilities arising under the Securities Act. In addition, subject to the Lock-Up Agreements, any Offered Shares that qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than pursuant to this Prospectus. The Selling Shareholders have advised the Company that they or their pledgees, donees, transferees or other successors in interest may sell all or a portion of the securities covered by this Prospectus pursuant to Rule 144 under the Securities Act. The Selling Shareholders have also informed the Company that they may, subject to the Lock-Up Agreements, on an individual basis, from time to time following the effective date of the Registration Statement of which this Prospectus is a part, sell shares of Common Stock in short-sale transactions (including, without limitation, selling short against the box) and use some or all of the Offered Shares to cover such transactions. At the time a particular offer of the Offered Shares is made, to the extent required, a Prospectus Supplement will be distributed which will set forth the number of shares of Common Stock being offered and the terms of the offering, including the name or names of any underwriters, brokers, dealers or agents (whether such party is acting as a principal or as a agent for the Selling Shareholders), any discounts, commissions or concessions and other items constituting compensation from the Selling Shareholders and any discounts, commissions or concessions allowed or re-allowed or paid to dealers. To comply with securities laws of certain states, if applicable, the Offered Shares will be sold in such states only through registered or licensed brokers or dealers. In addition, in certain states the Offered Shares may not be sold unless they have been registered or qualified for sale in such states or an exemption from registration or qualification is available or is complied with. LEGAL MATTERS The validity of Common Stock offered hereby has been passed upon for the Company by Pepper, Hamilton & Scheetz, Philadelphia, Pennsylvania. -9- EXPERTS The Consolidated Financial Statements and Schedule of the Company incorporated by reference in this Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are incorporated by reference herein in reliance upon the authority of said firm as experts in giving said report. -10- =============================================================================== No dealer, salesman or other person has been authorized to give any information or to make any representations other than those contained in this Prospectus in connection with the offer made hereby, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, the securities offered hereby to any person in any state or other jurisdiction in which such offer or solicitation is unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, imply that information contained herein is correct as of any time subsequent to its date or that there has not been any change in the facts set forth in this Prospectus or in the affairs of the Company since the date hereof. ------------------- TABLE OF CONTENTS Page ----- Available Information................................. 2 Incorporation of Certain Information by Reference........................... 2 Special Note Concerning Forward- Looking Statements..................................... 3 The Company............................................ 3 Risk Factors........................................... 3 Recent Developments.................................... 7 Use of Proceeds........................................ 8 Selling Shareholders................................... 8 Plan of Distribution................................... 8 Legal Matters.......................................... 9 Experts................................................10 ================================================================================ ================================================================================ MEDQUIST INC. ---------- PROSPECTUS ---------- June , 1996 =============================================================================== PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS Item 14. Other Expenses of Issuance and Distribution. SEC Registration Fee.........................................$ 5,400* Printing and engraving fees.................................. 1,000** Legal fees and expenses...................................... 10,000** Accounting fees and expenses................................. 2,000** Blue Sky expenses and counsel fees........................... 5,000** Transfer agent and registrar fees............................ 1,000** Miscellaneous................................................ 5,600** ------- TOTAL.............................................. $30,000 ======= - ----------------- * Actual ** Estimated for the 12-month period commencing April 24, 1996. Item 15. Indemnification of Directors and Officers Section 14A:3-5 of the Corporation Law of the State of New Jersey ("NJCL") permits each New Jersey business corporation to indemnify its directors, officers, employees and agents against expenses and liability for each such person's acts taken in his or her capacity as a director, officer, employee or agent of the corporation if such actions were taken in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal proceeding, if he or she had no reasonable cause to believe his or her conduct was unlawful. Article 10 of the Company's Bylaws provides that the Company, to the full extent permitted by Section 14A:3-5 of the NJCL, shall indemnify all past and present directors or officers of the Company and may indemnify all past or present employees or other agents of the Company. To the extent that a director, officer, employee or agent of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in such Article 10, or in defense of any claim, issue, or matter therein, he or she shall be indemnified by the Company against expenses in connection therewith. Such expenses shall be paid by the Company in advance of the final disposition of the action, suit or proceeding as authorized by the Company's Board of Directors upon receipt of an undertaking to repay the advance if it is ultimately determined that such person is not entitled to indemnification. The Company has a policy insuring it and its directors and officers against certain liabilities, including liabilities under the Securities Act. Reference is made to Item 17 of this Registration Statement for additional information regarding indemnification of directors and officers. II-1 Item 16. Exhibits 4.1 Specimen Stock Certificate [incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-1 (No. 333-3050) filed with the Commission on April 1, 1996 (the "Registration Statement")]. 4.2 Registration Rights Agreement between the Company and Heller Financial, Inc. (the "Registration Rights Agreement", dated as of December 14, 1992 [incorporated by reference to Exhibit 6 of the Current Report on Form 8-K filed with the Commission on December 24, 1992]. 4.3 Amendment and Assignment of Registration Agreement by and among Heller Financial, Inc., Heller and the Company, dated May 27, 1994 [incorporated by reference to Exhibit 10.30 of the Registration Statement]. 4.4 Second Amendment to Registration Agreement, dated as of December 29, 1995, between Heller and the Company [incorporated by reference to Exhibit 10.31 of the Registration Statement]. 4.5 Registration Agreement between the Company and Chemical Bank, dated May 27, 1994 [incorporated by reference to Exhibit 10.32 of the Registration Statement]. 4.6 Letter Agreement dated May 23, 1996 between Robertson, Stephens & Company LLC, Volpe, Welty & Company, and Pennsylvania Merchant Group Ltd, as representatives of the several underwriters, and Heller, regarding a lock-up period for the disposition of Common Stock. (2) 4.7 Letter Agreement dated May 23, 1996 between Heller and the Company amending the Registration Rights Agreement. (2) 4.8 Letter Agreement dated March 29, 1996 between Robertson, Stephens & Company LLC, Volpe, Welty & Company, and Pennsylvania Merchant Group Ltd, as representatives of the several underwriters, and Chemical Bank, regarding a lock-up period for the disposition of Common Stock. (1) 4.9 Warrant to Purchase Voting Common Stock issued to Chemical Bank, dated as of May 27, 1994. (2) 5 Opinion of Pepper, Hamilton & Scheetz. (2) 23.1 Consent of Arthur Andersen LLP (included on page II-4 of this Registration Statement). 23.2 Consent of Pepper, Hamilton & Scheetz (included in Exhibit 5 to this Registration Statement). 24 Powers of Attorney (1) - ------------------- (1) Previously filed. (2) Filed herewith. Item 17. Undertakings. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act; II-2 (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those clauses is contained in periodic reports filed with or furnished to the Commission by the Company pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in this Registration Statement; (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our report dated February 23, 1996, included in MedQuist Inc.'s Form 10-K, as amended, for the year ended December 31, 1995, and to all references to our firm included in this registration statement. Arthur Andersen LLP Philadelphia, Pa., June 19, 1996 II-4 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Marlton, State of New Jersey, on June 18, 1996. MEDQUIST INC. By: /s/ DAVID A. COHEN --------------------------------- David A. Cohen President and Chief Executive Officer Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons on June 18, 1996 in the capacities indicated: /s/ DAVID A. COHEN ------------------------------------ David A. Cohen Director, President and Chief Executive Officer /s/ ROBERT F. GRAHAM ------------------------------------ Robert F. Graham Vice President, Treasurer and Chief Financial Officer * ------------------------------------ James R. Emshoff Chairman of the Board and Director * ------------------------------------ William T. Carson, Jr. Director * ------------------------------------ Richard J. Censits Director * ------------------------------------ James F. Conway Director * ------------------------------------ Frederick S. Fox, III Director * ------------------------------------ A. Fred Ruttenberg Director * ------------------------------------ John H. Underwood Director By: /s/ DAVID A. COHEN ------------------------------------ David A. Cohen Attorney-in-Fact II-5 EXHIBIT INDEX
EXHIBIT PAGE NO. - ------- -------- 4.6 Letter Agreement dated May 23, 1996 between Robertson, Stephens & Company LLC, Volpe, Welty & Company, and Pennsylvania Merchant Group Ltd, as representatives of the several underwriters, and Heller, regarding a lock-up period for the disposition of Common Stock. 4.7 Letter Agreement dated May 23, 1996 between Heller and the Company amending the Registration Rights Agreement. 4.9 Warrant to Purchase Voting Common Stock issued to Chemical Bank, dated as of May 27, 1994. 5 Opinion of Pepper, Hamilton & Scheetz. 23.1 Consent of Arthur Andersen LLP (included on page II-4 of this Registration Statement). 23.2 Consent of Pepper, Hamilton & Scheetz (included in Exhibit 5 to this Registration Statement).
II-6 EX-4.6 2 LETTER EXHIBIT 4.6 May 23, 1996 Robertson, Stephens & Company LLC Volpe, Welty & Company Pennsylvania Merchant Group Ltd. as Representatives of the Several Underwriters c/o Robertson, Stephens & Company LLC 555 California Street San Francisco, California 94104 Ladies and Gentlemen: The undersigned understands that Robertson, Stephens & Company LLC, Volpe, Welty & Company and Pennsylvania Merchant Group Ltd., as representatives (the "Representatives") of the several underwriters (the "Underwriters"), propose to enter into an Underwriting Agreement (the "Underwriting Agreement") with MedQuist Inc. (the "Company"), providing for the public offering by the Underwriters, including the Representatives, of common stock of the Company (the "Public Offering"). In consideration of the Underwriters' agreement to purchase and undertake the Public Offering and for other good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned agrees that, without the prior written consent of Robertson, Stephens & Company LLC, the undersigned will not, for the period ending 270 days after the consummation of the Public Offering (the "Lock-Up Period"), directly or indirectly offer, sell, solicit an offer to buy, make any short sale, pledge, grant any option to purchase, contract to sell or otherwise dispose of or transfer (collectively, a "Disposition") any shares of common stock of the Company ("Common Stock") (including, without limitation, shares of Common Stock which may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the Securities and Exchange Commission) or any securities convertible into or exercisable or exchangeable for, or any rights to purchase or acquire, shares of Common Stock now owned or hereafter acquired directly by the undersigned or with respect to which the undersigned has or hereafter acquires the power of Disposition (collectively, "Securities"), otherwise than (i) as a bona fide gift or gifts, provided the donee or donees thereof agree in writing to be bound by this restriction for the remainder of the Lock-Up Period, (ii) as a distribution to partners or stockholders of the undersigned, provided that the distributees thereof agree in writing to be bound by the terms of this restriction for the remainder of the Lock-Up Period, (iii) as a distribution or contribution to or from any of the corporate affiliates of the Robertson, Stephens & Company LLC Volpe, Welty & Company Pennsylvania Merchant Group Ltd. May 23, 1996 Page 2 undersigned, provided that the transferee affiliates agree in writing to be bound by the terms of this restriction for the remainder of the Lock-Up Period, or (iv) in privately-negotiated transactions, so long as the transferees agree in writing to be bound by the terms of this restriction for the remainder of the Lock-Up Period. The undersigned acknowledges that the foregoing restrictions preclude the undersigned from engaging in any hedging or other transaction which is designed to or reasonably expected to lead to or result in a Disposition of Securities during the Lock-Up Period, including, without limitation, any transfer of all or a portion of the economic consequences associated with the ownership of Securities, even if the Disposition of such Securities would be made by someone other than the undersigned. Such prohibited hedging or other transactions include, without limitation, any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any Securities or with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from Securities. In addition, the undersigned agrees that the Company may, during the Lock-Up Period, with respect to any Securities for which the undersigned is the record or beneficial holder, cause the transfer agent for the Company to note stop transfer instructions with respect to such shares on the transfer books and records of the Company. The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this letter agreement, and that, upon request, the undersigned will execute any additional documents necessary or desirable in connection with the enforcement hereof. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and all obligations of the undersigned created hereunder shall be irrevocable and binding upon the heirs, personal representatives, successors, and assigns of the undersigned. In the event any of the Representatives consents to the sale or other transaction by any party to a similar agreement with respect to the Public Offering involving some or all of such party's holdings of Securities during a period when such transaction would otherwise be prohibited by such agreement, the undersigned will automatically be released from the restrictions of this letter agreement with respect to the same number of Securities (regardless of whether the undersigned then intends to effect any transaction involving Securities). In the event Robertson, Stephens & Company LLC Volpe, Welty & Company Pennsylvania Merchant Group Ltd. May 23, 1996 Page 3 any of the Representatives reduces the term of any restrictions contained in a similar agreement with another party, the Lock-Up Period will be automatically reduced in the same proportion. Very truly yours, HELLER EQUITY CAPITAL CORPORATION By: /s/ J.H. UNDERWOOD ------------------------------ Title: Vice President EX-4.7 3 LETTER May 23, 1996 MedQuist Inc. Five Greentree Centre Suite 311 Marlton, New Jersey 08053 Attention: David A. Cohen, President and Chief Executive Officer Re: Offerings of Common Stock on Forms S-1 and S-3 Ladies and Gentlemen: We are writing with respect to the letter agreement, dated March 29, 1996 (the "Letter Agreement"), by and between Heller Equity Capital Corporation, a Delaware corporation ("Heller"), and MedQuist Inc., a New Jersey corporation (the "Company"), and the Company's Registration Statements on Form S-1 (Securities and Exchange Commission File No. 333-3050), as amended by Amendments Nos. 1, 2, 3 and 4 thereto (and as it may be further amended or supplemented from time to time, the "S-1 Registration Statement") and on Form S-3 (originally filed with the Securities and Exchange Commission on April 24, 1996) (as it may be amended or supplemented from time to time, the "S-3 Registration Statement"). Capitalized terms which are used in this letter agreement without express definition have the respective meanings ascribed to such terms in the Letter Agreement. 1. Information Provided. In connection with the Company's preparation of the S-3 Registration Statement, Heller has provided the following information to the Company: (a) Heller's principal executive offices are located at 500 West Monroe Street, Suite 1000, Chicago Illinois 60661. Heller is a wholly-owned subsidiary of Heller Financial, Inc., a Delaware corporation which is a wholly-owned subsidiary of Heller International Corporation, a Delaware corporation which is in turn a wholly-owned subsidiary of The Fuji Bank, Limited, a Japanese banking corporation. (b) Assuming the nine notices previously delivered by the Company to Heller are all of the notices required to be delivered by the Company pursuant to Sections 4.3(a) of the Class A Warrant and the Class B Warrant, the Class A Warrant is exercisable as of the date hereof for 595,512.39 shares of Class A Preferred Stock and the Class B Warrant is exercisable as of the date hereof for 367,163.30 shares of Class B Preferred Stock, in each case at an exercise price per share of $7.2714. (c) John H. Underwood is a Vice President of Heller. (d) Heller has provided to the Company all of the information set forth in the first, fifth, sixth, seventh and eighth paragraphs under the caption "Plan of Distribution" in the prospectus included in the S-3 Registration Statement. Except as specifically set forth in subsections (a), (b), (c) and (d) above, Heller has not provided any information to the Company for inclusion in, or any other use in connection with, the S-3 Registration Statement. Heller has provided no information to the Company for inclusion in, or any other use in connection with, the S-1 Registration Statement. 2. Certificate Denominations. Heller hereby waives reciept of certificates evidencing the shares of Class A Preferred Stock and Class B Preferred Stock issuable upon exercise of the Class A Warrant and the Class B Warrant. Heller hereby requests that the 1,005,175 shares of Common Stock issuable by the Company on the Effective Date to Heller pursuant to the Letter Agreement be delivered in the form of 19 certificates evidencing 50,000 shares of Common Stock each, a certificate evidencing 12,675 shares of Common Stock and a certificate evidencing 42,500 shares of Common Stock. All certificates should be registered in the name of "Heller Equity Capital Corporation." 3. Cash Amounts Due. Accrued but unpaid interest on the outstanding principal amount of the Promissory Note, which is due and payable in cash pursuant to Section 1(i) of the Letter Agreement, will be $72,138.87 as of May 24, 1996, $77,583.27 as of May 28, 1996 and $78,944.38 as of May 29, 1996. The cash amount due on account of sixty-nine hundredths of a share of Common Stock pursuant to Section 1(c) of the Letter Agreement will be based on the "Price to Public" set forth on the front cover page of the final prospectus for the Common Stock offered pursuant to the Registration Statement. These two cash amounts will be paid to Heller on the Effective Date by electronic transfer of immediately available funds to the following account: Mellon Bank, N.A. Pittsburgh, Pennsylvania ABA No. 043-000-261 Account No. 194-2155 For credit to: Heller Equity Capital Corporation Reference: MedQuist Inc. The Company's payment of the amounts described in this Section 3 will not affect any of the Company's obligations under Section 3 of the Letter Agreement or any of the sections of the Loan Agreement and the Warrant Purchase Agreement referred to in Section 1(f) of the Letter Agreement. 4. Consent and Waiver with Respect to Registration Agreements. Pursuant to Paragraph 1(g) of the Registration Agreement, Heller hereby consents to the Company's execution and delivery of the two Registration Rights Agreements, each dated August 31, 1995, between the Company and each of Susan Stuart and Elizabeth Kostick, and to the inclusion in the S-1 Registration Statement of 22,840 shares of Common Stock owned by those two individuals. Heller hereby waives its rights under Section 9 of the Registration Agreement with respect to the consummation of the offering pursuant to the S-1 Registration Statement. 5. Lock-Up Agreement. Concurrently with the execution and delivery of this letter agreement, Heller is executing and delivering the lock-up agreement provided for in Section 1(h) of the Letter Agreement. 6. Registration Agreement. The Registration Agreement is hereby amended by inserting the word "except" immediately before the word "insofar" in the eighteenth line of Paragraph 6(a) of the Registration Agreement. The execution and delivery of this letter agreement and the Letter Agreement is not intended by Heller and the Company to affect any of their respective rights and obligations under the Registration Agreement, as amended hereby. Very truly yours, HELLER EQUITY CAPITAL CORPORATION By: /s/ J.H. Underwood -------------------------- Title: Vice President Accepted and agreed to: MEDQUIST INC. By: /s/ David A. Cohen ------------------------------- Title: President and Chief Executive Officer EX-4.9 4 WARRANT THIS WARRANT AND ANY SHARES OF VOTING COMMON STOCK ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER THIS WARRANT NOR ANY SUCH SHARES MAY BE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT. WARRANT To Purchase Voting Common Stock of MedQuist Inc. (a New Jersey corporation) THIS IS TO CERTIFY that Chemical Bank, a New York corporation having its principal place of business at 633 Third Avenue, New York, New York 10017, or its registered assigns, is entitled upon the due exercise hereof at any time during the Exercise Period (as hereinafter defined) to purchase 75,351 shares of Voting Common Stock, no par value, of MedQuist Inc., a New Jersey corporation, at an Exercise Price of $6.74 per share (such Exercise Price and the number of shares of Voting Common Stock purchasable hereunder being subject to adjustment as provided herein), and to exercise the other rights, powers and privileges hereinafter provided, all on the terms and subject to the conditions hereinafter set forth. TABLE OF CONTENTS -----------------
Page ---- ARTICLE I DEFINITIONS .................................................... 1 ARTICLE II EXERCISE OF WARRANT ........................................... 6 2.1 Right to Exercise ............................................... 6 2.2 Manner of Exercise; Issuance of Voting Common Stock ............. 6 2.3 Effectiveness of Exercise ....................................... 7 2.4 Fractional Shares ............................................... 7 2.5 Continued Validity .............................................. 7 2.6 Payment by Application of Liabilities ........................... 7 2.7 Cashless Exercise ............................................... 7 ARTICLE 3 REGISTRATION, TRANSFER AND EXCHANGE ............................ 8 3.1 Maintenance of Registration Books ............................... 8 3.2 Transfer and Exchange ........................................... 8 3.3 Replacement ..................................................... 8 3.4 Ownership ....................................................... 8 ARTICLE 4 ANTIDILUTION PROVISIONS ........................................ 9 4.1 Adjustment of Number of shares Purchasable ...................... 9 4.2 Adjustment of Exercise Price .................................... 9 (a) Stock Dividends, Subdivisions and Combinations ................. 9 (b) Issuance of Additional Shares of Participating Stock ........... 9 (c) Issuance of Stock Purchase Rights .............................. 10 (d) Issuance of Convertible Securities ............................. 11 (e) Minimum Adjustment ............................................. 11 (f) Readjustment of Exercise Price ................................. 12 (g) Reorganization, Reclassification or Recapitalization of Company. 12 (h) Dilution in Case of Other Securities ........................... 12 (i) Other Dilutive Events .......................................... 13 (j) Determination of Consideration ................................. 13 (k) Record Date .................................................... 15 (l) Shares Outstanding ............................................. 15 (m) Maximum Exercise Price ......................................... 15 (n) Application .................................................... 15 (o) No Adjustments under Certain Circumstances ..................... 16 4.3 Certificates and Notices.......................................... 16 (a) Adjustments to Exercise Price .................................. 16 (b) Extraordinary Corporate Events ................................. 16 (c) Effect of Failure .............................................. 17 ARTICLE V RESTRICTIONS ON TRANSFER....................................... 17 5.1 Transfer Restrictions ........................................... 17 5.2 Notice of Proposed Transfer: Registration Not Required .......... 18 5.3 Legend on Warrants and Certificates ............................. 19 ARTICLE VI PARTICIPATION IN CORPORATE DISTRIBUTIONS ...................... 20 6.1 Company's Obligation to Make Payments ............................ 20 ARTICLE VII [INTENTIONALLY OMITTED] ...................................... 20 ARTICLE VIII FINANCIAL AND BUSINESS INFORMATION .......................... 20 8.1 Information ..................................................... 20 8.2 Adjustments for Restatements of Certain Financial Data .......... 20 ARTICLE IX REPRESENTATIONS AND WARRANTIES OF THE COMPANY ................. 21 9.1 Organzation and Qualification ................................... 21 9.2 Corporate Power; Binding Effect: Authorization, Governmental Approvals ...................................................... 21 9.3 Capital Stock ................................................... 22 9.4 Validity of Shares .............................................. 22 ARTICLE X VARIOUS COVENANTS OF THE COMPANY ............................... 22 10.1 Certain Covenants ............................................... 22 10.2 Reservation of Participating Stock: Compliance with Laws ........ 24 10.3 Listing on Securities Exchange .................................. 24 10.4 Indemnification ................................................. 24 10.5 Regulatory Compliance Cooperation ............................... 24 ARTICLE XI [INTENTIONALLY OMITTED] ....................................... 25 ARTICLE XII MISCELLANEOUS ................................................ 25 12.1 Holder Not a Stockholder ........................................ 25 12.2 Like Tenor ...................................................... 25 12.3 Modifications, Amendments or Waivers ............................ 25 ii 12.4 No Implied Waivers; Writing Required ............................ 26 12.5 Remedies ........................................................ 26 12.6 Successors and Assigns .......................................... 26 12.7 Reimbursement of Expenses; Taxes ................................ 26 12.8 Notices ......................................................... 26 12.9 Survival ........................................................ 27 12.10 Governing Law ................................................... 27 12.11 Severability .................................................... 27 12.12 Headings ........................................................ 27 12.13 Notice of Expiration; Extension of Time ......................... 27 12.14 Original Issue Discount ......................................... 27 Exhibit 2.2 .............................................................. 29 ASSIGNMENT FORM .......................................................... 30 EXHIBIT 11.1 ............................................................. 1 EXHIBIT 11.1 ............................................................. 1
iii ARTICLE I DEFINITIONS The terms defined in this ARTICLE I, whenever used in this Warrant, shall have the respective meanings hereinafter specified. "Affiliate" of any entity means a Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such entity. The term "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and shall include, without limitation, any officer or director of the Company or any of its Subsidiaries. "Assignment" means the form of Assignment appearing at the end of this warrant. "Class A Preferred" means shares of the Company's Class A Preferred Stock, no par value, convertible into Voting Common Stock on a share-for-share basis, any stock into which such stock shall have been changed pursuant to a Recapitalization, merger or otherwise or any stock resulting from any reclassification of such stock. "Class B Preferred" means shares of the Company's Class B Preferred Stock, no par value, convertible into Voting Common Stock on a share-for-share basis, any stock into which such stock shall have been changed pursuant to a recapitalization, merger or otherwise or any stock resulting from any reclassification of such stock. "Closing Date" means May 27, 1994. "Commission" means the Securities and Exchange Commission or an other Federal agency from time to time administering the Securities Act. "Common Equivalent Shares" means the number of shares of Participating Stock as determined based on the extent to which each share of any class or series of Participating stock participates in the distribution of assets upon any liquidation, dissolution or winding up of the Company relative to the participation of each share of Voting Common Stock. For example, assume the holder of a share of a class of the Company's preferred stock would be entitled to receive upon liquidation $3 of profits for every $1 of profits received by the holder of a share of Voting Common Stock. For purposes of this definition, each share of such class of preferred stock would constitute three Common Equivalent Shares. "Common Equivalent Shares Deemed Outstanding" means, at any given time, the number of Common Equivalent Shares with respect to all shares of Participating Stock actually outstanding at such time, plus the number of Common Equivalent Shares with respect to all shares of Participating Stock deemed to be outstanding in the manner set forth in Subsections (c) and (d) of Section 4.2 (regardless of whether any Stock Purchase Rights and Convertible Securities are actually exercisable or convertible at such time). "Company" means MedQuist Inc., a New Jersey corporation, and any successor corporation. "Convertible Securities" means evidences of indebtedness, shares of stock (other than Preferred Stock) or other securities which are convertible into or exchangeable for, with or without payment of additional consideration, additional shares of Participating Stock, either immediately or upon the arrival of a specified date or the happening of a specified event. "Current Market Price" as to any security on any date specified herein means the average of the daily closing prices for such security for the thirty (30) consecutive trading days before such date excluding any trades which are not bona fide arm's length transactions. The closing price for each day shall be (i) the mean between the closing high bid and low asked quotations of any such security in the over-the-counter market as shown by the National Association of Securities Dealers, Inc. Automated Quotation System, or any similar system of automated dissemination of quotations of securities prices then in common use, if so quoted, as reported in The Wall Street Journal, or, if not reported therein, such similar publication of national recognition, or (ii) if not quoted as described in clause (i), the mean between the high bid and low asked quotations for any such security as reported by the National Quotation Bureau Incorporated or any similar successor organization, as reported by any member firm of the New York Stock Exchange selected by the Company, or (iii) if any such security is listed or admitted for trading on any national securities exchange or reported on the National Market System of the National Association of Securities Dealers, Inc., the last sale price of any such security, regular way, or the mean of the closing bid and asked prices thereof if no such sale occurred, in each case as officially reported on the principal securities exchange on which any such security is listed. If any such security is quoted on a national securities or central market system in lieu of a market or quotation system described above, the closing price shall be determined in the manner set forth in clause (i) of the preceding sentence if bid and asked quotations are reported but actual transactions are not, and in the manner set forth in clause (iii) of the preceding sentence if actual transactions are reported. "Default Rate" means the weighted average rate of interest charged on the outstanding principal pursuant to the Loan Agreement plus 200 basis points. "Distribution" means any dividend or other distribution, whether in cash, securities or other property, with respect to any shares of Participating Stock. "Event of Default" means (a) the breach of any warranty, or the inaccuracy of any representation, made by the Company herein, or (b) the failure by the Company to comply with any covenant contained herein. 2 "Exercise Period" means (subject to the provisions of Section 12.12 below) the period commencing on the Closing Date and terminating on the seventh anniversary of the Closing Date. "Exercise Price" means the price per share of Voting Common Stock set forth in the preamble to this Warrant, as such price may be adjusted pursuant to ARTICLE IV or Section 8.2. "Fair Value" means the fair value of the appropriate security, property, assets, business or entity as determined by an opinion of an independent investment banking firm in accordance with the following procedure: In the case of any event which gives rise to a requirement to determine "Fair Value" pursuant to the provisions hereof, whether in connection with an adjustment to the Exercise Price or otherwise, the Company shall be responsible for initiating the process by which Fair Value shall be determined as promptly as practicable following such event, and if the procedures contemplated in connection with obtaining such opinion have not been complied with fully, then any such determination of Fair Value for any purpose of this Warrant (and any such resulting adjustment to the Exercise Price) shall be deemed to be preliminary and subject to adjustment pending full compliance with such procedures. The independent investment banking firm shall be reasonably acceptable to the Company and the holder of this Warrant. If the Company and the holder of this Warrant are unable to agree promptly on an independent investment banking firm, each such party shall each promptly select one independent investment banking firm, which firms shall in turn promptly select a third independent investment banking firm of national recognition. The firm so selected shall determine the fair value of the security, property, assets, business or entity, as the case may be, in question and deliver its opinion in writing to the Company and to such holder. The determination so made shall be conclusive and binding on the Company and the holder of this Warrant. The fees and expenses of any such determination made by the independent investment banking firm selected by such independent banking firms shall be borne by the Company. The Fair Value of the Warrant Shares shall be determined without regard to the fact that the Warrant Shares may constitute a minority ownership interest. Notwithstanding the foregoing, so long as the Voting Common Stock is actively traded on a public market, Fair Value means, with reference to the Warrant Shares, the Current Market Price of the Voting Common Stock as of any date of determination. "Initial Holder" means Chemical Bank. "Issuable Warrant Shares" means the number of shares of Voting Common Stock issuable (but not issued) from time to time upon exercise of this Warrant. "Issued Warrant Shares" means (a) any shares of Voting Common Stock issued from time to time upon exercise of the Warrant, plus (b) any Shares Of Voting Common Stock issued as a stock dividend with respect to such shares or as part of a stock split affecting such shares. "Liabilities" means the Company's indebtedness and other liabilities and obligations arising under the Loan Agreement. 3 "Loan Agreement" means the Credit Agreement dated as of [May 27], 1994, among the Initial Holder, as Agent, the Company, and the Lenders and Guarantors named therein, as the same may be amended or modified from time to time. "Notice of Exercise" means the form of notice of Exercise appearing at the end of this Warrant. "Opinion of Counsel" means an opinion of counsel experienced in Securities Act or bank regulatory matters, as the case may be, chosen by the holder of this Warrant or the holder of Issued Warrant Shares, which counsel may be counsel to such holder (including any of such holder's in-house counsel having the appropriate expertise). "Other Securities" means any stock and other securities of the Company (other than Participating Stock, Convertible Securities or Stock Purchase Rights) or any other Person which shall become, directly or indirectly, subject to issue or sale upon the conversion, redemption or exchange of any stock or other securities of the Company or which are distributed with respect to any stock or Other Securities of the Company (including, without limitation, as a dividend or a return of capital) or which become subject to subscription, purchase or other acquisition pursuant to any options or rights issued or granted. "Participating Stock" means Voting Common Stock, Class A Preferred and Class B Preferred and any class of capital stock of the Company now or hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect of the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Company. "Payment Shares" has the meaning set forth in Section 2.7 hereof. "Person" shall mean any individual, corporation, partnership, company, joint venture, unincorporated organization, sole proprietorship, association, bank, trust company or trust, whether or not legal entities, or any governmental entity or agency or political subdivision thereof. "Preferred Stock" means the Class A Preferred and the Class B Preferred. "Proposed Purchase Price" has the meaning set forth in ARTICLE V. "Securities Act" means the Securities Act of 1933, as amended, or any successor Federal statute, and the rules and regulations of the Commission promulgated thereunder, all as he same shall be in effect from time to time. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor Federal statute, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect from time to time. 4 "Stock Purchase Rights" means any warrants, options or other rights to subscribe for, purchase or otherwise acquire any shares of Participating Stock or any Convertible Securities. "Subsidiary" means any corporation or association (a) more than 50% (by number of votes) of the Voting Stock of which is at the time owned, directly or indirectly (including through possession of convertible or exercisable securities), by the Company or by one or more Subsidiaries or by the Company and one or more Subsidiaries. or any other business entity in which the Company or one or more Subsidiaries or the Company and one or more Subsidiaries owns, directly or indirectly (including through possession of convertible or exercisable securities), more than a 50% interest in either the profits or capital of such business entity or (b) whose net earnings, or portions thereof, are consolidated with the net earnings of the Company and are recorded on the books of the Company for financial reporting purposes in accordance with generally accepted accounting principles. "Underlying Common Shares" means (i) the Voting Common Stock issued or issuable upon exercise of this Warrant and (ii) any Voting Common Stock issued or issuable with respect to the securities referred to in clause (i) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. For purposes of his definition (and its usage in this Warrant), any Person who holds this Warrant shall be deemed to be the holder of the Underlying Common Shares obtainable upon exercise of this Warrant regardless of any restriction or limitation on the exercise of this Warrant. As to any particular shares of Underlying Common Shares, such shares shall cease to be Underlying Common Shares when they have been (a) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them or (b) distributed to the public through a broker, dealer or market maker pursuant to Rule 144 under the Securities Act (or any similar provision then in force). "Voting Common Stock" means shares of the Company's Common Stock, no par value, any stock into which such stock shall have been changed pursuant to a recapitalization, merger or otherwise or any stock resulting from any reclassification of such stock. "Voting Stock" means securities of any class or series of a corporation or association the holders of which are ordinarily, in the absence of contingencies, entitled to vote generally in matters put before the shareholders or members of such corporation or association. "Warrant" means the warrant dated as of Closing Date issued to the Initial Holder for the purchase of Voting Common Stock and all warrants issued upon the partial exercise, transfer or division of or in substitution for any Warrant and all warrants issued pursuant to the last sentence of Section 8.2. "Warrant Shares" means the Issuable Warrant Shares plus the Issued Warrant Shares. 5 Whenever used in this Warrant, any noun or pronoun shall be deemed to include both the singular and plural and to cover all genders, and the words 'herein," "hereof," and "hereunder" and words of similar import shall refer to this instrument as a whole, including any amendments hereto. When the word "including" is used in this Warrant in connection with a listing of items within a particular classification, that listing shall be interpreted as illustrative only and not as a limitation on, or exclusive listing of, the items within that classification. ARTICLE II EXERCISE OF WARRANT 2.1 Right to Exercise. On the terms and subject to the conditions of this ARTICLE II, the holder hereof shall have the right, at its option, to exercise this Warrant in whole or in part at any time and from time to time during the Exercise Period. 2.2 Manner of Exercise; Issuance of Voting Common Stock. To exercise this Warrant, the holder hereof shall deliver to the Company (a) a Notice of Exercise in the form of Exhibit 2.2 hereto duly executed by the holder hereof specifying the number of shares of Voting Common Stock to be purchased, (b) an amount equal to the aggregate Exercise Price for all shares of Voting Common Stock as to which this Warrant is then being exercised and (c) this Warrant. At the option of the holder hereof, payment of the Exercise Price shall be made by (a) wire transfer of funds to an account in a bank located in the United States designated by the Company for such purpose, (b) by application of the Liabilities as provided in Section 2.6 hereof, (c) by offset of the shares of Voting Common Stock to be received upon exercise of this Warrant in whole or in part as provided in Section 2.7 hereof or (d) by any combination of such methods. Upon receipt of the required deliveries, the Company shall, as promptly as practicable, and in any event within five days thereafter, cause to be issued and delivered to the holder hereof (or its nominee) or, subject to ARTICLE V, the transferee designated in the Notice of Exercise, a certificate or certificates representing shares of Voting Common Stock equal in the aggregate to the number of shares of Voting Common Stock specified in the Notice of Exercise (but not exceeding the maximum number of shares issuable upon exercise of this Warrant). Such certificate or certificates shall be registered in the name of the holder hereof (or its nominee) or in the name of such transferee, as the case may be. If this Warrant is exercised in part, the Company shall, at the time of delivery of such certificate or certificates, unless the Exercise Period has expired, issue and deliver to the holder hereof or, subject to ARTICLE V, the transferee so designated in the Notice of Exercise, a new Warrant evidencing the right of the holder hereof or such transferee to purchase the aggregate number of shares of Voting Common Stock for which this Warrant shall not have been exercised, and this Warrant shall be canceled. 6 2.3 Effectiveness of Exercise. Unless otherwise requested by the holder hereof, this Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the older or transferee so designated in the Notice of Exercise shall be deemed to have become the holder of record of such shares for all purposes, as of the close of business on the date the Notice of Exercise, together with payment of the Exercise Price and this Warrant, is received by the Company. 2.4 Fractional Shares. The Company shall not issue fractional shares of Voting Common Stock or scrip representing fractional shares of Voting Common Stock upon any exercise of this Warrant. As to any fractional share of Voting Common Stock which the holder hereof would otherwise be entitled to purchase from the Company upon such exercise, the Company shall purchase from the holder such fractional share at a price equal to an amount calculated by multiplying such fractional share (calculated to the nearest .001 of a share) by the Fair Value of such share of Voting Common Stock calculated as of the date of the Notice of Exercise. Payment of such amount shall be made at the time of delivery of any certificate or certificates deliverable upon such exercise in cash or by check payable to the order of the holder hereof or, subject to ARTICLE V, the transferee designated in the Notice of Exercise, as the case may be. 2.5 Continued Validity. The Company will, at the time of any exercise of this Warrant, upon the request of the holder of the shares of Voting Common Stock issued upon the exercise hereof, acknowledge in writing, in form reasonably satisfactory to any such holder, its continuing obligation to afford to any such holder only those rights expressly specified herein to which any such holder shall continue to be entitled after such exercise of this Warrant; provided, however, that if any such holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such holder all such rights. 2.6 Payment by Application of Liabilities. Upon any exercise of this Warrant, the holder hereof, if such holder is the Initial Holder or an Affiliate of the Initial Holder, may, at its option, instruct the Company, by so specifying in the form of Notice of Exercise submitted therewith, to apply to the payment of the Exercise Price all or any part of the principal amount of the Liabilities, in such order as the Initial Holder may determine. 2.7 Cashless Exercise. Upon any exercise of this Warrant, in whole or in part, the holder hereof may, at its option, in lieu of delivering the Exercise Price in cash, instruct the Company in the form of Notice of Exercise to retain, in payment of the Exercise Price, a number of Shares of Voting Common Stock (the "Payment Shares") equal to the quotient of the aggregate Exercise Price of the Shares as to which this Warrant is then being exercised divided by the Current Market Price of such shares as of the date of exercise, and to deduct the number of Payment Shares from he shares to be delivered to the holder hereof. 7 ARTICLE 3 REGISTRATION, TRANSFER AND EXCHANGE 3.1 Maintenance of Registration Books. The Company shall keep at its principal office in Gibbsboro, New Jersey a register in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration, transfer and exchange of this Warrant. The Company shall not at any time, except upon the dissolution, liquidation or winding up of the Company, or except as required by applicable law, close such register so as to result in preventing or delaying the exercise or transfer of this Warrant. 3.2 Transfer and Exchange. Upon surrender for registration of transfer of this Warrant at such office, the Company shall execute and deliver, subject to ARTICLE V, in the name of the designated transferee or transferees, one or more new Warrants representing the right to purchase a like aggregate number of shares of Class A Preferred. At the option of the holder hereof, this Warrant may be exchanged for other Warrants representing the right to purchase a like aggregate number of shares of Voting Common Stock upon surrender of this Warrant at such office. Whenever this Warrant is so surrendered for exchange, the Company shall execute and deliver the Warrants which the holder making the exchange is entitled to receive. Every Warrant presented or surrendered for registration of transfer or exchange shall be accompanied by an Assignment duly executed by the holder thereof or its attorney duly authorized in writing. All Warrants issued upon any registration of transfer or exchange of a Warrant shall be the valid obligations of the Company, evidencing the same rights, and entitled to the same benefits, as the Warrant surrendered upon such registration of transfer or exchange. 3.3 Replacement. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (a) in the case of any such loss, theft or destruction upon delivery of indemnity reasonably satisfactory to the Company in form and amount or (b) in the case of any such mutilation, upon surrender of such Warrant for cancellation at the principal office of the Company, the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrant. 3.4 Ownership. The Company and any agent of the Company may treat the Person in whose name this Warrant is registered on the register kept at the principal office of the Company as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, except that, if and when this Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer thereof as the owner of this Warrant for all purposes notwithstanding any notice to the contrary. This Warrant, if properly assigned. may be exercised by a new holder without first having a new Warrant issued. 8 ARTICLE 4 ANTIDILUTION PROVISIONS 4.1 Adjustment of Number of Shares Purchasable. Upon any adjustment of the Exercise Price as provided in Section 4.2, the holder hereof shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares of Voting Common Stock (calculated to the nearest 1/1OOth of a share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of Voting Common Stock purchasable hereunder immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. 4.2 Adjustment of Exercise Price. In addition to any adjustment required under the provisions of Section 8.2 below. the Exercise Price shall be subject to adjustment from time to time as hereinafter set forth. (a) Stock Dividends, Subdivisions and Combinations. In the event that the Company subsequent to the Closing Date shall: (i) declare a dividend upon, or make any distribution in respect of, any of its stock, payable in Participating Stock, Convertible Securities or Stock Purchase Rights, or (ii) subdivide its outstanding shares of any class of Participating Stock into a larger number of shares of such class of Participating Stock, or (iii) combine its outstanding shares of any class of Participating Stock into a smaller number of shares of any class of Participating Stock, then the Exercise Price shall be adjusted to that price determined by multiplying the Exercise Price per share of Voting Common Stock immediately prior to such event by a fraction (A) the numerator of which shall be the total number of Common Equivalent Shares Deemed Outstanding immediately prior to such event, and (B) the denominator of which shall be the total number of Common Equivalent Shares Deemed Outstanding immediately after such event. (b) Issuance of Additional Shares of Participating Stock. In case the Company shall issue or sell any shares of Participating Stock after the Closing Date for a consideration less than the greater of (i) the Exercise Price per share then in effect or (ii) the then Fair Value per share, the Exercise Price upon each such issuance or sale shall be adjusted (to the nearest one-thousandth of a cent) to the lowest price calculated pursuant to clauses (x) and (y) of this Subsection (b) and shall be determined by: (i) dividing (A) an amount equal to the sum of (1) the number of Common Equivalent Shares Deemed Outstanding immediately prior to such issue or sale multiplied by the then existing Exercise Price 9 plus (2) the aggregate consideration, if any, received by the Company upon such issue or sale, by (B) the total number of Common Equivalent Shares Deemed Outstanding immediately after such issue or sale; or (ii) multiplying the then existing Exercise Price by a fraction the numerator of which is (A) the sum of (1) the number of shares of Common Equivalent Shares Deemed Outstanding immediately prior to such issue or sale multiplied by the Fair Value per share of Participating Stock immediately prior to such issue or sale plus (2) the consideration received by the Company upon such issue or sale, by (B) the total number of shares of Common Equivalent Shares Deemed Outstanding immediately after such issue or sale, and the denominator of which shall be the Fair Value per share of Participating Stock immediately prior to such issue or sale. For purposes of this Subsection (b). the date as of which the Fair Value per share of Participating Stock shall be computed shall be the earlier of (i) the date on which the Company shall enter into a firm contract for the issuance of such shares (so long as such contract fixes the price for such shares) or (ii) the date on which the Company shall issue such shares. The provisions of this Subsection (b) shall not apply to any additional shares of Participating Stock which are distributed to holders of Participating Stock pursuant to a stock dividend or subdivision for which an adjustment is provided for under Subsection (a) of this Section 4.2. No adjustment of the Exercise Price shall be made under this Subsection upon the issuance of any additional shares of Participating Stock which are issued pursuant to the exercise of any Stock Purchase Rights or pursuant to the conversion or exchange of any Convertible Securities to the extent that such adjustment shall previously have been made upon the issuance of such Stock Purchase Rights or Convertible Securities pursuant to Subsection (a), (c) or (d) of this Section 4.2. (c) Issuance of Stock Purchase Rights. In case the Company shall issue or sell any Stock Purchase Rights and the consideration per share for which additional shares of Participating Stock may at any time thereafter be issuable upon exercise thereof (or, in the case of Stock Purchase Rights exercisable for the purchase of Convertible Securities, upon the subsequent conversion or exchange of such Convertible Securities) shall be less than the greater of (i) the Exercise Price per share then in effect or (ii) the then Fair Value per share, the Exercise Price shall be adjusted as provided in Subsection (b) of this Section 4.2 on the basis that (x) the maximum number of additional shares of Participating Stock issuable upon exercise of such Stock Purchase Rights (or upon conversion or exchange of such Convertible Securities following such exercise) shall be deemed to have been issued as of the date of the determination of the Exercise Price or Fair Value, as hereinafter provided, and (y) the aggregate consideration received for such additional shares of Participating Stock shall be deemed to be the minimum consideration received and receivable by the Company in connection with the issuance and exercise of such Stock Purchase Rights (or upon conversion or exchange of such Convertible Securities). 10 For the purposes of this Subsection (c), the date as of which the Exercise Price and the Fair Value per share of Participating Stock shall be Computed shall be the earlier of (i) the date on which the Company shall enter into a firm contract for the issuance of such Stock Purchase Rights (so long as such contract fixes the price for such Stock Purchase Rights). or (ii) the date of actual issuance of such Stock Purchase Rights. (d) Issuance of Convertible Securities. In case the Company shall issue or sell any Convertible Securities and the consideration per share for which additional shares of Participating Stock may at any time thereafter be issuable pursuant to the terms of such Convertible Securities shall be less than the greater of (i) the Exercise Price per share then in effect or (ii) the Fair Value per share, the Exercise Price shall be adjusted as provided in Subsection (b) of this Section 4.2 on the basis that (x) the maximum number of additional shares of Participating Stock necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued as of the date for the determination of the Exercise Price or Fair Value, as hereinafter provided, and (y) the aggregate consideration received for such additional shares of Participating Stock shall be deemed to be equal to the minimum consideration received and receivable by the Company in connection with the issuance and exercise of such Convertible Securities. No adjustment of the Exercise Price shall be made under this Subsection upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any Stock Purchase Rights, if an adjustment shall previously have been made upon the issuance of such Stock Purchase Rights pursuant to Subsection (c) of this Section 4.2. For the purposes of this Subsection (d), the date as of which the Exercise Price and the Fair Value per share of Participating Stock shall be computed shall be the earlier of (i) the date on which the Company shall enter into a firm contract for the issuance of such Convertible Securities (so long as such contract fixes the price for such Convertible Securities), or (ii) the date of actual issuance of such Convertible Securities. (e) Minimum Adjustment. In the event any adjustment of the Exercise Price pursuant to this Section 4.2 shall result in an adjustment of less than $.O1 per share of Voting Common Stock, no such adjustment shall be made, but any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustments so carried forwards shall amount to $.O1 or more per share of Voting Common Stock; provided, however, that upon any adjustment of the Exercise Price resulting from (i) the declaration of a dividend upon, or the making of any distribution in respect of, any stock of the Company payable in Participating Stock, Stock Purchase Rights or Convertible Securities or (ii) the reclassification by subdivision, combination or otherwise, of Participating Stock into a greater or smaller number of shares, the foregoing figure of $.01 per share (or such figure as last adjusted) shall be proportionately adjusted, and provided, further, upon the exercise of this Warrant, the Company shall make all necessary adjustments (to the nearest .001 of a cent) not theretofore made to the Exercise Price up to and including the date upon which this Warrant is exercised. 11 (f) Readjustment of Exercise Price. In the event there is a change in (i) the purchase price payable for any Stock Purchase Rights or Convertible Securities referred to in Subsection (c) or (d) above, (ii) the additional consideration, if any, payable upon exercise of such Stock purchase Rights or upon the conversion or exchange of such Convertible Securities or (iii) the rate at which any Convertible securities above are convertible into or exchangeable for additional shares of Participating Stock, the Exercise Price in effect at the time of such event shall forthwith be readjusted to the Exercise Price which would have been in effect at such time had such Stock Purchase Rights or Convertible Securities provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. On the expiration of any such Stock Purchase Rights not exercised or of any such right to convert or exchange under any such Convertible Securities not exercised, the Exercise Price then in effect hereunder shall forthwith be increased to the Exercise price which would have been in effect at the time of such expiration or termination had such Stock Purchase Rights or Convertible Securities never been issued. No readjustment of the Exercise Price pursuant to this Subsection (f) shall have the effect of increasing the Exercise price by an amount in excess of the adjustment originally made to the Exercise Price in respect of the issue, sale or grant of the applicable Stock Purchase Rights or Convertible Securities. (g) Reorganization, Reclassification or Recapitalization of Company. In case of any capital reorganization or reclassification or recapitalization of the capital stock of the Company (other than in the cases referred to in Subsection (a) of this Section 4.2), or in case of the consolidation or merger of the Company with or into another corporation, or in case of the sale or transfer of the property of the Company as an entirety or substantially as an entirety, there shall thereafter be deliverable upon the exercise of this Warrant or any portion thereof (in lieu of or in addition to the number of shares of Voting Common Stock theretofore deliverable, as appropriate) the number of shares of stock or other securities or property to which the holder of the number of shares of Voting Common Stock which would otherwise have been deliverable upon the exercise of this Warrant or any portion thereof at the time would have been entitled upon such capital reorganization or reclassification of capital stock, consolidation, merger or sale, and at the same aggregate Exercise Price. Prior to and as a condition of the consummation of any transaction described in the preceding sentence, the Company shall make equitable, written adjustments in the application of the provisions herein set forth satisfactory to the holder of this Warrant so that the provisions set forth herein shall thereafter be applicable, as nearly as possible, in relation to any shares of stock or other securities or other property thereafter deliverable upon exercise of this Warrant. Any such adjustment shall be made by and set forth in a supplemental agreement between the Company and/or the successor entity, as applicable, which agreement shall bind each such entity, shall be accompanied by an opinion of counsel as to the enforceability of such agreement and shall be approved by the holder of this Warrant. (h) Dilution in Case of Other Securities. In case any Other Securities shall be issued, sold or distributed or shall become subject 12 to issuance, sale or distribution by the Company or by any other issuer or Person, including, without limitation, in connection with a transaction of the type described in Subsection (g) above, for a consideration such as to dilute, within the standards established in the other provisions of this ARTICLE IV, the purchase rights granted by this Warrant, then, and in each such case, the computations, adjustments and readjustments provided for in this ARTICLE IV with respect to the Exercise Price shall be made as nearly as possible in the manner so provided and applied to determine the amount of Other Securities from time to time receivable upon he exercise of this Warrant, so as to protect the holders of the Warrant against the effect of such dilution. (i) Other Dilutive Events. In case any event shall occur as to which the other provisions of this ARTICLE IV are not strictly applicable but the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles hereof, then, in each such case, the Company shall appoint a firm of independent public accountants of recognized national standing (which may be the regular auditors of the Company), which shall give their opinion as to the adjustment, if any, on a basis consistent with the essential intent and principles established in this ARTICLE IV, necessary to preserve, without dilution, the purchase rights represented by this Warrant. Upon receipt of such opinion, the Company will promptly mail a copy thereof to the holder of this Warrant and shall make the adjustments described therein. The foregoing shall include, without limitation, the issuance by the Company of so-called phantom stock, stock appreciation rights or similar interests or the issuance of any security or instrument which contemplates payments to the holder thereof based on the financial performance of the Company. (j) Determination of Consideration. For purposes of this ARTICLE IV, the consideration received or receivable by the Company for the issuance, sale, grant or assumption of additional shares of Participating Stock, Stock Purchase Rights or Convertible Securities, irrespective of the accounting treatment of such consideration, shall be valued as follows: (1) Cash Payment. In the case of cash, the gross amount received by the Company without deduction of any accrued interest, dividends or any expenses paid or incurred or any underwriting commissions or concessions paid or allowed by the Company. (2) Securities or Other Property. In the case of securities or other property, at the lesser of (i) the Current Market Price of the security for which such consideration was received, and (ii) the Fair Value of such consideration (in both cases as of the date immediately preceding the issuance, sale or grant in question); provided, however, that in the event Participating Stock is issued exchange for securities or other property in connection with the acquisition of the stock or other interests or assets of another business, the Current Market Price of the security for which such consideration was received shall be deemed, for purposes of this subsection, to equal the Fair Value of such consideration received so long as (x) the Company is subject to the reporting requirements of Section 12 or Section 15(d) of the Securities Exchange Act, (y) the Company receives from an independent investment banking firm reasonably acceptable to the holder of 13 this Warrant a favorable fairness opinion with respect to the consideration paid by the Company (i.e., the amount of Participating Stock issued by the Company) in connection with such acquisition, and (z) no officer or director of the Company or any of such officer's or director's family members or any entity controlled by such officer or director shall own or control any securities of the acquisition target. (3) Allocation Related to Participating Stock. In the event additional shares of Participating Stock are issued or sold together with other securities or other assets of the Company for a consideration which covers both, the consideration received (computed as provided in (l) and (2) above) shall be allocable to such additional shares of Participating Stock as determined in good faith by the Board of Directors of the Company. (4) Allocation Related to Stock Purchase Rights and Convertible Securities. In case any Stock Purchase Rights or Convertible Securities shall be issued or sold together with other securities or other assets of the Company, together comprising one integral transaction in which no specific consideration is allocated to the Stock Purchase Rights or Convertible Securities, such Stock Purchase Rights or Convertible Securities shall be deemed to have been issued at Fair Value. (5) Dividends in Securities: Public Offering. In case the Company shall declare a dividend or make any other distribution upon any stock of the Company (other than Participating Stock) payable in either case in Participating Stock, Convertible Securities or Stock Purchase Rights, such Participating Stock, Convertible Securities or Stock Purchase Rights, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration. In case the Company issues Participating Stock in a public offering, the amount received by the Company in connection with such sale of Participating Stock shall be deemed to be the Fair Value of such Participating Stock so long as (x) the Company is subject to the reporting requirements of Section 12 or Section 15(d) of the Securities Exchange Act, (y) the Company received from an independent investment banking firm reasonably acceptable to the holder of this Warrant a favorable fairness opinion with respect to the offering price of such Participating Stock or the offering was an underwritten offering, and (z) no officer or director of the Company or any of such officer's or director's family members or any entity controlled by such officer or director acquires Participating Stock in such offering. (6) Stock Purchase Rights and Convertible Securities. The consideration for which shares of Participating Stock shall be deemed to be issued upon the issuance of any Stock Purchase Rights or Convertible Securities shall be determined by dividing (i) the total consideration, if any, received or receivable by the Company as consideration for the granting of such Stock Purchase Rights or the issuance of such Convertible Securities, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of such Stock Purchase Rights, or, in the case of such Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon he conversion or exchange thereof, in each case after deducting any accrued interest, dividends. or any expenses 14 paid or incurred or any underwriting commissions or concessions paid or allowed by the Company, by (ii) the maximum number of shares of Participating Stock issuable upon the exercise of such Stock Purchase Rights or upon the conversion or exchange of all such convertible Securities. (7) Merger, Consolidation or Sale of Assets. In case any shares of Participating Stock or Convertible Securities or any Stock Purchase Rights shall be issued in connection with any merger or consolidation in which the Company is the surviving corporation, the amount of consideration therefor shall be deemed to be the Fair Value of such portion of the assets and business of the nonsurviving corporation as shall be attributable to such Participating Stock, Convertible Securities or Stock Purchase Rights, as the case may be. In the event of any merger or consolidation of the Company in which the Company is not the surviving corporation or in the event of any sale of all or substantially all of the assets of the Company for stock or other securities of any corporation, the Company shall be deemed to have issued a number of shares of its Participating Stock for stock or securities of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated and for a consideration equal to the Fair Value on the date of such transaction of such stock or securities of the other corporation, and if any such calculation results in adjustment of the Exercise Price, the determination of the number of shares of Voting Common Stock issuable upon exercise of this Warrant immediately prior to such merger, consolidation or sale, for the purposes of Subsection (g) above, shall be made after giving effect to such adjustment of the Exercise Price. (k) Record Date. In case the Company shall take a record of the holders of the Participating Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Participating Stock, Stock Purchase Rights or in Convertible Securities or (ii) to subscribe for or purchase Participating Stock, Stock Purchase Rights or Convertible Securities, then all references in this ARTICLE IV to the date of the issue or sale of the shares of Participating Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be, shall be deemed to be references to such record date. (l) Shares Outstanding. The number of shares of Participating Stock deemed to be outstanding at any given time shall not include shares of Participating Stock in the treasury of the Company or held by any Subsidiary. (m) Maximum Exercise Price. At no time shall the Exercise Price per share of Voting Common Stock exceed the amount set forth in the Preamble of this Warrant except as provided in Subsection (a) or (g) of this Section 4.2. (n) Application. Except as otherwise provided herein, all Subsections of this Section 4.2 are intended to operate independently of one another. If an event occurs that requires the application of more than one Subsection, all applicable Subsections shall be given independent effect. 15 (o) No Adjustments under Certain Circumstances. Anything herein to the contrary notwithstanding, the Company shall not be required to make any adjustment of the Exercise Price in the case of: (i) the issuance of shares of Voting Common Stock upon the exercise in whole or part of this Warrant; or (ii) the issuance of shares of Participating Stock pursuant to a rights offering in which the holder hereof elects to participate under the provisions of Article XI; (iii) the issuance of shares of Voting Common Stock upon the exercise of any Stock Purchase Rights issued by the Company prior to the Closing Date which are outstanding as of the Closing Date; or (iv) the issuance of options to purchase Voting Common Stock to participants in the Company's stock option plans in existence on the date hereof, so long as the exercise price under such options is equal to or greater than the Fair Value of the Voting Common Stock. 4.3 Certificates and Notices. (a) Adjustments to Exercise Price. Upon any adjustment under this ARTICLE IV of the number of shares of Voting Common Stock purchasable upon exercise of this Warrant or of the Exercise Price, a certificate, signed (i) by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company, or (ii) by any independent firm of certified public accountants of recognized national standing selected by, and at the expense of, the Company, setting forth in reasonable detail the events requiring the adjustment and the method by which such adjustment was calculated, shall be mailed to the holder of this Warrant specifying the adjusted Exercise Price and the number of shares of Voting Common Stock purchasable upon exercise of such holder's Warrant after giving effect to such adjustment. The certificate of any independent firm of certified public accountants of recognized national standing selected by the Board of Directors of the Company shall be conclusive evidence of the correctness of any computation made under ARTICLE IV. (b) Extraordinary Corporate Events. In case the Company after the date hereof shall propose to (i) pay any dividend payable in stock to the holders of shares of Participating Stock or to make any other Distribution to the holders of shares of Participating Stock, (ii) offer to the holders of shares of Participating Stock rights to subscribe for or purchase any additional shares of any class of stock or any other rights or options or (iii) effect any reclassification of the Participating Stock (other than a reclassification involving merely the subdivision or combination of outstanding shares of Participating Stock), or any capital reorganization or any consolidation or merger (other than a merger in which no distribution of securities or other property is to be made to holders of shares of participating Stock), or any sale, transfer or other disposition of its property, assets and business as an entirety or substantially as an entirety, 16 or the liquidation. dissolution or winding up of the Company, then, in each such case, the Company shall mail to the holder of this Warrant notice of such proposed action, which shall specify the date on which the stock transfer books of the Company shall close, or a record shall be taken, for determining the holders of Participating Stock entitled to receive such stock dividends or other Distribution or such rights or options, or the date on which such reclassification, reorganization, consolidation, merger, sale, transfer, other disposition liquidation, dissolution or winding up shall take place or commence, as the case may be, and the date as of which it is expected that holders of Participating Stock of record shall be entitled to receive securities or other property deliverable upon such action, if any such date is to be fixed. Subject to the Company's obligations under applicable law and applicable stock exchange rules and regulations, such notice shall be mailed in the case of any action covered by clause (i) or (ii) above at least ten (10) days prior to the record date for determining holders of Participating Stock for purposes of receiving such payment or offer, or in the case of any action covered by clause (iii) above at least thirty (30) days prior to the date upon which such action takes place and twenty (20) days prior to any record date to determine holders of Participating Stock entitled to receive such securities or other property. (c) Effect of Failure. Failure to file any certificate or notice or to mail any notice, or any defect in any certificate or notice pursuant to this Section 4.3 shall not affect the legality or validity of the adjustment of the Exercise Price or the number of shares purchasable upon exercise of this Warrant, or any transaction giving rise thereto. ARTICLE V RESTRICTIONS ON TRANSFER 5.1 Transfer Restrictions. Neither this Warrant, the shares of Voting Common Stock issuable upon exercise hereof, nor any shares of Voting Stock of the Company (including any Voting Stock issuable pursuant to any warrants, options, convertible securities or other rights) issued pursuant to the terms of this Warrant shall be transferable except (a) to a Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the holder hereof (so long as the principal operations of such transferee (without regard to any subsidiary thereof) are not in direct competition with the Company on the date of such transfer), (b) to a successor corporation to the holder hereof as a result of a merger or consolidation with, or sale of all or substantially all of the assets of, the holder hereof, (c) as is or may be required by the holder hereof to comply with any Federal or state law or any rule or regulation of any governmental or public body or authority, (d) on thirty (30) days prior written notice to the Company for a period of ninety (90) days immediately following the date of such notice, to any other Person, (e) in a public offerings pursuant to an effective registration statement under the Securities Act, (f) to any banking institution, insurance company, commercial finance company or other institutional lender which is an assignee or transferee of or participant in all or any portion of the rights of the Initial Holder or its Affiliates pursuant to the Loan Agreement, or (g) in a single transaction to an 17 independent third party who acquires a majority of the Voting Stock of the Company without regard to this Warrant. Any notice given pursuant to Subsection (d) of the immediately preceding paragraph by the holder hereof or of any shares of Voting Common Stock or Voting Stock of the Company referred to therein shall contain (i) the name and address of the proposed bona fide purchaser, (ii) the proposed purchase price ("Proposed Purchase Price"), (iii) the number of shares of Participating Stock or Voting Stock proposed to be sold or subject to or issuable pursuant to the portion of this Warrant proposed to be sold and (iv) a brief description of such proposed transfer. At any time during the twenty (20) days following the receipt of such notice, the Company shall have the right to acquire this Warrant (or portion thereof) or the shares of Participating Stock or Voting Stock described in such notice for an amount equal to the Proposed Purchase Price. In the event (a) the proposed transaction involves the exercise of this Warrant (in whole or part) incident to the sale of Participating Stock and (b) the Company exercises its right set forth in the immediately preceding sentence to acquire all or a portion of such Participating Stock, the holder selling such Participating Stock may elect to sell to the Company that portion of this Warrant which such holder intended to exercise incident to such sale for an amount equal to the Proposed Purchase Price less an amount equal to Exercise Price of the portion of the Warrant being sold to the Company. The restrictions contained in this Section 5.1 upon the transferability of this Warrant, or of Issuable Warrant Shares or Issued Warrant Shares, shall cease upon the transfer of such securities pursuant to the subsection (d), (e) or (g) of Section 5.1. The conditions contained in the following Sections 5.2 and 5.3 of this ARTICLE V are intended to ensure compliance with the Securities Act in respect of the transfer of this Warrant or Participating Stock issuable upon the exercise hereof. Reference in Sections 5.2 and 5.3 of this ARTICLE V to shares of Participating Stock issuable upon the exercises of this Warrant includes shares of Participating Stock theretofore issued upon the exercise of the Warrant or otherwise which are then evidenced by certificates required to bear the legend set forth in Section 5.3. 5.2 Notice of Proposed Transfer: Registration Not Required. The holder hereof or the holder of any shares of Participating Stock issuable upon the exercise of this Warrant, by acceptance hereof or thereof, agrees to give written notice to the Company, prior to any transfer of this Warrant, such shares of Participation Stock or any portion hereof or thereof, of its intention to make such transfer as required by Subsection 5.1(d). Such holder shall request an Opinion of Counsel (which shall be rendered by counsel reasonably acceptable to the Company) that the proposed transfer may be effected without registration or qualification under any Federal or state securities or blue sky law. Counsel shall, as promptly as practicable, notify the Company and the holder of such opinion and of the terms and conditions, if any, to be observed in such transfer, whereupon the holder shall be entitled to transfer this Warrant or such shares of 18 Participating Stock (or portion thereof), in the event the Company does not exercise its option to purchase this Warrant or such shares, after the expiration of a twenty (20) day period in accordance with the terms of the notice delivered to the Company. In the event this Warrant shall be exercised as an incident to such transfer, such exercise shall relate back and for all purposes of this Warrant be deemed to have occurred as of the date of such notice regardless of delays incurred by reason of the provisions of Section 5.2 or 5.3 of this ARTICLE V which may result in the actual exercise on any later date. Notwithstanding the provisions of the foregoing paragraph, the holder hereof or the holder of any shares of Participating Stock issuable upon the exercise hereof shall be permitted to transfer this Warrant or any such shares of Participating Stock without obtaining an Opinion of Counsel to a limited number of institutional holders, provided that (i) each such holder represents in writing that it is acquiring such securities for investment and not with a view to the distribution thereof (subject, however, to any requirement of law that the disposition thereof shall at all times be within the control of such holder) and (ii) each such holder agrees in writing to be bound by all the restrictions on transfer contained in Sections 5.2 and 5.3 of this ARTICLE V. 5.3 Legend on Warrants and Certificates. Each Warrant shall bear a legend in substantially the following form: "This Warrant and any shares of Voting Common Stock issuable upon the exercise of this Warrant have not been registered under the Securities Act of 1933, as amended, and neither this Warrant nor any such shares may be transferred in the absence of such registration or an exemption therefrom under such Act." In case any shares are issued upon the exercise in whole or in part of this Warrant or are thereafter transferred, in either case under such circumstances that no registration under the Securities Act is required, each certificate representing such shares shall bear on the face thereof the following legend: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and any transfer thereof is subject to the conditions specified in the Warrant dated as of May 27, 1994 originally issued by MedQuist Inc. (the "Company") to Chemical Bank to purchase shares of Voting Common Stock, no par value, of the Company. A copy of the form of such Warrant is on file with the Secretary of the Company at 20 East Clementon Road, Gibbsboro, New Jersey, and will be furnished without charge by the Company to the holder of this certificate upon written request to the Secretary of the Company at such address." 19 The restrictions imposed under Sections 5.2 and 5.3 of this ARTICLE V upon the transferability of this Warrant, or of Issuable Warrant Shares or Issued Warrant Shares, shall cease when (a) a registration statement covering such Issuable Warrant Shares or Issued Warrant Shares becomes effective under the Securities Act or (b) the Company receives an Opinion of Counsel that such restrictions are no longer required in order to ensure compliance with the Securities Act. When such restrictions terminate, the Company shall, or shall instruct its transfer agent and registrar to, issue new certificates in the name of the holder not bearing the legends required under Section 5.3. ARTICLE VI PARTICIPATION IN CORPORATE DISTRIBUTIONS 6.1 Company's Obligation to Make Payments. If the Company declares or pays a dividend upon the Participating Stock payable otherwise than in cash out of earnings or earned surplus (determined in accordance with generally accepted accounting principles, consistently applied) except for a stock dividend payable in shares of Participating Stock (a "Liquidating Dividend"), then the Company shall pay to the holder of this Warrant at the time of payment thereof the Liquidating Dividend which would have been paid to such holder on the Voting Common Stock had this Warrant been fully exercised immediately prior to the date on which a record is taken for such Liquidating Dividend, or, if no record is taken, the date as of which the record holders of Participating Stock entitled to such dividends are to be determined; provided that if the Liquidating Dividends consist of voting securities, the Company shall make available to the holder of this Warrant, at such holder's request, Liquidating Dividends consisting of non-voting securities which are otherwise identical to the Liquidating Dividends consisting of voting securities and which non-voting securities are convertible into such voting securities on the same terms as the Class A Preferred is convertible into Voting Common Stock. ARTICLE VII [INTENTIONALLY OMITTED] ARTICLE VIII FINANCIAL AND BUSINESS INFORMATION 8.1 Information. The Company shall deliver to the Initial Holder and each holder of at least 10% of the Underlying Common Shares: (a) copies of all financial statements and reports of or relating to the Company as are delivered to its shareholders generally, and (b) copies of all reports, registration statements and proxy statements filed with the Commission. 8.2 Adjustments for Restatements of Certain Financial Data. The Company hereby acknowledges that the initial number of shares issuable upon exercise of this Warrant was calculated based upon the representation of the Company that the capitalization of the Company is as set forth In Section 9.3 below and that the number of shares of Voting Common Stock outstanding on a 20 fully diluted basis (including the Issuable Warrant Shares) as of the Closing Date was 3,642,193 shares. If for any reason it shall hereafter be determined that the actual number of shares of Voting Common Stock outstanding on a fully diluted basis as of the Closing Date was different from the foregoing, the holder of this Warrant, Issuable Warrant Shares and Issued Warrant Shares may notify the Company of such determination and if the Company does not dispute the same, the Company shall forthwith reissue this Warrant with appropriate adjustments in the initial number of shares issuable upon the exercise hereof or issue a new warrant representing the amount of such adjustment if any such Person no longer holds the Warrant. ARTICLE IX REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to the Initial Holder and each subsequent holder of this Warrant that as of the Closing Date: 9.1 Organization and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of New Jersey. Other than those licenses, permits and authorizations, and foreign jurisdiction qualifications, relating to the operation of the business of Transcriptions (as defined in the Loan Agreement) which have not been obtained by, or assigned to on, the Closing Date and which the Company will use its best efforts to obtain as soon as practicable after the Closing Date, the Company has all material licenses, permits and authorizations necessary to own its properties and to carry on its businesses as now being conducted and as presently proposed to be conducted and is duly qualified to do business as a foreign corporation in each state or country, if any, in which failure to qualify would have a material adverse effect on the operations, properties, financial conditions, operating results or business prospects of the Company and its Subsidiaries taken as a whole. The Company has provided the Initial Holder with true and correct copies of its certificate of incorporation and bylaws. 9.2 Corporate Power; Binding Effect: Authorization, Governmental Approvals. The Company has the requisite corporate power and authority to execute, deliver and carry out the transactions contemplated by this Warrant. The Warrant and all other instruments and agreements contemplated hereby to which the Company is a party have been duly and validly executed and delivered by the Company and constitute legal, valid and binding obligations of the Company, and all such obligations of the Company are enforceable in accordance with their respective terms. The execution, issuance and delivery of this Warrant and the issuance of the Voting Common Stock upon exercise hereof, and the execution, delivery and performance of all other instruments, documents and agreements contemplated or required by the provisions hereof to be executed and delivered by the Company (i) has each been duly authorized by all necessary corporate action on the part of the Company, (ii) except as set forth on Exhibit 9, does not require any authorization, consent, approval, license or exemption of, and no registration, qualification, designation, 21 declaration or filing with, any court, governmental or quasi-governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign (including, without limitation, the National Association of Securities Dealers. Inc.), or the shareholders of the Company, and (iii) shall not (A) conflict with, (B) result in a breach of, (C) constitute a default under, or (D) result in the creation or imposition of any lien under, any of the terms, conditions or provisions of (1) the certificate of incorporation or bylaws of the Company or of any of its Subsidiaries, (2) any law or any regulation, order, writ, injunction or decree of any court or governmental court, governmental or quasi-governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign (including, without limitation, the National Association of Securities Dealers, Inc.), or (3) any material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them or any of their respective properties is bound. 9.3 Capital Stock. (a) As of the Closing Date and immediately thereafter, the authorized capital stock of the Company shall consist of (a) 5,000,000 shares of preferred stock, of which 577,361 shares shall be designated as Class A Preferred (of which no shares are issued and outstanding and 577,361 shares have been reserved for issuance) and 422,639 shares shall be designated as Class B Preferred (of which no shares are issued and outstanding and 422,639 shares have been reserved for issuance), and (b) 20,000,000 shares of Voting Common Stock (of which 2,231,360 shares shall be issued and outstanding and 115,000 shares are reserved for issuance upon exercise of this Warrant). As of the Closing Date, neither the Company nor any of its Subsidiaries shall have outstanding any Convertible Securities or Stock Purchase Rights, except as set forth on Exhibit 9. 9.4 Validity of Shares. When issued upon the exercise of this Warrant, and paid for, as contemplated herein. shares of Participating Stock will have been validly issued and will be fully paid and nonassessable. ARTICLE X VARIOUS COVENANTS OF THE COMPANY 10.1 Certain Covenants. The Company shall not by any action including, without limitation, amending its certificate of incorporation. any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate to protect against impairment of the rights and relative priority of the holder hereof, the holders of the Issuable Warrant Shares or the holders of the Issued Warrant Shares. Without limiting the generality of the foregoing, the Company will: (a) not increase the par value of any shares of Issuable Warrant Shares above the then effective Exercise Price, 22 (b) take all such action as may be necessary or appropriate in order that the Company may validly issue fully paid and nonassessable shares of Voting Common Stock upon the exercise of this Warrant, (c) obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant, (d) not enter into, or permit any Subsidiary to enter into, any transaction with any of its or any Subsidiary's officers, directors, employees or Affiliates or any individual related by blood or marriage to any such Person or any entity in which any such Person or individual owns a beneficial interest, except for normal employment arrangements and benefit programs on reasonable terms and except pursuant to the reasonable requirements of the Company's business and upon fair and reasonable terms which are no less favorable to the Company than would be obtained in a comparable arm's length transaction with a Person which is not an Affiliate of the Company, and (e) subject to its obligations under applicable law and securities exchange rules and regulations, cooperate with the holder hereof and of Issued Warrant Shares by using its best efforts to supply such information as may be necessary for such holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of this Warrant or such Issued Warrant Shares, (f) at all times after the Company has filed a registration statement with the Securities and Exchange Commission pursuant to the requirements of either the Securities Act or the Securities Exchange Act, file all reports required to be filed by it under the Securities Act and the Securities Exchange Act and the rules and regulations adopted by the Securities and Exchange Commission thereunder, and promptly furnish to the holders a written statement as to the status of its filing requirements of the Commission under the Securities Exchange Act, and (g) not (i) sell, transfer, assign or otherwise convey any material portion of the Transcriptions Assets (as defined in the Loan Agreement) unless such assets are promptly replaced with assets of substantially equal or greater value or utility, or (ii) sell, transfer, assign or otherwise convey, or permit MedQuist Transcriptions, Inc. to issue, any shares of the capital stock of MedQuist Transcriptions, Inc., and (h) not (i) amend the Articles of Incorporation of the Company to create capital stock having supermajority voting rights or (ii) issue any capital stock having supermajority voting rights. The covenants contained in Subsections (e) and (f) shall survive the exercise of this Warrant in full. 23 10.2 Reservation of Participating Stock: Compliance with Laws. The Company will at all times reserve and keep available, solely for issuance, sale and delivery upon the exercise of this Warrant, a number of shares of Voting Common Stock equal to the number of shares of Voting Common Stock upon the exercise of this Warrant. All such shares of Voting Common Stock shall be duly authorized and, when issued upon exercise of, and paid for in accordance with, this Warrant, shall be validly issued and fully paid and non-assessable with no liability on the part of the holders thereof. The Company shall take all such actions as may be necessary to assure that all such shares of Voting Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Voting Common Stock may be listed (except for official notice of issuance which shall be immediately transmitted by the Company upon issuance). 10.3 Listing on Securities Exchange. If the Company shall list any shares of Participating Stock on any securities exchange it will, at its expense, list thereon, maintain and increase when necessary such listing of, all Issued Warrant Shares and, to the extent permissible under the applicable securities exchange rules, all Issuable Warrant Shares, so long as any shares of Participating Stock shall be so listed. The Company will also so list on each securities exchange, and will maintain such listing of, any other securities which the holder of this Warrant shall be entitled to receive upon the exercise thereof if at the time any securities of the same class shall be listed on such securities exchange by the Company. 10.4 Indemnification. The Company shall indemnify, save and hold harmless the holder of this Warrant or the Issued Warrant Shares from and against any and all liability, loss, cost, damage, reasonable attorneys' and accountants' fees and expenses, court costs and all other out-of-pocket expenses incurred in connection with or arising from an Event of Default. Any amounts owing hereunder or otherwise as provided in this Warrant shall be payable upon demand. If the Company fails to pay when due any amounts owing hereunder or otherwise as provided in this Warrant, the Company shall pay to the holder of this Warrant or the Issued Warrant Shares (a) interest at the Default Rate on any amounts not paid when due and owing to such holder and (b) such further amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees and expenses incurred by such holder in collecting any amounts due hereunder. 10.5 Regulatory Compliance Cooperation. Notwithstanding any other provision of this Warrant, the Company will not, without the written consent of each holder hereof and the holders of shares of Participating Stock issuable hereunder, redeem, purchase or otherwise acquire, directly or indirectly, or convert or take any action with respect to the voting rights of, any shares of any class of its capital stock or any securities convertible into or exchangeable for any shares of any class of its capital stock, so as to increase the proportion of the Company's Voting Stock which this Warrant entitles the holder to purchase or which the holder of shares of Participating Stock issuable hereunder then owns. A holder may withhold such consent if, in an Opinion of Counsel, after giving effect tO such action, the holder would have a "Regulatory Problem" (as defined below). In addition, the Company will 24 not be a party to any merger, consolidation, recapitalization or other transaction pursuant to which the holder hereof or a holder of shares of Participating Stock issuable hereunder would be required to take any voting securities, or any securities convertible into voting securities, which might reasonably be expected to cause such holder to have a Regulatory Problem. For purposes of this paragraph, a Person will be deemed to have a "Regulatory Problem" when such Person or such Person's affiliates would own, control or have power, directly or indirectly, over a greater quantity of securities of any kind issued by the Company than is permitted under any requirement of any governmental authority binding on such Person. In connection with any transfer of this Warrant or the Warrant Shares, the Company agrees to execute and deliver such documents, instruments and certificates as the holder of this Warrant or the Warrant Shares reasonably requests so that such holder may comply with applicable law. ARTICLE XI [INTENTIONALLY OMITTED] ARTICLE XII MISCELLANEOUS 12.1 Holder Not a Stockholder. Prior to the exercise of this Warrant as hereinbefore provided, the holder hereof shall not be entitled to any of the rights of a stockholder of the Company including, without limitation, the right as a stockholder to (a) vote on or consent to any proposed action of the Company or (b) receive (i) dividends or any other distributions made to stockholders (except as provided in Article VI hereof ), (ii) notice of or attend any meetings of stockholders of the Company or (iii) notice of any other proceedings of the Company (except as provided in ARTICLE IV). 12.2 Like Tenor. All Warrants shall at all times be identical, except as to the Preamble. 12.3 Modifications, Amendments or Waivers. (a) The provisions of this Warrant may be amended, modified or waived with (and only with) the written consent of the Company and the Initial Holder (or any permitted transferee of all of the Warrants); provided, however, if the Initial Holder is no longer a holder of such amendment, modification or waiver shall, without the written consent of the holders of a majority of the Warrants at the time outstanding, (a) change the number of shares of Voting Common Stock subject to purchase upon exercise of this Warrant, the Exercise Price or provisions for payment thereof or (b) amend, modify or waive the provisions of this Section or Article IV. Any such amendment, modification or waiver effected pursuant to this Section shall be binding upon the holders of all Warrants and Warrant Shares, upon each future holder thereof and upon the Company. In the event of any such amendment, modification or waiver the Company shall give prompt notice thereof to all 25 holders of Warrants and, if appropriate, notation thereof shall be made on all Warrants thereafter surrendered for registration of transfer or exchange. 12.4 No Implied Waivers; Writing Required. No delay or failure of any Person in exercising any right, power or remedy hereunder shall affect or operate as a waiver thereof, nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power or remedy preclude any further exercise thereof or of any other right, power or remedy. Any waiver, permit, consent or approval of any kind or character relating to this Warrant must be in writing and shall be effective only to the extent in such writing specifically set forth. l2.5 Remedies. The rights and remedies hereunder of the holder of the Warrant Shares are cumulative and not exclusive of any rights or remedies which such holder would otherwise have. The Company stipulates that the remedies at law of the holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 12.6 Successors and Assigns. This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of the Company, the holder hereof and (to the extent provided herein) the holders of Issued Warrant Shares, and shall be enforceable by any such holder. 12.7 Reimbursement of Expenses; Taxes. The Company agrees upon demand to pay or reimburse the holders of this Warrant or the Issued Warrant Shares for all reasonable out-of-pocket expenses, including fees and expenses of counsel, from time to time (a) arising in connection with the preparation and execution of this Warrant and all other instruments and documents to be delivered hereunder, (b) relating to any amendments, waivers or consents pursuant to the provisions hereof, and (c) arising in connection with the enforcement of this Warrant and all other agreements to be delivered hereunder. The Company shall pay all expenses in connection with, and all taxes (other than stock transfer taxes) and other governmental charges that may be imposed in respect of, the issue, sale and delivery of (a) the Warrant or (b) the Issued Warrant Shares. 12.8 Notices. All notices and other communications given to or made upon any party hereto in connection with this Warrant shall, except as otherwise expressly herein provided, be in writing (including telexed or telegraphic communication) telexed, sent by telecopy or delivered by hand or by reputable overnight courier service to (a) the holder of this Warrant or Issued Warrant Shares at its last known address appearing on the books of the Company maintained for such purpose or (b) the Company at its principal office at 20 East Clementon Road, Gibbsboro, New Jersey 08026 Attention: President, or in accordance with any subsequent written direction from the recipient party to the sending party. All such notices and other communications shall, except as otherwise expressly herein provided, be effective upon delivery if 26 delivered by hand; one business day after deposit with a reputable courier service, delivery charges prepaid; in the case of telex, when received; or in the case of telecopy, upon telephonic confirmation of receipt (followed by deposit of hard copy in first class mail, postage prepaid). 12.9 Survival. All representations, warranties, covenants and agreements of the Company contained herein or made in writing in connection herewith shall survive indefinitely the execution and delivery of this Warrant and the issuance of Issued Warrant Shares. 12.10 Governing Law. This Warrant and the rights and obligations of the parties hereto shall be deemed to be contracts under the laws of the State of New York and for all purposes shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to any choice of law or conflict provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York; provided that the corporate law of New Jersey shall govern all issues concerning the relative right of the Company and its stockholders. 12.11 Severability. Whenever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant is held to be prohibited by or invalid under applicable law in any jurisdiction, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating any other provision of this Warrant. 12.12 Headings. Article, Section and Subsection headings in this Warrant are included for convenience of reference only and shall not constitute a part of this Warrant for any other purpose. 12.13 Notice of Expiration; Extension of Time. The Company will give the holder of this Warrant no less than six (6) months nor more than nine (9) months notice of the expiration of the right to exercise this Warrant. The right to exercise this Warrant shall expire at the termination of the Exercise Period, unless the Company shall fail to give such notice as aforesaid, in which event the right to exercise this Warrant shall not expire until 5 P.M., New York Time, on a date six (6) months after the date on which the Company shall give the holder hereof notice of the expiration of the right to exercise this Warrant. Whenever any dispute shall exist under any provision of this Warrant, the Exercise Period shall be automatically extended for a period of time equal to the period of time which it takes to resolve such dispute, and if any other rights benefiting the holder of this Warrant would expire during the period of time which it takes to resolve such dispute, then the relevant time period for the exercise of such rights shall be similarly extended so that the holder is not prejudiced by any delay in resolving the dispute. 12.14 Original Issue Discount. Under both generally accepted accounting principles and the regulations of the Internal Revenue Service, the issuance of Notes (as defined in the Loan Agreement) and this Warrant to the Initial Holder, for an aggregate purchase price equal to the principal amount of such Notes, will result in the creation of "original issue discount" on 27 such Notes (which original issue discount may also be deemed to constitute the value of this Warrant) and requires the determination of the value of this Warrant. Accordingly, the Company and the Initial Holder agree that the amount of original issue discount on the Notes issued to the Initial Holder and the value of 100% of this Warrant (which original issue discount and value shall be used by the Company and the Initial Holder, as well as any subsequent holder of such Notes and this Warrant, for all purposes, including the preparation of tax returns and the preparation of financial statements of the Company and its Subsidiaries), shall be $0. Dated as of May 27, 1994. MEDQUIST INC. By: /s/ Paul E. Weitzel, Jr. ---------------------------- Title: Senior Vice President Attest: /s/ John M. Suender - ---------------------- Secretary 28 Exhibit 2.2 NOTICE OF EXERCISE FORM ----------------------- (To be executed only upon partial or full exercise of the within Warrant) The undersigned registered holder of the within Warrant irrevocably exercises the within Warrant for and purchases shares of Voting Common Stock of MedQuist Inc. (the "Company") and herewith makes payment therefor in the amount of $____________ , all at the price and on the terms and conditions specified in the within Warrant, and requests that a certificate (or ___________ certificates in denominations of ____________ shares) for the shares of Voting Common Stock of ____________ hereby purchased be issued in the name of and delivered to (choose one) (a) the undersigned or (b) ______________________, whose address is ______________________ and. if such shares of Voting Common Stock shall not include all the shares of Voting Common Stock issuable as provided in the within Warrant, that a new Warrant of like tenor for the number of shares of Voting Common Stock of the Company not being purchased hereunder be issued in the name of and delivered to (choose one) (a) the undersigned or (b)__________________ , whose address is______________________. Dated:_________________________ Signature Guaranteed: By:_______________________________ (Signature of Registered Holder) - ------------------------------ By: --------------------------- (Title:) NOTICE: The signature to this Notice of Exercise must correspond With the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever. The signature to this Notice of Exercise must be guaranteed by a commercial bank or trust company in the United States or a member firm of the New York Stock Exchange. 29 ASSIGNMENT FORM --------------- (To be executed only upon the assignment of the within Warrant) FOR VALUE RECEIVED, the undersigned registered holder of the within Warrant hereby sells. assigns and transfers unto ____________________ whose address is _______________ , all of the rights of the undersigned under the within Warrant, with respect to ___________________ shares of Voting Common Stock of (THE COMPANY) (the "Company") and, if such shares of Voting Common Stock shall not include all the shares of Voting Common Stock issuable as provided in the within Warrant, that a new Warrant of like tenor for the number of shares of Voting Common Stock of the Company not being transferred hereunder be issued in the name of and delivered to the undersigned, and does hereby irrevocably constitute and appoint ___________________ Attorney to register such transfer on the books of the Company maintained for the purpose, with full power of substitution in the premises. Dated:________________________ Signature Guaranteed: By:_______________________________ (Signature of Registered Holder) - ------------------------------ By: --------------------------- (Title:) By: (Title:) NOTICE: The signature to this Assignment must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever. The signature to this Assignment must be guaranteed by a commercial bank or trust company in the United States or a member firm of the New York Stock Exchange. 30 EXHIBIT 11.1 Stock Purchase Rights Convertible Securities, Etc.
MedQuist, Inc. Stock Options As of May 1, 1994 Grant Date 1/1/88 1/1/89 1/1/90 1/1/91 12/1/91 11/4/92 ------ ------ ------ ------ ------- ------- Name Price/Share $2.00 $3.40 $4.00 $5.00 $6.70 $6.00 ----- ----- ----- ----- ----- ----- Corporate: - ---------- Richard Censits, Chairman, President & CEO 50,000 Paul Wetzel, SVP & COO 5,000 Pat Freebern, VP Corporate Relations 10,000 15,000 5,000 John Suender, VP Secretary & General Counsel Robert Graharn, VP Treasurer & CFO Laura Andersen, Manager H R 6,000 Bruce Van Fossen, Asst. Corporate Controller 4,000 1,000 1,000 MaryAnne Pace, Director -- Sales Theresa Rife, Director -- HRS Consulting Services: - -------------------- Rick Garrison, Director Consulting Services 7,500 7,500 5,000 Terry Johnson, Account Executive -- Consulting Services 5,000 Receivables Management Division: - -------------------------------- William Eschrich -- VP Rec. Mgt. Div. -- Southwest Region Ed Boone -- VP Rec. Mgt. Div. -- Midwest Region Pat Collins -- VP Rec. Mgt. Div. -- Northeast Region Lloyd Colley -- VP Rec. Mgt. Div. -- Southeast Region Board of Directors 41,600 10,400 18,000 Heller Warrants Other Employees 0 11,000 2,000 25,500 0 5,000 - ------ ----- ------ - ----- 17,500 67,500 6,000 79,100 10,400 33,000 ------ ------ ----- ------ ------ ------
MedQuist, Inc. Stock Options As of May 1, 1994 Grant Date 11/4/92 6/1/93 1/1/94 4/28/94 5/1/94 12/14/92 Total ------- ------ ------ ------- ------ -------- ----- Name Price/Share $5.80 $5.25 $4.69 $6.44 $6.50 $7.50 ----- ----- ----- ----- ----- ----- Corporate: - ---------- Richard Censits, Chairman, President & CEO 75,000 125,000 Paul Wetzel, SVO & COO 30,000 25,000 60,000 Pat Freebern, VP Corporate Relations 3,000 33,000 John Suender, VP Secretary & General Counsel 3,000 3,000 Robert Graharn, VP Treasurer & CFO 5,000 5,000 Laura Andersen, Manager H R 6,000 Bruce Van Fossen, Asst. Corporate Controller 6,000 MaryAnne Pace, Director -- Sales 2,000 2,000 Theresa Rife, Director -- HRS 2,000 2,000 Consulting Services: - -------------------- Rick Garrison, Director Consulting Services 5,000 25,000 Terry Johnson, Account Executive -- Consulting Services 5,000 Receivables Management Division: - -------------------------------- William Eschrich -- VP Rec. Mgt. Div. -- Southwest Region 15,000 15,000 Ed Boone -- VP Rec. Mgt. Div. -- Midwest Region 5,000 5,000 Pat Collins -- VP Rec. Mgt. Div. -- Northeast Region 5,000 5,000 Lloyd Colley -- VP Rec. Mgt. Div. -- Southeast Region 5,000 5,000 Board of Directors 18,000 88,000 Heller Warrants 933,333 933,333 Other Employees 2,000 0 7,000 0 0 0 52,500 ----- - ----- - - - ------ 2,000 18,000 160,000 2,000 25,000 933,333 1,375,833 ----- ------ ------- ----- ------ ------- ---------
EX-5 5 CONSENT OF PEPPER, HAMILTON & SCHEETZ EXHIBIT 5 (215) 981-4368 June 18, 1996 MedQuist Inc. Five Greentree Centre Suite 311 Marlton, New Jersey 08053 Re: Registration Statement on Form S-3 Gentleman: Reference is made to the Registration Statement on Form S-3 of MedQuist Inc., a New Jersey Corporation (the "Company"), Registration Statement No. 333-3974, as amended by Amendment No. 1 thereto, to which this opinion is attached as an exhibit (as so amended, the "Registration Statement"). The Registration Statement relates to the offering and sale by certain Selling Shareholders of up to an aggregate of 1,038,026 shares of common stock, no par value (the "Shares"), of the Company which are currently outstanding. Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Registration Statement. In this connection, we have examined the Registration Statement, including the exhibits thereto, the originals or copies, certified or otherwise identified to our satisfaction, of the Articles of Incorporation and the By-Laws of the Company as amended to date, and such other documents and corporate records relating to the Company as we have deemed appropriate for the purpose of rendering the opinion expressed herein. In addition, we have examined the Warrant to Purchase Voting Common Stock of the Company issued to Chemical Bank, dated as of May 27, 1994 (the "Chemical Warrant"). The opinion expressed herein is based exclusively on the applicable provisions of the New Jersey Business Corporation Act. For the purposes of this opinion, we have assumed that the Chemical Warrant has been exercised and that 75,351 shares of MedQuist Inc. Page 2 June 18, 1996 Common Stock have been issued to Chemical Bank in conformity with the terms of the Chemical Warrant. On the basis of the foregoing, we are of the opinion that the Shares have been legally issued and are fully paid and non-assessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. Such consent does not constitute a consent under Section 7 of the Securities Act, since we have not certified any part of the Registration Statement and do not otherwise come within the categories of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission promulgated thereunder. Very truly yours, PEPPER, HAMILTON & SCHEETZ By: /s/ James D. Epstein ------------------------- A Partner -----END PRIVACY-ENHANCED MESSAGE-----