-----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, EHkLUhl9mG8bM8se5bBb80jSfBXMytUcnL3WW6c182X5Wgz+J+B/dyBJwAsWFEV5 y75XMwf0CG6pWC3F2di1Og== /in/edgar/work/20000601/0000950130-00-003239/0000950130-00-003239.txt : 20000919 0000950130-00-003239.hdr.sgml : 20000919 ACCESSION NUMBER: 0000950130-00-003239 CONFORMED SUBMISSION TYPE: SC TO-T PUBLIC DOCUMENT COUNT: 25 FILED AS OF DATE: 20000601 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: MEDQUIST INC CENTRAL INDEX KEY: 0000884497 STANDARD INDUSTRIAL CLASSIFICATION: [7374 ] IRS NUMBER: 222531298 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T SEC ACT: SEC FILE NUMBER: 005-42936 FILM NUMBER: 647885 BUSINESS ADDRESS: STREET 1: FIVE GREENTREE CENTRE STE 311 STREET 2: STATE HIGHWAY 73 N CITY: MARLTON STATE: NJ ZIP: 08053 BUSINESS PHONE: 6095968877 MAIL ADDRESS: STREET 1: 5 GREENTREE CENTRE SUITE 311 STREET 2: ATTN BRUCE VAN FOSSEN CITY: MARLTON STATE: NJ ZIP: 08053 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: KONINKLIJKE PHILIPS ELECTRONICS NV CENTRAL INDEX KEY: 0000313216 STANDARD INDUSTRIAL CLASSIFICATION: [3600 ] STATE OF INCORPORATION: P7 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC TO-T BUSINESS ADDRESS: STREET 1: REMBRANDT TOWER AMSTELPLEIN 1 STREET 2: 1096 HA AMSTERDAM CITY: THE NETHERLANDS MAIL ADDRESS: STREET 1: REMBRANDT TOWER AMSTELPLEIN 1 STREET 2: 1096 HA AMSTERDAM CITY: THE NETHERLANDS FORMER COMPANY: FORMER CONFORMED NAME: PHILIPS ELECTRONICS N V DATE OF NAME CHANGE: 19930727 SC TO-T 1 0001.txt SCHEDULE TO As filed with the Securities and Exchange Commission on June 1, 2000 Schedule TO Tender Offer Statement under Section 14(d)(1) or 13(e)(1) of the Securities Exchange Act of 1934 MedQuist Inc. (Name of Subject Company) Koninklijke Philips Electronics N.V. (Name of Filing Persons) COMMON STOCK, NO PAR VALUE (Title of Class of Securities) 584949101 (CUSIP Number of Class of Securities) Eric Coutinho Director Legal Affairs and Deputy Secretary Koninklijke Philips Electronics N.V. Corporate Legal Department 1070 MX Amsterdam The Netherlands 31 20 597 7235 (Name, Address, and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Filing Persons) with a copy to: Stephen M. Kotran, Esq. Sullivan & Cromwell 125 Broad Street New York, New York 10004-2498 (212) 558-4000 - -------------------------------------------------------------------------------- CALCULATION OF FILING FEE Transaction valuation (1) Amount of filing fee $1,134,766,677 $226,953
- -------------------------------------------------------------------------------- (1) Based on the offer to purchase 22,250,327 shares of common stock of MedQuist Inc. at a purchase price of $51.00 per share. [_]Check the box if any part of the fee is offset as provided by Rule 0- 11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: N/A Form or Registration No.: N/A Filing Party: N/A Date Filed: N/A [_]Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. Check the appropriate boxes below to designate any transactions to which the statement relates: [X]third-party tender offer subject to Rule 14d-1. [_]issuer tender offer subject to Rule 13e-4. [_]going-private transaction subject to Rule 13e-3. [_]amendment to Schedule 13D under Rule 13d-2. Check the following box if the filing is a final amendment reporting the results of the tender offer: [_] This Tender Offer Statement on Schedule TO relates to the commencement by Koninklijke Philips Electronics N.V., a corporation incorporated under the laws of the Netherlands ("Royal Philips"), of its offer to purchase 22,250,327 shares of common stock, no par value (the "Shares"), of MedQuist Inc., a New Jersey corporation ("MedQuist"), at a price of $51.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated June 1, 2000 (the "Offer to Purchase"), a copy of which is attached hereto as Exhibit (a)(1), and in the related Letter of Transmittal, a copy of which is attached hereto as Exhibit (a)(2). The information in the Offer to Purchase, including all schedules and annexes thereto, is hereby incorporated by reference in response to all the items of this Schedule TO, except as otherwise set forth below. Item 10. Financial Statements. (a) Financial information. Not applicable. (b) Pro forma information. Not applicable. Item 11. Additional Information. Other material information. The information set forth in the Letter of Transmittal attached hereto as Exhibit (a)(2) is incorporated herein by reference. Item 12. Exhibits. The following are attached as exhibits to this Schedule TO: (a)(1) Offer to Purchase, dated June 1, 2000. (a)(2) Letter of Transmittal. (a)(3) Notice of Guaranteed Delivery. (a)(4) Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(5) Form of Letter to brokers, dealers, commercial banks, trust companies and other nominees. (a)(6) Form of Letter to be used by brokers, dealers, commercial banks, trust companies and other nominees to their clients. (a)(7) Summary newspaper advertisement, dated June 1, 2000, as published in The Wall Street Journal. Exhibit (b) None. Exhibit (d)(1)(A) Tender Offer Agreement, dated as of May 22, 2000, between Royal Philips and MedQuist Inc. Exhibit (d)(1)(B) Shareholder Agreement, dated as of May 22, 2000, between Royal Philips and John M. Suender. Exhibit (d)(1)(C) Shareholder Agreement, dated as of May 22, 2000, between Royal Philips and David A. Cohen.
2 Exhibit (d)(1)(D) Shareholder Agreement, dated as of May 22, 2000, between Royal Philips and John A. Donohoe, Jr. Exhibit (d)(1)(E) Shareholder Agreement, dated as of May 22, 2000, between Royal Philips and John R. Emery. Exhibit (d)(1)(F) Shareholder Agreement, dated as of May 22, 2000, between Royal Philips and Ethan Cohen. Exhibit (d)(1)(G) Shareholder Agreement, dated as of May 22, 2000, between Royal Philips and Ronald A. Scarpone. Exhibit (d)(1)(H) Shareholder Agreement, dated as of May 22, 2000, between Royal Philips and John W. Quaintance. Exhibit (d)(1)(I) Employment Agreement, dated as of May 22, 2000, between MedQuist Inc. and John M. Suender. Exhibit (d)(1)(J) Employment Agreement, dated as of May 22, 2000, between MedQuist Inc. and David A. Cohen. Exhibit (d)(1)(K) Employment Agreement, dated as of May 22, 2000, between MedQuist Inc. and John A. Donohoe, Jr. Exhibit (d)(1)(L) Employment Agreement, dated as of May 22, 2000, between MedQuist Inc. and John R. Emery. Exhibit (d)(1)(M) Employment Agreement, dated as of May 22, 2000, between MedQuist Inc. and Ethan Cohen. Exhibit (d)(1)(N) Employment Agreement, dated as of May 22, 2000, between MedQuist Inc. and Ronald A. Scarpone. Exhibit (d)(1)(O) Employment Agreement, dated as of May 22, 2000, between MedQuist Inc. and John W. Quaintance. Exhibit (d)(1)(P) Licensing Agreement, dated as of May 22, 2000, between Philips Speech Processing GmbH and MedQuist Inc. Exhibit (d)(1)(Q) Governance Agreement, dated as of May 22, 2000, between Royal Philips and MedQuist Inc. Exhibit (d)(2) None. Exhibit (g) None. Exhibit (h) None.
Item 13. Information Required by Schedule 13E-3. Not applicable. 3 SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Date: June 1, 2000 Koninklijke Philips Electronics N.V. /s/ Jan H.M. Hommen By:__________________________________ Name: Jan H.M. Hommen Title: Executive Vice President and Chief Financial Officer /s/ Adri Baan By:__________________________________ Name: Adri Baan Title: Executive Vice President 4 EX-99.(A)(1) 2 0002.txt OFFER TO PURCHASE DATED 06/01/2000 Exhibit (a)(1) Offer to Purchase for Cash 22,250,327 Shares of Common Stock of MedQuist Inc. at $51.00 Net Per Share by Koninklijke Philips Electronics N.V. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JUNE 28, 2000, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN 22,250,327 SHARES OF COMMON STOCK, NO PAR VALUE (THE "SHARES"), OF MEDQUIST INC., A NEW JERSEY CORPORATION ("MEDQUIST"). THE CONSUMMATION OF THE OFFER IS ALSO SUBJECT TO THE OTHER CONDITIONS SET FORTH IN THIS OFFER TO PURCHASE. SEE SECTION 13. THE OFFER IS BEING MADE PURSUANT TO A TENDER OFFER AGREEMENT, DATED AS OF MAY 22, 2000 (THE "TENDER OFFER AGREEMENT"), BETWEEN KONINKLIJKE PHILIPS ELECTRONICS N.V. AND MEDQUIST. AT A MEETING HELD ON MAY 21, 2000, THE BOARD OF DIRECTORS OF MEDQUIST UNANIMOUSLY DETERMINED THAT THE TERMS OF THE OFFER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF MEDQUIST, AND APPROVED THE TENDER OFFER AGREEMENT AND THE OTHER AGREEMENTS DESCRIBED IN THIS OFFER TO PURCHASE. THE BOARD OF DIRECTORS RECOMMENDS THAT MEDQUIST'S SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES IN THE OFFER. IMPORTANT Any shareholder desiring to tender all or any portion of such shareholder's Shares should (1) complete and sign the Letter of Transmittal or a facsimile thereof in accordance with the instructions in the Letter of Transmittal, including any required signature guarantees, and mail or deliver the Letter of Transmittal or such facsimile with such shareholder's certificate(s) for the tendered Shares and any other required documents to the Depositary named herein, (2) follow the procedure for book-entry transfer of Shares set forth in Section 3 or (3) request such shareholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such shareholder. Shareholders having Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if they desire to tender Shares so registered. A shareholder of MedQuist who desires to tender Shares and whose certificates for such Shares are not immediately available, or who cannot comply with the procedure for Book-Entry Transfer on a timely basis, may tender such Shares by following the procedures for guaranteed delivery set forth in Section 3. Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Requests for additional copies of this Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other tender offer materials may be directed to the Information Agent or the Dealer Manager. Shareholders may also contact their broker, dealer, commercial bank, trust company or other nominee. The Dealer Manager for the Offer is: Goldman, Sachs & Co. SUMMARY TERM SHEET This summary highlights important and material information from this Offer to Purchase but does not purport to be complete. To fully understand the offer described in this document and for a more complete description of the terms of the offer described in this document, you should read carefully this entire Offer to Purchase and the Letter of Transmittal (which together, as they may be amended and supplemented, constitute the "Offer"). We have included section references to direct you to a more complete description of the topics contained in this summary. . WHO IS OFFERING TO BUY MY SECURITIES? Koninklijke Philips Electronics N.V. ("Royal Philips"), is offering to buy your Shares as described in this document. See Section 9 of this document for further information about Royal Philips. . WHAT ARE THE CLASSES AND AMOUNTS OF SECURITIES SOUGHT IN THE OFFER? Royal Philips is offering to buy 22,250,327 Shares, which constitutes approximately 57% of the fully diluted Shares. For information about the conditions to which the Offer is subject, see Section 13. . HOW MUCH IS ROYAL PHILIPS OFFERING TO PAY AND WHAT IS THE FORM OF PAYMENT? Royal Philips is offering to pay $51.00 in cash for each Share that it is offering to purchase. See Section 1 for information about the terms of the Offer. . DOES ROYAL PHILIPS HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT? Yes. Royal Philips presently intends to finance the Offer with its cash position and cash flow from existing businesses. . ARE ROYAL PHILIPS' FINANCIAL RESULTS RELEVANT TO MY DECISION AS TO WHETHER TO TENDER IN THE OFFER? Since the Offer is for cash and is not subject to any financing condition, Royal Philips' financial results should not be relevant to your decision on whether to tender your Shares in the Offer. . HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER MY SHARES? You may tender your Shares into the Offer until 12:00 midnight, New York City time, on Wednesday, June 28, 2000, which is the scheduled expiration date of the offering period, unless Royal Philips decides to extend the offering period. See Section 3 of this document for information about tendering your Shares. . CAN THE OFFER BE EXTENDED, AND UNDER WHAT CIRCUMSTANCES? Yes, Royal Philips may elect to extend the Offer from time to time for a period not longer than 20 business days in the aggregate if, at the initially scheduled expiration date of the Offer any of the conditions to the Offer are not satisfied. See Section 1 of this document for information about extension of the Offer. . HOW WILL I BE NOTIFIED IF THE OFFER IS EXTENDED? Royal Philips will announce by press release any extension of the Offer no later than 9:00 a.m., New York City time, on the next day after the previously scheduled expiration date. See Section 1 of this document for more information about extension of the Offer. i . WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER? The Offer is conditioned upon, among other things, at least 22,250,327 Shares, which constitutes approximately 57% of the fully diluted Shares, being validly tendered and not withdrawn. For a complete description of all of the conditions to which the Offer is subject, see Section 13. . HOW DO I TENDER MY SHARES? If you hold the certificates for your Shares, you should complete the enclosed Letter of Transmittal and enclose all the documents required by it, including your certificates, and send them to the American Stock Transfer & Trust Company (the "Depositary") at the address listed on the back cover of this document. If your broker holds your Shares for you in "street name" you must instruct your broker to tender your Shares on your behalf. In any case, the Depositary must receive all required documents prior to 12:00 midnight, New York City time, on Wednesday, June 28, 2000, which is the expiration date of the Offer, unless Royal Philips decides to extend the Offer. If you cannot comply with any of these procedures, you still may be able to tender your Shares by using the guaranteed delivery procedures described in this document. See Section 3 for more information on the procedures for tendering your Shares. . UNTIL WHAT TIME CAN I WITHDRAW PREVIOUSLY TENDERED SHARES? The tender of your Shares may be withdrawn at any time prior to the expiration date of the offering period. In addition, if Royal Philips has not agreed to accept your Shares for payment by Sunday, July 30, 2000, you can withdraw them at any time after that date until Royal Philips accepts Shares for payment. See Section 4 of this document for more information. . HOW DO I WITHDRAW PREVIOUSLY TENDERED SHARES? You (or your broker or bank if your Shares were held in "street name") must notify the Depositary at the address and telephone number listed on the back cover of this document, and your notice must include, among other things, the name of the shareholder that tendered the Shares, the number of Shares to be withdrawn and the name in which the tendered Shares are registered. For complete information about the procedures for withdrawing your previously tendered Shares, see Section 4. . WHAT HAPPENS IF MORE THAN 22,250,327 SHARES ARE TENDERED? Royal Philips is offering to purchase 22,250,327 Shares. If more than 22,250,327 Shares are properly tendered and not withdrawn at the expiration of the Offer, Royal Philips will purchase Shares on a pro rata basis. This means that Royal Philips will purchase from each tendering shareholder a number of Shares equal to the number of Shares properly tendered and not withdrawn by such shareholder multiplied by a proration factor. The proration factor is equal to the number of shares Royal Philips is offering to purchase divided by the total number of Shares properly tendered and not withdrawn by all shareholders. See Section 2 for more information. . WHEN WILL I KNOW HOW MANY OF MY SHARES WERE ACCEPTED FOR PAYMENT? Because of the difficulty of determining the number of Shares properly tendered and not withdrawn, Royal Philips does not expect that it will be able to announce the final proration factor or commence payment for any Shares purchased pursuant to the Offer until approximately four trading days after the end of the offering period. The preliminary results of any proration will be announced by press release as promptly as practicable after the time Royal Philips accepts Shares for payment pursuant to the Offer. Shareholders may obtain such preliminary information from the Information Agent and may be able to obtain such information from their brokers. See Section 2 for more information. ii . WHAT HAPPENS TO THE SHARES THAT ARE NOT ACCEPTED FOR PURCHASE? If any tendered Shares are not accepted for payment for any reason, the certificates for such unpurchased Shares will be returned, without expense, to the tendering shareholder, or such other person as the tendering shareholder specifies in the Letter of Transmittal. This includes any Shares not accepted for payment as a result of proration. See Section 2 for more information. . WHAT DOES MY BOARD OF DIRECTORS THINK OF THE OFFER? At a meeting held on May 21, 2000, the board of directors of MedQuist unanimously determined that the terms of the Offer are fair to, and in the best interests of, the shareholders of MedQuist, and approved the Tender Offer Agreement and the other agreements described in this Offer to Purchase. The board of directors recommends that MedQuist's shareholders accept the Offer and tender their Shares in the Offer. . WILL MEDQUIST REMAIN A PUBLIC COMPANY AFTER THE OFFER? Yes, after the Offer, MedQuist will remain a public company whose common stock will continue to trade on the Nasdaq Stock Market. Royal Philips will own approximately 60% of MedQuist's fully diluted Shares. Royal Philips has entered into a "Governance Agreement" with MedQuist (which will become effective at the time Royal Philips purchases Shares pursuant to the Offer) with respect to its Share ownership. See Section 11 for a more complete description of the terms of the Governance Agreement. . HAS MEDQUIST ENTERED INTO ANY OTHER AGREEMENTS IN CONNECTION WITH THE OFFER? MedQuist and a subsidiary of Royal Philips have entered into a Licensing Agreement pursuant to which, among other things, MedQuist will be granted a license to use certain speech recognition technology in connection with its business. MedQuist has also entered into a Governance Agreement with Royal Philips and new employment agreements with seven members of its senior management. See Section 11 for a more complete description of the terms of the Licensing Agreement, the Governance Agreement and the employment agreements. . WILL MEDQUIST'S MANAGEMENT PARTICIPATE IN THE OFFER? Royal Philips has entered into agreements with a number of the members of MedQuist's senior management. These agreements provide that if Royal Philips purchases Shares pursuant to the Offer, then promptly after the Offer expires, Royal Philips will purchase from these individuals an additional 1,149,759 Shares in the aggregate, which amount represents approximately 3% of MedQuist's outstanding fully diluted Shares, and approximately 37% of those individuals' combined holdings. These agreements also provide that until May 22, 2002, these individuals will not sell or dispose of any Shares or options they owned on the date of the agreement, any Shares acquired pursuant to options they held on the date of the agreement, or any options or Shares acquired pursuant to an option grant declared by the Compensation Committee of MedQuist's board of directors on May 21, 2000. See Section 11 for more information. . IF I DECIDE NOT TO TENDER, HOW WILL THE OFFER AFFECT MY SHARES? If fewer than 22,250,327 Shares are validly tendered and not withdrawn in the Offer, then Royal Philips is not obligated to purchase Shares pursuant to the Offer and may terminate the Offer, in which case Shares will remain outstanding and continue to be traded on the Nasdaq Stock Market. If more than 22,250,327 Shares are validly tendered and not withdrawn in the Offer, and all the other conditions to the Offer are satisfied or waived by Royal Philips, Royal Philips will purchase 22,250,327 Shares pursuant to the terms and conditions of the Offer. iii The purchase of the Shares by Royal Philips will reduce the number of the Shares that might otherwise trade publicly and may reduce the number of holders of the Shares, which could adversely affect the liquidity and market value of the remaining Shares held by the public. In addition, Royal Philips will own a majority of MedQuist's Shares and will have the right to control MedQuist, subject to the terms of the Governance Agreement. See Section 7 of this document for additional information about the effect of the Offer on your Shares and Section 11 for a discussion of the Governance Agreement. . WHAT IS THE MARKET VALUE OF MY SHARES AS OF A RECENT DATE? On May 22, 2000, the last full trading day prior to the public announcement of the Offer, the reported closing price of the common stock on the Nasdaq Stock Market was $39.125 per Share. On May 31, 2000, the last full trading day for which prices were available before the commencement of the Offer, the reported closing price of the common stock on the Nasdaq Stock Market was $41.375 per Share. You should obtain a recent market quotation for your Shares in deciding whether to tender them. See Section 6 of this document for recent high and low sales prices for the Shares. . WHO IS RESPONSIBLE FOR THE PAYMENT OF TAXES AND BROKERAGE FEES? Shareholders of record who tender Shares directly will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of the Shares by Royal Philips pursuant to the Offer. However, any tendering shareholder or other payee who fails to complete and sign the Substitute Form W-9 included in the Letter of Transmittal may be subject to backup federal income tax withholding of 31% of the gross proceeds payable to such shareholder or other payee pursuant to the Offer. See Section 3 for more information. Shareholders who hold their Shares through a broker, dealer, commercial bank, trust company or other nominee should check with such institution as to whether they charge any service fees. . WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE TENDER OFFER? If you have any questions you can call the Dealer Manager, Goldman, Sachs & Co. at (800) 323-5678, or the Information Agent, Morrow & Co., Inc. at (800) 566-9061. See the back cover of this Offer to Purchase. iv TABLE OF CONTENTS
Section Page ------- ---- SUMMARY TERM SHEET....................................................... i INTRODUCTION............................................................. 1 1. Terms of the Offer.............................................. 2 2. Acceptance for Payment, Proration and Payment for the Shares.... 3 3. Procedure for Tendering Shares.................................. 4 4. Rights of Withdrawal............................................ 7 5. Certain Federal Income Tax Consequences of the Offer............ 8 6. Price Range of the Shares....................................... 8 7. Effect of the Offer on the Market for the Shares................ 9 8. Certain Information Concerning MedQuist......................... 9 9. Certain Information Concerning Royal Philips.................... 11 10. Background of the Offer; Contacts with MedQuist................. 12 11. Purpose of the Offer; Plans for MedQuist; The Tender Offer Agreement; The Shareholder Agreements; The Licensing Agreement; The Governance Agreement; The Employment Agreements................................................... 14 12. Source and Amount of Funds...................................... 26 13. Certain Conditions of the Offer................................. 26 14. Dividends and Distributions..................................... 28 15. Certain Legal Matters........................................... 28 16. Fees and Expenses............................................... 29 17. Miscellaneous................................................... 30 Schedule A Information Concerning the Directors and Executive Officers of Royal Philips........................................................... A-1
v To the Holders of the Shares of MedQuist Inc.: INTRODUCTION Koninklijke Philips Electronics N.V., a company incorporated under the laws of the Netherlands ("Royal Philips"), hereby offers to purchase 22,250,327 shares of common stock, no par value (the "Shares"), of MedQuist Inc., a New Jersey corporation ("MedQuist"), which constitutes approximately 57% of the fully diluted Shares, at $51.00 per Share, net to the seller in cash (the "Share Price"), upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, as they may be amended and supplemented from time to time, together constitute the "Offer"). Tendering shareholders who are record holders of their Shares and tender directly to the American Stock Transfer & Trust Company (the "Depositary") will not be obligated to pay brokerage fees or commissions or, subject to Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of the Shares by Royal Philips pursuant to the Offer. Shareholders who hold their Shares through a broker, dealer, commercial bank, trust company or other nominee should consult such institution as to whether it charges any service fees in connection with the tender of Shares into the Offer on behalf of its clients. Royal Philips will pay all charges and expenses of Goldman, Sachs & Co., as dealer manager ("Dealer Manager"), and of the Depositary and Morrow & Co., Inc. (the "Information Agent"). At a meeting held on May 21, 2000, the board of directors of MedQuist unanimously determined that the terms of the Offer are fair to, and in the best interests of, the shareholders of MedQuist, and approved the Tender Offer Agreement, dated May 22, 2000, between Royal Philips and MedQuist (the "Tender Offer Agreement") and the other agreements described in this Offer to Purchase. The board of directors recommends that MedQuist's shareholders accept the Offer and tender their Shares in the Offer. UBS Warburg LLC ("UBS Warburg"), financial advisor to MedQuist, has delivered to the board of directors of MedQuist a written opinion, dated May 22, 2000, to the effect that, as of such date and based upon and subject to certain matters described therein, the $51.00 per Share cash consideration to be received in the Offer (or pursuant to the Shareholder Agreements, as defined herein) by holders of Shares was fair, from a financial point of view, to such holders (other than Royal Philips and its affiliates). A copy of UBS Warburg's opinion, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken, is attached as an exhibit to MedQuist's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"), which has been filed by MedQuist with the Securities and Exchange Commission (the "SEC") in connection with the Offer and which is being mailed to shareholders herewith. Shareholders are urged to, and should, read UBS Warburg's opinion carefully and in its entirety. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn at least 22,250,327 Shares, which constitutes approximately 57% of the fully diluted Shares, and the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, having expired or been terminated. The Offer is also subject to the other conditions set forth in this Offer to Purchase. See Section 13. According to MedQuist, as of May 19, 2000 there were 35,452,704 Shares outstanding and there were 3,547,439 Shares reserved for issuance under MedQuist's stock option and incentive plans. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION AND THEY SHOULD BE READ IN THEIR ENTIRETY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 1 1. Terms of the Offer. Upon the terms and subject to the conditions set forth in the Offer (including the terms and conditions set forth in Section 13 (the "Offer Conditions") and, if the Offer is extended or amended, the terms and conditions of such extension or amendment), Royal Philips will accept for payment, and pay for, 22,250,327 Shares validly tendered and not withdrawn as permitted by Section 4, on or prior to the Expiration Date (as defined herein). If more than 22,250,327 Shares are validly tendered and not withdrawn at the Expiration Date of the Offer, Royal Philips will purchase Shares on a pro rata basis from all tendering shareholders as explained herein. The term "Expiration Date" means 12:00 midnight, New York City time, on Wednesday, June 28, 2000, unless and until Royal Philips extends the period for which the Offer is open, in which event the term "Expiration Date" means the latest time and date on which the Offer, as so extended by Royal Philips, expires. The period from the date hereof until 12:00 midnight, New York City time, on Wednesday, June 28, 2000, as such period may be extended, is referred to as the "Offering Period." The condition that there be validly tendered and not withdrawn at least 22,250,327 Shares is referred to as the "Tender Offer Condition." For purposes of the Offer, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time. Subject to the applicable regulations of the SEC, Royal Philips expressly reserves the right, in its sole discretion, to waive, set forth or change any term and condition of the Offer; provided, that, unless previously approved by MedQuist in writing, no provision may be set forth or changed which: (i) increases or, except as set forth in the next succeeding sentence, decreases the Tender Offer Condition; (ii) decreases the price per Share to be paid in the Offer; (iii) changes the form of consideration payable in the Offer (other than by adding consideration); (iv) imposes additional conditions to the Offer other than those set forth in the Tender Offer Agreement; or (v) amends or modifies any term or condition of the Offer in a manner adverse to the holders of Shares. Without the prior written consent of MedQuist, Royal Philips may not extend the expiration date of the Offer beyond the initial expiration date of the Offer; provided, that, if on the initially scheduled expiration date of the Offer (or any subsequent expiration date) any of the conditions to the Offer have not been satisfied, Royal Philips may in its sole discretion extend from time to time the Offer for up to and including an additional twenty (20) business days in the aggregate after the initial expiration date of the Offer, and may in its sole discretion, in connection with any such extension, amend the terms of the Offer, but only to reduce the Tender Offer Condition to any number of Shares greater than 20,300,320 Shares, it being understood that if Royal Philips accepts for payment any Shares validly tendered and not withdrawn pursuant to the Offer, it will accept for payment all such Shares up to the Tender Offer Condition (i.e., 22,250,327 Shares). During any such extension of the Offering Period, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the right of a tendering shareholder to withdraw such shareholder's Shares. See Section 4. Any extension, delay, termination or amendment of the Offer will be followed as promptly as practicable by public announcement thereof, such announcement in the case of an extension to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Subject to applicable law (including Rules 14d-4(d), 14d-6(c) and 14e-1 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which require that any material change in the information published, sent or given to shareholders in connection with the Offer be promptly disseminated to shareholders in a manner reasonably designed to inform shareholders of such change) and without limiting the manner in which Royal Philips may choose to make any public announcement, Royal Philips will have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a press release or other public announcement. Royal Philips will not provide a subsequent offering period, as provided for in Rule 14d-11 under the Exchange Act. Royal Philips confirms that if it makes a material change in the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, Royal Philips will extend the Offer to the extent required by Rules 14d-4(d), 14d-6(c) and 14e-1 under the Exchange Act. 2 If, during the Offering Period, Royal Philips decreases the number of Shares sought pursuant to the Offer (which may be done as explained above) or the Share Price (which may be done only if previously approved by MedQuist in writing), such decrease will be applicable to all holders whose Shares are accepted for payment pursuant to the Offer and, if at the time notice of any decrease is first published, sent or given to holders of such Shares, the Offer is scheduled to expire at any time earlier than the tenth business day from and including the date that such notice is first so published, sent or given, the Offer will be extended until the expiration of such ten-business day period. Consummation of the Offer is also conditioned upon expiration or termination of all waiting periods imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations thereunder (the "HSR Act"), and the other conditions set forth in Section 13. With respect to antitrust compliance, see Section 15. Royal Philips reserves the right but is not obligated, in accordance with applicable rules and regulations of the SEC, to waive any or all of those conditions. If, by the Expiration Date, any or all of those conditions have not been satisfied, Royal Philips may, prior to the Expiration Date, in its sole discretion, elect to: (i) extend the Offer from time to time for up to and including an additional twenty (20) business days in the aggregate and, subject to applicable withdrawal rights, retain all tendered Shares until the expiration of the Offer, as extended, subject to the terms of the Offer; (ii) waive all of the unsatisfied conditions (other than antitrust approval which may not be waived, and the Tender Offer Condition, which may be amended only as described above) and, subject to complying with applicable rules and regulations of the SEC, accept for payment 22,250,327 Shares so tendered, subject to the pro rata provisions; or (iii) terminate the Offer and not accept for payment any Shares and return all tendered Shares to tendering shareholders. In the event that Royal Philips waives any condition set forth in Section 13, the SEC may, if the waiver is deemed to constitute a material change to the information previously provided to the shareholders, require that the Offer remain open for an additional period of time and/or that Royal Philips disseminate information concerning such waiver. MedQuist has provided Royal Philips with MedQuist's shareholder lists and security position listings for the purpose of disseminating the Offer to holders of the Shares. This Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed by Royal Philips to record holders of the Shares and will be furnished by Royal Philips to brokers, dealers, banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the shareholder lists or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of the Shares. 2. Acceptance for Payment, Proration and Payment for the Shares. Upon the terms and subject to the conditions of the Offer (including the Offer Conditions and, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Royal Philips will accept for payment, and will pay for, 22,250,327 Shares. If more than 22,250,327 Shares are validly tendered and not withdrawn, Royal Philips will accept for purchase an amount of the tendered Shares equal to 22,250,327 Shares, on a pro rata basis from each shareholder who has validly tendered Shares pursuant to the Offer, promptly after the Expiration Date. Subject to compliance with Rule 14e- 1(c) under the Exchange Act, Royal Philips expressly reserves the right to delay payment for Shares in order to comply in whole or in part with any applicable law. See Sections 1 and 15. In the event that proration of tendered Shares is required, Royal Philips will determine the appropriate proration factor as soon as practicable following the Expiration Date. Proration for each shareholder tendering Shares will be based on the ratio of the number of Shares Royal Philips is offering to purchase to the total number of Shares properly tendered and not withdrawn by all shareholders (with adjustments to avoid purchases of fractional shares). Because of the difficulty in determining the number of Shares properly tendered (including Shares tendered by guaranteed delivery procedures described in Section 3 below) and not withdrawn, Royal Philips does not expect that it will be able to announce the final proration factor or commence payment for any Shares purchased pursuant to the Offer until approximately four trading days after 3 the Expiration Date. The preliminary results of any proration will be announced by press release as promptly as practicable after the Expiration Date. Shareholders may obtain such preliminary information from the Information Agent and from their brokers. In the event of any proration, the Depositary will select certain identifiable Shares for payment from the total Shares properly tendered and not withdrawn by a shareholder in accordance with such shareholder's directions, if any, as set forth in such shareholder's Letter of Transmittal. For purposes of the Offer, Royal Philips will be deemed to have accepted for payment the Shares validly tendered and not withdrawn, if and when Royal Philips gives oral or written notice to the Depositary of its acceptance for payment of such Shares pursuant to the Offer. As noted, if more than 22,250,327 Shares are validly tendered and not withdrawn at the Expiration Date of the Offer, Royal Philips will accept for purchase Shares on a pro rata basis. Payment for any Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for the tendering shareholders for the purpose of receiving payments from Royal Philips and transmitting such payments to the tendering shareholders. In all cases, payment for any Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares (or a timely Book-Entry Confirmation (as defined below) with respect thereto), (ii) the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a Book-Entry Transfer, an Agent's Message (as defined below) in lieu of a Letter of Transmittal and (iii) any other documents required by the Letter of Transmittal. Accordingly, payment may be made to tendering shareholders at different times if delivery of the certificates and other required documents occur at different times. The price paid to any holder of the Shares pursuant to the Offer will be the highest price per Share paid to any other holder of such Shares pursuant to the Offer. Under no circumstances will interest on the consideration to be paid for the Shares be paid, regardless of any extension of the Offer or any delay in making such payment. If any tendered Shares are not accepted for payment pursuant to the terms and conditions of the Offer for any reason, including as a result of proration, or if certificates are submitted for more Shares than are tendered, certificates for such unpurchased Shares will be returned, without expense, to the tendering shareholder, or such other person as the tendering shareholder specifies in the Letter of Transmittal, as promptly as practicable following the expiration or termination of the Offer. In the case of any Shares delivered by Book-Entry Transfer into the Depositary's account at the Book-Entry Transfer Facility (as defined below) pursuant to the procedures set forth in Section 3, such Shares will be credited to such account maintained at the Book-Entry Transfer Facility as the tendering shareholder specifies in the Letter of Transmittal, as promptly as practicable following the expiration or termination of the Offer. If no such instructions are given with respect to any Shares delivered by Book-Entry Transfer, any such Shares not tendered or not purchased will be returned by crediting the account at the Book-Entry Transfer Facility designated in the Letter of Transmittal as the account from which such Shares were delivered. Royal Philips reserves the right to transfer or assign in whole or in part from time to time to one or more of its direct or indirect subsidiaries the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve Royal Philips of its obligations under the Offer and will in no way prejudice the rights of tendering shareholders to receive payment for any Shares validly tendered and accepted for payment pursuant to the Offer. 3. Procedure for Tendering Shares. Valid Tender. To tender Shares pursuant to the Offer, either (i) a Letter of Transmittal (or a manually signed facsimile thereof) properly completed and duly executed in accordance with the instructions of the Letter of Transmittal, together with any required signature guarantees and certificates for the Shares to be tendered, or, in the case of a Book-Entry Transfer, an Agent's Message (in lieu of a Letter of Transmittal), and any other required documents must be received by the Depositary prior to the Expiration Date, at one of its addresses set forth on the back cover of this Offer to Purchase or (ii) the tendering shareholder must comply with the guaranteed delivery procedures set forth below. 4 Book-Entry Delivery. The Depositary will establish accounts with respect to the Shares at The Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make Book-Entry Transfer of the Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of the Shares may be effected through Book-Entry Transfer, either a Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agent's Message in lieu of the Letter of Transmittal, and any other required documents, must, in any case, be transmitted to and received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase by the Expiration Date, or the tendering shareholder must comply with the guaranteed delivery procedures described below. The confirmation of a Book-Entry Transfer of the Shares into the Depositary's account at the Book-Entry Transfer Facility as described above is referred to herein as a "Book-Entry Confirmation." The term "Agent's Message" means a message transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares which are the subject of such Book-Entry Confirmation, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Royal Philips may enforce such agreement against the participant. Delivery of documents to the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures does not constitute delivery to the Depositary. The method of delivery of any Shares, the Letter of Transmittal and all other required documents, including delivery through the Book-Entry Transfer Facility, is at the election and risk of the tendering shareholder. Shares will be deemed delivered only when actually received by the Depositary (including, in the case of a Book-Entry Transfer, by Book-Entry Confirmation). If delivery is by mail, it is recommended that the shareholder use properly insured registered mail with return receipt requested. In all cases, sufficient time should be allowed to ensure timely delivery. Signature Guarantees. Except as otherwise provided below, all signatures on a Letter of Transmittal must be guaranteed by a financial institution (including most commercial banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (each, an "Eligible Institution"). Signatures on a Letter of Transmittal need not be guaranteed (i) if the Letter of Transmittal is signed by the registered holder (which term, for purposes of this section, includes any participant in the Book-Entry Transfer Facility's systems whose name appears on a security position listing as the owner of the Shares) of the Shares tendered therewith and such registered holder has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal or (ii) if such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If the certificates for any Shares are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made or certificates for any Shares not tendered or not accepted for payment, including as a result of proration, are to be returned to a person other than the registered holder of the certificates surrendered, then the tendered certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holders or owners appear on the certificates, with the signatures on the certificates or stock powers guaranteed as described above. See Instructions 1 and 5 of the Letter of Transmittal. Guaranteed Delivery. A shareholder who desires to tender Shares pursuant to the Offer and whose certificates for any Shares are not immediately available or who cannot comply with the procedure for Book-Entry Transfer on a timely basis, or who cannot deliver all required documents to the Depositary prior to the Expiration Date, may tender such Shares by following all of the procedures set forth below: (i) such tender is made by or through an Eligible Institution; 5 (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Royal Philips, is received by the Depositary, as provided below, prior to the Expiration Date; and (iii) the certificates for all tendered Shares, in proper form for transfer (or a Book-Entry Confirmation with respect to all such Shares), together with a properly completed and duly executed Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees (or, in the case of a Book-Entry Transfer, an Agent's Message in lieu of the Letter of Transmittal), and any other required documents, are received by the Depositary within three business days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand to the Depositary or transmitted by telegram, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice of Guaranteed Delivery. Other Requirements. Notwithstanding any provision of this document, payment for the Shares accepted for payment pursuant to the Offer will in all cases be made only after timely receipt by the Depositary of the instruments and documents referred to in Section 2. Tender Constitutes an Agreement. The valid tender of any Shares pursuant to one of the procedures described above will constitute a binding agreement between the tendering shareholder and Royal Philips upon the terms and subject to the conditions of the Offer, including the right to withdraw such Shares as described in Section 4. Appointment. By executing a Letter of Transmittal as set forth above, the tendering shareholder will irrevocably appoint designees of Royal Philips as such shareholder's attorneys-in-fact and proxies in the manner set forth in the Letter of Transmittal, each with full power of substitution, to the full extent of such shareholder's rights with respect to the Shares tendered by such shareholder and accepted for payment by Royal Philips and with respect to any and all non-cash dividends, distributions, rights, and other shares of common stock or other securities issued or issuable in respect of such Shares on or after May 22, 2000 (collectively, "Distributions"). All such proxies will be considered coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, Royal Philips deposits the payment for such Shares with the Depositary. All such powers of attorney and proxies will be irrevocable and will be deemed granted in consideration of the acceptance for payment by Royal Philips of the Shares tendered in accordance with the terms of the Offer. Upon the effectiveness of such appointment, all prior powers of attorney, proxies and consents given by such shareholder will be revoked, and no subsequent powers of attorney, proxies and consents may be given (and, if given, will not be deemed effective). Royal Philips' designees will be empowered to exercise all voting and other rights of such shareholder with respect to such Shares (and any and all Distributions) as they, in their sole discretion, may deem proper at any annual, special or adjourned meeting of the shareholders of MedQuist, actions by written consent in lieu of any such meeting or otherwise. Royal Philips reserves the right to require that, in order for any Shares to be deemed validly tendered, immediately upon Royal Philips' depositing the payment for such Shares with the Depositary, Royal Philips must be able to exercise full voting, consent and other rights with respect to such Shares (and any and all Distributions). Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any tender of the Shares will be determined by Royal Philips in its sole discretion, which determination will be final and binding. Royal Philips reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance for payment of or payment for which may, in the opinion of Royal Philips' counsel, be unlawful. Royal Philips also reserves the absolute right to waive any defect or irregularity in the tender of any Shares of any particular shareholder whether or not similar defects or irregularities are waived in the case of other shareholders. No tender of any Shares will be deemed to have been validly made until all defects and irregularities relating thereto have been cured or waived. None of Royal 6 Philips, the Depositary, the Information Agent, the Dealer Manager or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Royal Philips' interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and Instructions thereto) will be final and binding. Backup Withholding. In order to avoid "backup withholding" of federal income tax on payments of cash pursuant to the Offer, a shareholder surrendering Shares in the Offer must, unless an exemption applies, provide the Depositary with such shareholder's correct taxpayer identification number ("TIN") on a Substitute Form W-9 and certify under penalty of perjury that such TIN is correct and that such shareholder is not subject to backup withholding. If a shareholder does not provide such shareholder's correct TIN or fails to provide the certifications described above, the Internal Revenue Service (the "IRS") may impose a penalty on such shareholder and payment of cash to such shareholder pursuant to the Offer may be subject to backup withholding of 31%. All shareholders surrendering Shares pursuant to the Offer should complete and sign the main signature form and the Substitute Form W-9 included as part of the Letter of Transmittal to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is proved in a manner satisfactory to Royal Philips and the Depositary). Certain shareholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding. Non- corporate foreign shareholders should complete and sign the main signature form and a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See "Important Tax Information" in the Letter of Transmittal. 4. Rights of Withdrawal. Tenders of the Shares made pursuant to the Offer are irrevocable except that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the expiration of the Offering Period and, unless theretofore accepted for payment by Royal Philips pursuant to the Offer, may also be withdrawn at any time after Sunday, July 30, 2000. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any such notice of withdrawal must specify the name of the person having tendered the Shares to be withdrawn, the number of the Shares to be withdrawn and the names in which the certificate(s) evidencing the Shares to be withdrawn are registered, if different from that of the person who tendered such Shares. The signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution, unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedures for Book-Entry Transfer as set forth in Section 3, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. If certificates for the Shares to be withdrawn have been delivered or otherwise identified to the Depositary, the name of the registered holder and the serial numbers of the particular certificates evidencing the Shares to be withdrawn must also be furnished to the Depositary as aforesaid prior to the physical release of such certificates. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Royal Philips, in its sole discretion, which determination will be final and binding. None of Royal Philips, the Dealer Manager, the Depositary, the Information Agent, or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give such notification. Withdrawals of tendered Shares may not be rescinded, and any Shares properly withdrawn will be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by following any one of the procedures described in Section 3 at any time prior to the Expiration Date. If Royal Philips extends the Offer, is delayed in its acceptance for payment of any Shares, or is unable to accept for payment any Shares pursuant to the Offer for any reason, then, without prejudice to Royal Philips' 7 rights under this Offer, the Depositary may, nevertheless, on behalf of Royal Philips, retain tendered Shares, but such Shares may be withdrawn to the extent that tendering shareholders are entitled to withdrawal rights as set forth in this Section 4. 5. Certain Federal Income Tax Consequences of the Offer. Sales of the Shares pursuant to the Offer will be taxable transactions for federal income tax purposes and may also be taxable under applicable state, local and other tax laws. The consequences of the receipt of cash in exchange for Shares pursuant to the Offer may vary depending on the particular circumstances of a shareholder. For federal income tax purposes, a shareholder whose Shares are purchased pursuant to the Offer will realize gain or loss equal to the difference between the adjusted basis of the Shares sold and the amount of cash received therefor. Such gain or loss will be capital gain or loss if the Shares are held as capital assets by the shareholder and will be long-term capital gain or loss if the shareholder's holding period in the Shares for federal income tax purposes is more than one year at the time the Shares are accepted for payment. Long-term capital gain of a non-corporate shareholder is generally subject to a maximum tax rate of 20%. A shareholder's ability to use capital losses to offset ordinary income is limited. The income tax discussion set forth above is included for general information only and may not be applicable to shareholders in special situations such as shareholders who received their Shares upon the exercise of stock options or otherwise as compensation and shareholders who are not United States persons. Shareholders should consult their own tax advisors with respect to the specific tax consequences to them, in their particular circumstances, of the Offer, including the application and effect of federal, state, local, foreign or other tax laws. 6. Price Range of the Shares. The Shares are listed on the Nasdaq Stock Market under the symbol "MEDQ". The following table sets forth, for the calendar quarters indicated, the high and low reported prices for the Shares on the Nasdaq Stock Market based on public sources:
Sales Price ------------- High Low ------ ------ Calendar Year 1998: First Quarter............................................. $19.56 $15.00 Second Quarter............................................ 29.38 17.63 Third Quarter............................................. 33.00 20.50 Fourth Quarter............................................ 40.00 21.75 1999: First Quarter............................................. 38.69 27.69 Second Quarter............................................ 43.75 26.69 Third Quarter............................................. 45.75 30.00 Fourth Quarter............................................ 37.06 24.75 2000: First Quarter............................................. 29.75 16.87 Second Quarter (through May 31, 2000)..................... 45.87 27.06
The above noted prices reflect a three-for-two stock split effected on June 15, 1998. On May 22, 2000, the last full trading day prior to the public announcement of the terms of the Offer, the reported closing price on the Nasdaq Stock Market was $39.125 per Share. On May 31, 2000, the last full trading day prior to commencement of the Offer, the reported closing price of the Shares on the Nasdaq Stock Market was $41.375 per Share. MedQuist has never paid any cash dividends. Shareholders are urged to obtain a current market quotation for the Shares. 8 7. Effect of the Offer on the Market for the Shares. Market for the Shares. The purchase of any Shares by Royal Philips pursuant to the Offer will reduce the number of the Shares that might otherwise trade publicly and may reduce the number of holders of the Shares, which could adversely affect the liquidity and market value of the remaining Shares held by the public. 8. Certain Information Concerning MedQuist. MedQuist has its principal executive offices at Five Greentree Centre, Suite 311, Marlton, New Jersey 08053. The telephone number of MedQuist at such location is (856) 596-8877. MedQuist, which was incorporated in 1984, is the leading national provider of medical transcription services, a key component in the provision of healthcare services. Transcription is the process by which dictation is converted into an electronic medical report. The timely production of accurate reports is necessary for patient care and for healthcare providers to receive reimbursement. Through MedQuist's approximately 8,000 transcriptionists, proprietary software, sophisticated digital dictation equipment and ability to interface with healthcare providers' computer systems, MedQuist provides customized solutions to shorten customers' billing cycles and reduce their overhead and other administrative costs. In addition to hospital medical records departments, MedQuist's target markets include patient care departments, such as radiology, emergency rooms, oncology, pathology, pediatrics and cardiology departments, health maintenance organizations, physician practice groups and out-patient clinics. MedQuist serves approximately 2,300 clients through 68 client service centers nationwide. Due to the large number of trained transcriptionists and MedQuist's ability to allocate work among them efficiently, MedQuist believes that it is able to reduce the production turnaround times for transcribed medical reports. An in-house staff or small transcription company cannot generally achieve these efficiencies to the extent MedQuist can. As a result of internal growth and acquisitions, MedQuist's revenues have increased from $61.5 million in 1996 (before restatement for acquisitions accounted for as pooling of interests) to $330 million in 1999. Set forth below is certain summary consolidated financial information for each of MedQuist's last three fiscal years for the period ended December 31, 1999 as contained in MedQuist's 1999 Annual Report to Shareholders, and incorporated by reference in its Annual Report on Form 10-K, as well as unaudited financial information for the period ended March 31, 2000 as contained in MedQuist's Quarterly Report on Form 10-Q. More comprehensive financial information is included in such reports (including management's discussion and analysis of financial condition and results of operation) and other documents filed by MedQuist with the SEC, and the following summary is qualified in its entirety by reference to such reports and other documents and all of the financial information and notes contained therein. Copies of such reports and other documents may be examined at or obtained from the SEC and the Nasdaq Stock Market in the manner set forth below. 9 MEDQUIST INC. SELECTED CONSOLIDATED FINANCIAL INFORMATION (In thousands, except per share data)
Three Months Ended March 31, 2000 Year Ended December 31, ------------------ -------------------------- 1999 1998 1997 (unaudited) -------- -------- -------- Income Statement Data: Revenues...................... $92,512 $330,008 $271,655 $216,158 Income before income taxes.... 23,720 67,644 11,657 14,026 Net income.................... 14,232 40,205 3,185 8,733 Net income per common share: Basic....................... 0.40 1.14 0.10 0.28 Diluted..................... 0.39 1.09 0.09 0.26 Balance Sheet Data (at period end): Current assets................ 138,308 143,760 75,084 63,795 Total assets.................. 298,486 302,183 187,311 173,773 Current liabilities........... 41,874 44,406 33,232 27,187 Total shareholders' equity.... 255,444 256,536 151,186 131,373
Except as otherwise set forth herein, the information concerning MedQuist contained in this Offer to Purchase has been taken from or based upon publicly available documents and records on file with the SEC and other public sources and is qualified in its entirety by reference thereto. Although Royal Philips and the Dealer Manager have no knowledge that would indicate that any statements contained herein based on such documents and records are untrue, Royal Philips and the Dealer Manager cannot take responsibility for the accuracy or completeness of the information contained in such documents and records, or for any failure by MedQuist to disclose events which may have occurred or may affect the significance or accuracy of any such information but which are unknown to Royal Philips or the Dealer Manager. Other Financial Information. During the course of the discussions and information exchange between Royal Philips and MedQuist that led to the execution of the Tender Offer Agreement, MedQuist provided Royal Philips and its financial advisors with certain information and projections about MedQuist and its historical and projected future financial performance which is not publicly available. The information provided included the following:
Year Ended December 31, ---------------------------------- 2000P 2001P 2002P 2003P 2004P ------ ------ ------ ------ ------ (in millions, except per share data) Revenues..................................... $397.7 $477.3 $572.8 $686.8 $848.8 EBIT......................................... 85.9 105.5 127.8 154.7 187.1 Net Income................................... 52.6 64.9 79.8 98.0 120.0 EPS.......................................... $ 1.41 $ 1.70 $ 2.03 $ 2.43 $ 2.91
The information set forth above is based on various assumptions, including, among other things: (i) total revenue growth (including base business and acquisitions) of approximately 20% annually; (ii) EBITDA margins of 27.3% in 2000 and 27.7% in 2001 and thereafter; and (iii) a tax rate of approximately 40%. 10 MedQuist has advised Royal Philips that it does not as a matter of course disclose projections as to future revenues, earnings or other income statement data and the projections were not prepared with a view to public disclosure. In addition, the projections were not prepared in accordance with generally accepted accounting principles, or with a view to compliance with the published guidelines of the SEC or the American Institute of Certified Public Accountants regarding projections, which would require a more complete presentation of the data than is shown above. The projections have not been examined, reviewed or compiled by MedQuist's independent auditors, and accordingly they have not expressed an opinion or any other assurance on it. The forecasted information is included herein solely because such information was furnished to Royal Philips and its financial advisors prior to the Offer. Accordingly, neither Royal Philips nor any other person is making any representation with respect to, or assuming any responsibility for, the accuracy or reliability of such projections. In addition, because the estimates and assumptions underlying the projections are inherently subject to significant economic and competitive uncertainties and contingencies, which are difficult or impossible to predict accurately and are beyond the control of MedQuist and Royal Philips, there can be no assurance that results set forth in the above projections will be realized and it is expected that there will be differences between actual and projected results, and actual results may be materially higher or lower than those set forth above. Available Information. MedQuist is subject to the information and reporting requirements of the Exchange Act and in accordance therewith is obligated to file reports and other information with the SEC relating to its business, financial condition and other matters. Information, as of particular dates, concerning MedQuist's directors and officers, their remuneration, stock options granted to them, the principal holders of MedQuist's securities, any material interests of such persons in transactions with MedQuist and other matters is required to be disclosed in proxy statements distributed to MedQuist's shareholders and filed with the SEC. Such reports, proxy statements and other information should be available for inspection at the public reference room at the SEC's offices at 450 Fifth Street, N.W., Washington, D.C. 20549 and also should be available for inspection and copying at the regional offices of the SEC located at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60611. Copies may be obtained by mail, upon payment of the SEC's customary charges, by writing to its principal office at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and can be obtained electronically on the SEC's Website at http://www.sec.gov. 9. Certain Information Concerning Royal Philips. Royal Philips is a company organized under the laws of the Netherlands, with its principal executive offices at Rembrandt Tower, Amstelplein 1, 1096 HA Amsterdam, the Netherlands. The telephone number of Royal Philips at such location is 31-20-597-7777. Royal Philips has manufacturing and sales organizations in over 60 countries. Royal Philips delivers products, systems and services in the fields of lighting, consumer electronics and communications, domestic appliances and personal care, components, semiconductors, medical systems and information technology. Financial Information of Royal Philips. Royal Philips is subject to the informational reporting requirements of the Exchange Act. Other Information Regarding Royal Philips. The name, citizenship, business address, business telephone number, current principal occupation (including the name, principal business and address of the organization in which such occupation is conducted), and material positions held during the past five years (including the name, principal business and address of the organization in which such occupation was conducted), of the directors and executive officers of Royal Philips are set forth in Schedule A to this Offer to Purchase. Neither Royal Philips, nor, to the best of its knowledge, any of the persons listed in Schedule A hereto nor any associate or majority-owned subsidiary of Royal Philips beneficially owns or has a right to acquire any Shares or has engaged in any transactions in the Shares in the past 60 days except as set forth in Sections 10 and 11. Royal Philips has not purchased any Shares during the past two years. 11 Except as set forth in Section 10 and Section 11, there have been no negotiations, transactions or material contacts between Royal Philips, or, to the best of its knowledge, any of the persons listed in Schedule A hereto, on the one hand, and MedQuist or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors, or a sale or other transfer of a material amount of assets. Except as described in Section 10, neither Royal Philips, nor, to the best of its knowledge, any of the persons listed in Schedule A hereto, has had any transaction with MedQuist or any of its executive officers, directors or affiliates that would require disclosure under the rules and regulations of the SEC applicable to the Offer. 10. Background of the Offer; Contacts with MedQuist. Background of the Tender Offer. It is Royal Philips' announced strategy to expand its activities in healthcare services and MedQuist is the leading provider in the United States of medical transcription services. Royal Philips' investment in MedQuist through the purchase of Shares pursuant to the terms of the Offer and the Shareholder Agreements furthers Royal Philips' announced strategy and is also an opportunity to create significant growth and leverage Royal Philips' speech technology capabilities. In addition, Royal Philips' information technology activities conducted through its affiliate, Origin B.V., present opportunities for Royal Philips to assist MedQuist in expanding its Application Service Provider capabilities. On March 27, 2000, John A. Donohoe, Jr., MedQuist's President and Chief Operating Officer, participated in a telephone conference with Tom Stolk, General Manager--Speech Application of Philips Speech Processing GmbH ("Philips Speech Processing"). Mr. Stolk informed Mr. Donohoe that Philips Speech Processing was willing to recommend to the management board of Royal Philips that Royal Philips make an investment in MedQuist as part of an overall strategic relationship between the two companies. As a result of that telephone conference, on April 3, 2000, Mr. David A. Cohen, MedQuist's Chairman and Chief Executive Officer, Mr. Donohoe, John R. Emery, MedQuist's Chief Financial Officer, and John M. Suender, MedQuist's General Counsel, met with Cesar Vohringer, President and Chief Executive Officer of Philips Speech Processing, Mr. Stolk, David Ames, Vice President of Philips Speech Processing (USA), and Peter Foster, Executive Vice President of Philips Speech Processing (USA), at MedQuist's headquarters in Marlton, New Jersey. At that meeting, Mr. Vohringer reconfirmed that Philips Speech Processing was willing to recommend to the management board of Royal Philips that Royal Philips make an investment in MedQuist, although one involving a purchase of less than a majority of the outstanding Shares. On April 11, 2000, Messrs. Cohen, Donohoe, Emery and Suender of MedQuist met in Dallas, Texas, with Messrs. Vohringer, Stolk, Ames and Stephen Havering, Vice President Corporate Mergers and Acquisitions, of Royal Philips during the Health Information Management Systems Society conference. Also present were representatives of UBS Warburg, and representatives of Mercer Management Consulting, an independent consultant to Royal Philips. At this meeting, Royal Philips made a proposal to purchase newly issued shares of common stock of MedQuist equivalent to a post-issue 20% interest in MedQuist, at a per Share price approximately equal to the then-prevailing market price. Representatives of MedQuist expressed concern that MedQuist did not have an immediate need for that amount of capital and, accordingly, any purchase would need to be of outstanding Shares. There was also disagreement on the price proposed to be paid by Royal Philips. Representatives of Royal Philips stated that they would make a presentation to the management board of Royal Philips in the next week, and that they would arrange a meeting with MedQuist at the end of the following week to follow up. On April 17, 2000, MedQuist and Royal Philips entered into a confidentiality agreement and standstill agreement. On April 19, 2000, Royal Philips retained Goldman, Sachs & Co. to serve as its exclusive financial advisor with respect to a potential transaction with MedQuist. Thereafter, on April 20, 2000, Messrs. Cohen, Donohoe, Emery and Suender of MedQuist met with Messrs. Vohringer, Stolk, Ames, and Havering of Royal Philips at Royal Philips' offices in New York City. Also present were representatives of UBS Warburg, and representatives of Mercer Management Consulting and Goldman, Sachs & Co. At this meeting, Royal Philips presented a new proposal to acquire a minority stake in MedQuist's capital stock in exchange for cash and to 12 enter into certain other arrangements between the parties that were then undefined. At the conclusion of the meeting, Mr. Cohen stated that he believed that MedQuist's board of directors would probably not support a transaction that did not involve Royal Philips' acquisition of at least a majority of the capital stock of MedQuist. He again expressed MedQuist's view that any purchase should be of Shares held directly by MedQuist's shareholders since MedQuist did not have any immediate need for that much capital and the board of directors believed that MedQuist's existing shareholders should benefit directly from any transaction through a purchase of their Shares. Representatives of Royal Philips indicated that Royal Philips was unlikely to seek to acquire the entire company, but that they would present a proposal to acquire a majority of the outstanding Shares to Royal Philips' management board. Representatives of Royal Philips expressed the belief that it was important for MedQuist to remain publicly traded for several reasons, including to permit management to continue to own equity in a publicly-traded entity. On May 1, 2000, management of Royal Philips made a presentation to its management board in the Netherlands regarding a proposed transaction with MedQuist. On May 4, 2000, a meeting took place at Royal Philips' offices in New York City. Present for MedQuist were Messrs. Cohen, Donohoe, Emery, Suender, and Ronald A. Scarpone, MedQuist's Senior Vice President of New Business Development, and present for Royal Philips were Messrs. Cor Boonstra, President of Royal Philips, Jan Hommen, Executive Vice President and Chief Financial Officer of Royal Philips, Adri Baan, Executive Vice President of Royal Philips, Ivo Lurvink, Executive Vice President of Philips International B.V., Vohringer and Havering. Royal Philips expressed a willingness to purchase a majority, but less than all, of the outstanding Shares and requested that all parties focus on preparing a business plan to be presented to the Royal Philips' management board for consideration. On May 5, 2000, Messrs. Donohoe, Emery and Suender met with representatives of Royal Philips in New York City to develop a business plan. On May 9, 2000, Mr. Cohen had a discussion with Mr. Hommen of Royal Philips. In the course of that conversation, Mr. Hommen stated that Royal Philips was prepared to make an offer to purchase 60% of the fully diluted Shares for $50.00 per Share, subject to completion of Royal Philips' due diligence. Mr. Cohen stated that he would present the offer to the board of directors. After MedQuist's board of directors met and considered the Royal Philips offer on May 10, 2000, Mr. Cohen called Mr. Hommen and stated that the board of directors was interested in the proposed transaction but that a price of $50.00 per Share, although a substantial increase from earlier discussions, was not acceptable. On May 11, 2000, Messrs. Hommen and Lurvink called Mr. Cohen and stated that Royal Philips was prepared to raise its offer to $51.00 per Share and immediately commence due diligence. On May 13, 2000, attorneys from Sullivan & Cromwell, legal counsel to Royal Philips, and from Pepper Hamilton, LLP, legal counsel to MedQuist ("Pepper Hamilton"), visited MedQuist's offices in Marlton, New Jersey to review documents and records for due diligence purposes. On May 14, 2000, a meeting was held at the offices of UBS Warburg in New York City to continue due diligence. The meeting included representatives of MedQuist and UBS Warburg, as well as representatives of Royal Philips, Goldman, Sachs & Co. and Mercer Management Consulting. Also on May 14, 2000, representatives of Royal Philips met with MedQuist's auditors to conduct due diligence. Due diligence continued from May 14, 2000 through May 21, 2000. From May 14, 2000 through May 16, 2000, representatives of MedQuist, including its legal counsel and financial advisors met with representatives of Royal Philips, including its legal counsel and financial advisors, in New York City in order to negotiate the terms of the Tender Offer Agreement and the other agreements described herein. On May 21, 2000, MedQuist's board of directors met to discuss the proposed transaction and, at the conclusion of the meeting the board of directors unanimously (i) determined that the terms of the Offer were fair to, and in the best interests of, the shareholders of MedQuist and declared that the Offer was advisable, (ii) approved the Tender Offer Agreement and the other agreements described herein, and the transactions contemplated thereby, and (iii) recommended that the shareholders of MedQuist accept the Offer and tender their Shares pursuant to the Offer. 13 On May 21, 2000, a conference call was held between representatives of MedQuist and Royal Philips in which certain non-economic and technical details of the Tender Offer Agreement and the other agreements were discussed. On May 22, 2000, the supervisory board of Royal Philips approved the transaction and informed MedQuist of such approval. Thereafter, counsel for the two parties and representatives of MedQuist and Royal Philips finalized the Tender Offer Agreement and the other agreements described herein, all of which were executed by the applicable parties on May 22, 2000, after which the transaction was publicly announced. 11. Purpose of the Offer; Plans for MedQuist; The Tender Offer Agreement; The Shareholder Agreements; The Licensing Agreement; The Governance Agreement; The Employment Agreements. Purpose. The purpose of the Offer is to acquire for cash 22,250,327 Shares, which constitutes approximately 57% of the fully diluted Shares. In addition, if Royal Philips accepts for payment and pays for Shares pursuant to the terms and conditions of the Offer, Royal Philips will, after the Offer expires, purchase an additional 1,149,759 Shares from seven members of MedQuist's senior management pursuant to the Shareholder Agreements, as described below. After completion of the purchase of Shares pursuant to the Offer and pursuant to the terms of the Shareholder Agreements, Royal Philips will own approximately 60% of the fully diluted Shares, and MedQuist will be a direct majority-owned subsidiary of Royal Philips. Plans for MedQuist. As of the date of this Offer to Purchase, and except as otherwise described in Section 10 or this Section 11, Royal Philips does not have any plans or proposals with respect to MedQuist that relate to or would result in: a. Any extraordinary transaction, such as a merger, reorganization or liquidation, involving MedQuist or any of its subsidiaries; b. Any purchase, sale or transfer of a material amount of assets of MedQuist or any of its subsidiaries; c. Any material change in the present dividend rate or policy, or indebtedness or capitalization of MedQuist; d. Any change in the present board of directors or management of MedQuist, including, but not limited to, any plans or proposals to change the number or the term of directors or to fill any existing vacancies on the board of directors or to change any material term of the employment contract of any executive officer; e. Any other material change in MedQuist's corporate structure or business; f. Any class of equity securities of MedQuist to be delisted from a national securities exchange or cease to be authorized to be quoted in an automated quotations system operated by a national securities association; or g. Any class of equity securities of MedQuist becoming eligible for termination of registration under Section 12(g) (4) of the Exchange Act. Royal Philips expects to evaluate and review MedQuist and its business, assets, corporate structure, capitalization, operations, properties, policies, management and personnel with a view towards determining how to optimally realize any potential benefits which arise from the relationship of the operations of MedQuist with those of other business units of Royal Philips and its affiliates. Accordingly, Royal Philips reserves the right to change its plans and intentions at any time, as it deems appropriate, and, subject to the terms and conditions of the Governance Agreement, such changes could include, among other things, restructuring MedQuist through changes in MedQuist's business, corporate structure, certificate of incorporation, by-laws, capitalization or management or could involve consolidating and streamlining certain operations and reorganizing other businesses and operations. In particular, although Royal Philips has no present intention to acquire any Shares other than the 22,250,327 Shares to be acquired pursuant to the Offer and the 1,149,759 Shares to be acquired 14 pursuant to the Shareholder Agreements, and has no present intention to dispose of any of such Shares once acquired, Royal Philips may, subject to the terms of the Governance Agreement, acquire additional Shares or may dispose of Shares on the Nasdaq Stock Market, in privately negotiated transactions or otherwise. Any such transactions may be effected at any time and from time to time, and may be made upon such terms and at such prices as Royal Philips shall determine, which may be more or less than the price paid in the Offer. As described more fully below, in connection with entering into the Tender Offer Agreement, Philips Speech Processing entered into the License Agreement with MedQuist. The License Agreement grants MedQuist a non-assignable, non- exclusive license to use Philips Speech Processing speech recognition and processing software, including software used for the improvement of electronic medical terminology databases, which are known as "contexts", for use in automatic speech-to-text transformation. MedQuist will also have a non- assignable, non-exclusive license in the contexts. Although the license granted under the License Agreement is non-exclusive, Philips Speech Processing has agreed that it will not license the software or the contexts to any competitor of MedQuist providing outsourced medical transcription services in the United States. A more complete description of the material terms of the License Agreement is set forth below under "The License Agreement". MedQuist plans to aggressively roll out Philips Speech Processing speech and other technology after the completion of the Offer to begin a transition to a digital transcription platform, using regional data centers. Royal Philips and MedQuist expect that this will result in significant productivity improvements in the conversion of dictated medical records into written text, and will generate growth opportunities and additional revenue. Royal Philips and MedQuist also believe this will allow MedQuist to enter important new markets, including Europe, where Philips Medical Systems and Philips Speech Processing have strong existing hospital relationships. The two companies also plan to expand MedQuist's current range of outsourced transcription services to include in-house speech recognition software sales and Application Service Provider models. Assuming the Tender Offer Condition has been satisfied and Royal Philips purchases Shares validly tendered and not withdrawn pursuant to the terms and conditions of the Offer, Royal Philips intends, subject to Rule 14f-1 of the Exchange Act, to promptly exercise its rights under the Governance Agreement to obtain majority representation on, and control of, MedQuist's board of directors. Under the Governance Agreement, MedQuist has agreed that it will take any and all action necessary so that promptly following Royal Philips' purchase of Shares pursuant to the terms and conditions of the Offer, the board of directors will consist of eleven directors, six of which will be designated by Royal Philips. Royal Philips presently intends to select those designees included in Schedule I to MedQuist's Solicitation/Recommendation Statement on Schedule 14D-9. General Information about the Agreements. The following is a summary of certain provisions of each of the Tender Offer Agreement, the Shareholder Agreements (as defined below), the Licensing Agreement, dated as of May 22, 2000, between Philips Speech Processing and MedQuist (the "License Agreement"), the Governance Agreement, dated as of May 22, 2000, between Royal Philips and MedQuist (the "Governance Agreement") and the Employment Agreements (as defined below). This summary of each of such agreements is not a complete description of the terms and conditions of such agreements and is qualified in its entirety by reference to the full text of each of the Tender Offer Agreement, the Shareholder Agreements, the License Agreement, the Governance Agreement and the Employment Agreements, as applicable, which are filed with the SEC as exhibits to the Tender Offer Statement on Schedule TO filed by Royal Philips (the "Schedule TO") and each are hereby incorporated herein by reference. Capitalized terms not otherwise defined below have the respective meanings set forth in the Tender Offer Agreement, the Shareholder Agreements, the License Agreement, the Governance Agreement and the Employment Agreements, as applicable. Each of the Tender Offer Agreement, the Shareholder Agreements, the License Agreement, the Governance Agreement and the Employment Agreements may be examined, and copies obtained, as set forth in Section 8 of this Offer to Purchase. 15 The Tender Offer Agreement. The Offer. The Tender Offer Agreement provides that Royal Philips will commence the Offer and that upon the terms and subject to prior satisfaction or waiver (to the extent permitted to be waived) of the conditions of the Offer, promptly after expiration of the Offer, Royal Philips will accept for payment, and pay for, 22,250,327 Shares validly tendered and not withdrawn pursuant to the Offer that Royal Philips is permitted to accept and pay for under applicable law. If more than 22,250,327 Shares are validly tendered and not withdrawn, Royal Philips will accept for purchase an amount of the tendered Shares equal to 22,250,327 Shares, on a pro rata basis from each shareholder who has validly tendered Shares pursuant to the Offer, promptly after the Expiration Date. The Tender Offer Agreement provides that Royal Philips has the right, in its sole discretion, to modify and make certain changes to the terms and conditions of the Offer as described above in Section 1. Termination of the Tender Offer Agreement. The Tender Offer Agreement may be terminated at any time before Royal Philips has purchased Shares pursuant to the Offer: (1) by mutual written consent duly authorized by the boards of directors of Royal Philips and MedQuist; (2) by the board of directors of either Royal Philips or MedQuist if: . such termination of the Offer is not in violation of the terms of the Offer or the Tender Offer Agreement; or (3) by MedQuist if: . Royal Philips has failed to comply in any material respect with any of its covenants or agreements contained in the Tender Offer, and which failure has not been cured prior to the earlier of: . five (5) business days following the giving of written notice to Royal Philips; or . the business day prior to the date on which the Offer is scheduled to expire; or . the board of directors of MedQuist receives or there is publicly announced a bona fide written "Acquisition Proposal" (as defined below under "Acquisition Proposals"), that was unsolicited and did not otherwise result from a breach of the Tender Offer Agreement, and the board of directors of MedQuist determines in good faith: . after consultation with an investment banking firm of national standing, that such Acquisition Proposal is a Superior Proposal (as defined below under "Acquisition Proposals"); and . after consultation with outside counsel, that approval, acceptance or recommendation of such Acquisition Proposal or tender or exchange offer is necessary in order for its directors to comply with their respective fiduciary duties, and MedQuist substantially concurrently with such termination enters into a definitive agreement containing the terms of the Superior Proposal. Notwithstanding the above, MedQuist may not terminate the Tender Offer Agreement pursuant to this provision, unless MedQuist complies with: . all the provisions of the Tender Offer Agreement, including the applicable notification provisions; and . all applicable requirements of the Tender Offer Agreement, including the payment of the termination fee prior to or concurrently with such termination. In addition, MedQuist may not exercise its right to terminate this Agreement pursuant to this provision until after three days following Royal Philips' receipt of written notice from MedQuist advising Royal Philips that MedQuist's board of directors 16 has received a Superior Proposal (or that a tender or exchange offer with respect to the Shares has been commenced) and that such board of directors will, subject to any action taken by Royal Philips, cause MedQuist to accept such proposal (or recommend such tender or exchange offer), and specifying the material terms and conditions of the proposal and identifying the person making such proposal (it being understood and agreed that any amendment to the price or any other material term of the proposal requires an additional notice and a new three-day period). (4) by the board of directors of Royal Philips if: . MedQuist fails to comply in any material respect with any of its covenants or agreements contained in the Tender Offer Agreement, and which failure is not cured prior to the earlier of: . five (5) business days following the giving of written notice to MedQuist of such failure; or . the business day prior to the date on which the Offer is then scheduled to expire; or . the board of directors of MedQuist amends or modifies in a manner adverse to Royal Philips its approval or recommendation of the Offer, withdraws such recommendation or approves or recommends any other Acquisition Proposal, or resolves to do any of the foregoing; or . if MedQuist or any of the other affiliated or related persons or entities described in the Tender Offer Agreement takes any actions that would be proscribed by Section 3.2 of the Tender Offer Agreement (and which are described below under "Acquisition Proposals") but for the exception therein allowing certain actions to be taken by MedQuist's board of directors after consultation with outside counsel if necessary to comply with its fiduciary obligations under applicable law. Effect of Termination. If the Tender Offer Agreement is terminated, neither Royal Philips nor MedQuist (nor any of their respective directors or officers) will have any liability or further obligation to the other party, except that each will remain liable for any breach of the Tender Offer Agreement. In addition, the Tender Offer Agreement's provisions regarding confidentiality, public statements regarding the transactions contemplated by the agreement and fees and expenses will survive termination. Fees and Expenses. Each of MedQuist and Royal Philips will pay their respective expenses in connection with the Tender Offer Agreement, except that the parties have agreed that MedQuist will be required to pay Royal Philips a termination payment of $44,750,000 if: . the Offer has remained open for at least 20 business days; . the Tender Offer Condition has not been satisfied; . the Offer is terminated without the purchase of any Shares thereunder; . at the time the Offer is terminated, any corporation, partnership, person, other entity or group (as defined in Section 13(d)(3) of the Exchange Act) other than Royal Philips or any of its subsidiaries or affiliates has publicly announced an intention (whether or not conditional) to make a proposal or offer relating to an Acquisition Proposal; and . within fifteen (15) months after the date of such termination, MedQuist consummates or enters into an agreement with respect to any Acquisition Proposal; in addition, if MedQuist recommends acceptance by the shareholders of a third-party tender offer or exchange offer, such recommendation will be treated as though an agreement had been entered into. In addition, MedQuist will also be required to pay Royal Philips a termination fee if: . MedQuist fails to comply in any material respect with any of its obligations or agreements in the Tender Offer Agreement, which failure is not cured after Royal Philips informs MedQuist of such failure; 17 . MedQuist's board of directors amends or modifies in a manner adverse to Royal Philips its approval or recommendation of the Offer, withdraws such recommendation or approves or recommends any other Acquisition Proposal, or resolves to do any of the foregoing; or . MedQuist terminates the Tender Offer Agreement in order to accept and enter into an agreement relating to a Superior Proposal. If MedQuist is obligated to pay Royal Philips a termination fee as described above, MedQuist will also reimburse Royal Philips' actual out-of-pocket costs and expenses incurred in connection with the Tender Offer Agreement and the transactions contemplated thereby up to a maximum of two million five hundred thousand dollars ($2,500,000). The parties have agreed that if Goldman, Sachs & Co. or any of its affiliates is entitled to receive a portion of the termination payment pursuant to the terms of its engagement with Royal Philips, such payment will not be deemed part of Royal Philips' costs and expenses. Acquisition Proposals. Neither MedQuist nor any of its subsidiaries nor any of the respective officers and directors of MedQuist or its subsidiaries will, and it will direct and use its best efforts to cause its employees, agents and representatives (including, without limitation, any investment banker, attorney or accountant retained by MedQuist or any of its subsidiaries) not to: . initiate, solicit or encourage, directly or indirectly, any inquiries or the making of any proposal or offer (including, without limitation, any proposal or offer to shareholders of MedQuist) with respect to a merger, consolidation, share exchange or similar transaction involving, or any purchase of all or 15% or more of the assets or the equity securities of, MedQuist or any of its subsidiaries (any such proposal or offer being hereinafter referred to as an "Acquisition Proposal"); or . engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to an Acquisition Proposal, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal. Notwithstanding the foregoing restriction, MedQuist or its board of directors has the right to: (1) comply with Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal; (2) provide information in response to a request by a person who has made an unsolicited bona fide written Acquisition Proposal, but only if the board of directors obtains from that person an executed confidentiality agreement containing material terms no more favorable to that person than those contained in the Confidentiality Agreement executed by MedQuist and Royal Philips; (3) engage in any negotiations or discussions with any person who has made an unsolicited bona fide written Acquisition Proposal; or (4) recommend such an Acquisition Proposal to the shareholders of MedQuist. MedQuist's ability to engage in any of the actions set forth in clauses (2), (3) or (4) above is limited, however, in that in order to engage in such actions the board of directors of MedQuist must first determine in good faith: . after consultation with outside counsel, that such action is necessary in order to comply with their respective fiduciary duties under applicable law; . that such Acquisition Proposal, if accepted, is reasonably likely to be consummated, taking into account appropriate legal, financial and regulatory aspects of the proposal and the person making the proposal; and . after consultation with an investment banking firm of national standing, that such Acquisition Proposal is reasonably likely, if consummated, to result in a transaction more favorable to MedQuist's shareholders from a financial point of view than the transaction contemplated by the Tender Offer Agreement (any such more favorable Acquisition Proposal being referred to as a "Superior Proposal"). 18 MedQuist is required to notify Royal Philips immediately if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with MedQuist or any of its representatives. MedQuist is also required to further identify the offeror and furnish to Royal Philips a copy of any such inquiry or proposal, if it is in writing, or to inform Royal Philips of the material terms of any such inquiry or proposal, if it is oral, and to promptly advise Royal Philips of any material development relating to such inquiry or proposal. MedQuist is also required to promptly request each person that has executed a confidentiality agreement in connection with its consideration of acquiring MedQuist to return all confidential information furnished to such person by or on behalf of MedQuist. Covenants. The Tender Offer Agreement also contains certain other restrictions as to the conduct of business by MedQuist pending the Offer, including covenants restricting MedQuist's ability to take, among other things, actions that would change or affect the capital structure of MedQuist and limit MedQuist's ability to make capital expenditures, engage in acquisitions, amend benefit plans and settle claims. Representations and Warranties. The Tender Offer Agreement contains representations and warranties by each of MedQuist and Royal Philips that are customary for a transaction of this kind. Certain of MedQuist's representations and warranties are qualified by "Company Material Adverse Effect," which is defined in the Tender Offer Agreement as a material adverse effect on the condition (financial or otherwise), business or results of operations of MedQuist and its subsidiaries taken as a whole, other than any effect arising out of (i) general economic conditions or (ii) economic conditions generally affecting the medical services industry. Amendment of the Tender Offer Agreement. Subject to the applicable provisions of the New Jersey Business Corporation Act, at any time prior to the purchase of the Shares pursuant to the Offer, MedQuist and Royal Philips may modify or amend the Tender Offer Agreement only by written agreement executed and delivered by duly authorized officers of the respective parties. After the date on which Royal Philips' designees become members of the board of directors of MedQuist, the Tender Offer Agreement may not be amended in any manner materially adverse to MedQuist or any third-party beneficiary as provided in the Tender Offer Agreement without the written consent of the members of the Supervisory Committee (as defined in the Governance Agreement). Indemnification of Officers and Directors. From and after the date on which Shares are purchased pursuant to the Offer, Royal Philips has agreed that it will cause MedQuist to indemnify and hold harmless each present and former director and officer of MedQuist, determined as of such date (the "Indemnified Parties"), against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities (collectively, "Costs") incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the date on which Shares are purchased pursuant to the Offer, whether asserted or claimed prior to, at or after such date, to the fullest extent that MedQuist would have been permitted under New Jersey law and its Certificate of Incorporation or By-Laws in effect on the date of the Tender Offer Agreement to indemnify such person. Royal Philips will also advance expenses as incurred to the fullest extent permitted under applicable law so long as the person to whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification. Any Indemnified Party wishing to claim indemnification under the provisions of the Tender Offer Agreement, upon learning of any such claim, action, suit, proceeding or investigation, must promptly notify MedQuist thereof, but the failure to so notify will not relieve MedQuist of any liability it may have to such Indemnified Party except to the extent such failure prejudices the indemnifying party. In the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the date on which Shares are purchased pursuant to the Offer), MedQuist has the right to assume and control the defense thereof and MedQuist will not be liable to such Indemnified Parties for any legal expenses of other counsel or any other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof, except that if MedQuist elects not to assume such defense or counsel for the Indemnified Parties advises in writing that there are issues which raise conflicts of interest between MedQuist and the Indemnified Parties, the Indemnified 19 Parties may retain counsel (which counsel will be reasonably satisfactory to MedQuist), and MedQuist will pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received. This right to have MedQuist pay for counsel chosen by the Indemnified Party is limited in that MedQuist is obligated to pay for only one firm of counsel for all Indemnified Parties in any jurisdiction. In addition, MedQuist is not liable for any settlement effected without its prior written consent, the Indemnified Parties are required to cooperate in the defense of any matter and MedQuist does not have any obligation to any Indemnified Party when and if a court of competent jurisdiction ultimately determines, and such determination has become final, that the indemnification of such Indemnified Party in the manner contemplated by the Tender Offer Agreement is prohibited by applicable law. Royal Philips has further agreed that after Royal Philips' purchase of Shares pursuant to the Offer, it will cause MedQuist to maintain MedQuist's existing officers' and directors' liability insurance ("D&O Insurance") for a period of six years after the purchase of Shares pursuant to the Offer so long as the annual premium therefor is not in excess of 200% of the last annual premium paid prior to the date of the Tender Offer Agreement (the "Current Premium"); provided, however, that (x) Royal Philips may substitute therefor policies (which may be "tail" policies) containing terms with respect to coverage and amount no less favorable in any material respect to such directors and officers, and (y) if the existing D&O Insurance expires, is terminated or canceled during such six-year period, Royal Philips will use its commercially reasonable best efforts to obtain as much D&O Insurance as can be obtained for the remainder of such period for a premium not in excess (on an annualized basis) of 200% of the Current Premium. Treatment of Employee Benefits. Royal Philips has agreed that, during the period commencing on the date Shares are purchased pursuant to the Offer and ending on the first anniversary thereof, the employees of MedQuist will continue to be provided with employee benefit plans which in the aggregate are substantially comparable to those currently provided by MedQuist to such employees, provided that employees covered by collective bargaining agreements need not be provided such benefits. Without limiting the generality of the foregoing, Royal Philips has agreed to cause MedQuist to honor without modification all employee (or former employee) benefit obligations, including severance obligations, accrued as of the time Royal Philips purchases Shares pursuant to the term of the Offer. Appraisal Rights. Holders of the Shares do not have appraisal rights as a result of the Offer pursuant to Section 14A:11-1 of the New Jersey Business Corporation Act. The Shareholder Agreements. On May 22, 2000, Royal Philips also entered into agreements with each of David A. Cohen, John A. Donohoe, Jr., John R. Emery, John M. Suender, Ronald A. Scarpone, Ethan Cohen and John W. Quaintance. These agreements are individually referred to herein as a "Shareholder Agreement" and collectively referred to herein as the "Shareholder Agreements." Each Shareholder Agreement provides that if Royal Philips purchases Shares pursuant to the Offer, then promptly after the Offer expires, Royal Philips will purchase from the shareholder a party thereto the number of Shares set forth opposite that individual's name in the following table, at a price per Share equal to the price per Share paid by Royal Philips in the Offer:
Number of Name Shares ---- --------- David A. Cohen..................................................... 779,530 John A. Donohoe, Jr................................................ 124,224 John R. Emery...................................................... 46,057 John M. Suender.................................................... 56,289 Ronald A. Scarpone................................................. 74,570 Ethan Cohen........................................................ 39,489 John W. Quaintance................................................. 29,600 --------- Total............................................................ 1,149,759 =========
20 In the aggregate, the 1,149,759 Shares to be purchased by Royal Philips under the Shareholder Agreements represent approximately 3% of MedQuist's outstanding fully diluted Shares and approximately 37% of those individuals' combined holdings. Each Shareholder Agreement also provides that until May 22, 2002, the shareholder a party thereto will not sell or dispose of (i) any Shares, or any options or warrants to purchase any Shares, or any securities convertible into, exchangeable for or that represent the right to receive Shares, owned on the date of the Shareholder Agreement, (ii) any Shares issued upon the exercise of options or warrants to purchase any Shares referred to in the preceding clause (i), (iii) any options to purchase any Shares issued in accordance with the option grant contemplated by such individual's employment agreement with MedQuist, dated as of May 22, 2000, or (iv) any Shares issued upon the exercise of the options to purchase Shares referred to in the preceding clause (iii), in each case, owned directly by the shareholder a party thereto or with respect to which the shareholder has beneficial ownership within the rules and regulations of the SEC. Each shareholder who is a party to a Shareholder Agreement has also agreed that at any shareholder meeting, or in any written consent in lieu thereof, such shareholder will vote his Shares against any action or agreement that would impede, interfere with, delay, postpone or attempt to discourage the Offer, including, but not limited to: . any acquisition agreement or other similar agreement related to an Acquisition Proposal; . any change in MedQuist's management or MedQuist's board of directors, except as otherwise agreed to in writing by Royal Philips; or . any other material change in MedQuist's corporate structure or business. The Shareholder Agreements will terminate concurrent with the earlier of: (a) the termination of the Tender Offer Agreement and (b) the occurrence of any of the conditions that result in a revocation of the waiver given by such shareholder in his employment agreement with MedQuist with respect to certain options held by such shareholder that would otherwise vest upon Royal Philips' purchase of Shares pursuant to the Offer. The License Agreement. Effective Time of the License Agreement. The License Agreement will become effective at the time Royal Philips purchases Shares pursuant to the terms and conditions of the Tender Offer Agreement (the "License Agreement Effective Time"). Termination of the License Agreement. Subject to the parties' right to terminate as provided in the License Agreement, the License Agreement will have an initial term of five (5) years from the License Agreement Effective Time and will thereafter continue for subsequent five (5) year terms. The License Agreement may be terminated at any time by one party if the other materially breaches its obligations under the License Agreement (which, in the case of MedQuist, includes non-payment of monies owed to Philips Speech Processing under the License Agreement) or becomes subject to bankruptcy proceedings. The License Agreement may also be terminated at the election of either party, but only at the end of the initial five year term and during or at the end of any subsequent term, in either case with two (2) years written notice. Subject of the License Agreement. The License Agreement provides that MedQuist will license from Philips Speech Processing speech recognition and processing software (the "Licensed Product"). The Licensed Product includes software for the improvement of the electronic medical terminology databases for use in automated speech-to-text transformation (the "Contexts"). New Contexts will be developed in part by using MedQuist's speech data and will be optimized for a specific user or group of medical specialists, such as gynecologists or radiologists. These Contexts, as they are developed, will also be subject to the License Agreement. The License Agreement also provides that Philips Speech Processing will provide support to MedQuist in the areas of integration, customization, training and ongoing support. 21 Scope of the License Agreement. The License Agreement provides that Philips Speech Processing will grant MedQuist a non-assignable, non-exclusive license to use the Licensed Product and the Contexts, as they are developed, in connection with its transcription business. Philips Speech Processing has agreed not to license the Licensed Product or the Contexts to any competitor of MedQuist providing outsourced medical transcription services in the United States; and MedQuist has agreed not to use or license a product that competes with the Licensed Product. MedQuist will not have any ownership in the Licensed Product or the Contexts, or in any derivative works or related documentation. Philips Speech Processing will have access to MedQuist's medical documents and user sound data in order to improve existing Contexts and generate new Contexts. Philips Speech Processing will have the right to license these Contexts to other licensees (other than any competitor of MedQuist providing outsourced medical transcription services in the United States), subject to MedQuist's right to receive them first. MedQuist will receive a royalty of 3.5% of the license fees paid by other licencees to Philips Speech Processing in connection with Contexts developed on the basis of access to MedQuist's speech data. License Fee. MedQuist will pay Philips Speech Processing an initial fee of $2,250,000 and an ongoing license fee based on the number of lines of text actually transcribed using the Licensed Product. The license fee will be calculated, and be subject to a minimum license fee (through 2004), as follows. The parties have assumed that 4% of "payroll lines" will be converted using the Licensed Product in 2001, 13% in 2002, 25% in 2003 and 45% in 2004 (the "Projected Use Rate"). The term "payroll line" means the lines that MedQuist uses as a basis to pay its transcriptionists. The parties have also agreed that the per payroll line charge will be $0.012 for each line up to 500 million payroll lines and $0.010 for each line over 500 million lines. For each year from 2001 to 2004 inclusive, the guaranteed license fee will be equal to a fraction (which shall be 3/4 for each of 2001 and 2002, 1/2 for 2003 and 1/4 for 2004) of the Projected Use Rate multiplied by the total number of payroll lines actually transcribed by MedQuist during that year (whether using the Licensed Product or not), multiplied by the per line charge. MedQuist has also agreed to pay for certain support services provided by Philips Speech Processing. The Governance Agreement. Effective Time of the Governance Agreement. The Governance Agreement will become effective at the time Royal Philips purchases Shares pursuant to the terms and conditions of the Tender Offer Agreement (the "Governance Agreement Effective Time"). Termination of the Governance Agreement. The Governance Agreement will terminate on the first date that Royal Philips is no longer the beneficial owner of five (5) percent of MedQuist's Voting Stock, although Royal Philips and MedQuist may terminate the agreement earlier by mutual written consent and except that the provisions of the agreement relating to the establishment of committees of MedQuist's board of directors will terminate on the first date that Royal Philips is the beneficial owner of less than a majority of the outstanding Voting Stock. As used in the Governance Agreement, the term "Voting Stock" means shares of the capital stock of MedQuist having the right to vote generally in any election of directors of MedQuist. Purchases of Shares by Royal Philips After the Offer. The Governance Agreement provides that until the third anniversary of the Governance Agreement Effective Time, Royal Philips will not, directly or indirectly, purchase or otherwise acquire, or propose or offer to purchase or acquire, or otherwise become the beneficial owner, individually or as a member of a "group" (as defined for purposes of Section 13d of the Exchange Act), of any Equity Securities, if, immediately after such transaction, Royal Philips and its Affiliates or Associates (each of which terms have the respective meanings ascribed to them under the rules promulgated under the Exchange Act) would, directly or indirectly, beneficially own in excess of 75% of the then outstanding shares of Voting Stock. As used in the Governance Agreement, the term "Equity Security" means Voting Stock, securities of MedQuist convertible into or exchangeable for Voting Stock, and options, rights, warrants and similar securities issued by MedQuist to purchase Voting Stock. 22 Notwithstanding the foregoing restriction, after the first anniversary of the Governance Agreement Effective Time and until the third anniversary, Royal Philips or any of its Affiliates or Associates may acquire all, but not less than all, of the Equity Securities of MedQuist which are not then beneficially owned by Royal Philips or one or more of its Affiliates or Associates. However, any transaction or series of related transactions during that time period in which Royal Philips would acquire all of the Equity Securities it does not then own is subject to the receipt of the approval of the Supervisory Committee of MedQuist's board of directors. Transfers of Shares by Royal Philips After the Offer. Royal Philips has agreed that until the first anniversary of the Governance Agreement Effective Time, it will not, and will not permit any of its subsidiaries to, directly or indirectly, sell, transfer or otherwise dispose of any Equity Securities beneficially owned, directly or indirectly, by Royal Philips or its subsidiaries except to Royal Philips or to any subsidiary of Royal Philips. Notwithstanding the foregoing, the terms of the Governance Agreement permit Royal Philips to sell, transfer or assign Equity Securities, or permit any of its subsidiaries which beneficially own Equity Securities to sell, transfer or assign such Equity Securities, so long as after giving effect to any such sales, transfers or assignments of Equity Securities, Royal Philips and its subsidiaries beneficially own at least 60% of the then outstanding shares of Voting Stock. After the first anniversary of the Governance Agreement Effective Time and until the third anniversary of the Governance Agreement Effective Time, Royal Philips may sell or dispose of any Equity Securities to any person, but may not enter into or consummate any transaction (or series of related transactions) involving the sale or transfer of Equity Securities that would result in (i) any person other than Royal Philips or any Affiliate or Associate of Royal Philips beneficially owning in excess of 10% of the outstanding Voting Stock (a "Third Party Purchaser") and (ii) Royal Philips and its Affiliates and Associates beneficially owning less than a majority of the then outstanding Voting Stock, unless: . the Third-Party Purchaser contemporaneously offers to acquire, or acquires, on the same terms and conditions as are applicable to Royal Philips, its Affiliates or Associates, 100% of the Voting Stock beneficially owned by persons or entities other than Royal Philips, its Affiliates or Associates; or . the Third-Party Purchaser offers to purchase, on the same terms and conditions as are applicable to Royal Philips, its Affiliates or Associates, pursuant to a tender or exchange offer made in accordance with applicable law, including Section 14(d)(1) and Regulation 14D of the Exchange Act, all or a specified percentage of the then outstanding shares of Voting Stock (and Royal Philips has agreed that it and its Affiliates or Associates will not sell to the Third Party Purchaser any shares of Voting Stock other than pursuant to such tender or exchange offer). After the third anniversary of the Governance Agreement Effective Time, Royal Philips may sell or dispose of any Equity Securities to any person without limitation. MedQuist's Board of Directors. The Governance Agreement provides that MedQuist will take any and all action necessary so that promptly following the Governance Agreement Effective Time, the board of directors will consist of eleven directors. These eleven directors will be comprised of the following individuals: . one director will be the Chief Executive Officer of MedQuist and one director will be another officer of MedQuist designated by the Chief Executive Officer (together, the "Management Directors"); . six directors will be designated by Royal Philips (the "Purchaser Directors"); and . three directors will be "Independent Directors" (as defined below). After the Governance Agreement Effective Time, the board of directors will have the power to increase or decrease the size of the board in its discretion so long as (x) there are at least two Management Directors and three Independent Directors, and (y) the relative percentage of Management Directors, Independent Directors 23 and Purchaser Directors is maintained, in all material respects, as in effect immediately prior to any such increase or decrease. As used in the Governance Agreement, the term "Independent Director" means a director of MedQuist (i) who is not and has never been an officer or employee of MedQuist, any Affiliate or Associate of MedQuist, or an entity that derived 5% or more of its revenues or earnings in its most recent fiscal year from transactions involving MedQuist or any Affiliate or Associate of MedQuist, (ii) who is not and has never been an officer, employee or director of Royal Philips, any Affiliate or Associate of Royal Philips, or an entity that derived more than 5% of its revenues or earnings in its most recent fiscal year from transactions involving Royal Philips or any Affiliate or Associate of Royal Philips and (iii) who was nominated for such position by the Nominating Committee in accordance with the terms of the Governance Agreement. The initial Independent Directors will be John H. Underwood, Richard H. Stowe and A. Fred Ruttenberg. In addition, as set forth in the following table, the number of directors Royal Philips is permitted to designate or nominate under the terms of the Governance Agreement is based on its beneficial ownership of Voting Stock:
Number of Royal Philips Beneficial Ownership of Voting Stock Directors ------------------------------------ ------------- More than 50%................................................ 6 More than 36%................................................ 4 More than 27%................................................ 3 More than 18%................................................ 2 5% or more................................................... 1 Less than 5%................................................. 0
If Royal Philips has the right to designate fewer than six directors, the Nominating Committee of MedQuist's board of directors will nominate that number of additional Independent Directors as is necessary to constitute the entire board of directors. Royal Philips will have the right to designate any replacement for a Purchaser Director at the termination of such director's term or upon such director's death, resignation, retirement, disqualification, removal from office or other cause, and the Chief Executive Officer of MedQuist will have the right to designate any replacement for a Management Director at the termination of such director's term or upon such director's death, resignation, retirement, disqualification, removal from office or other cause. Committees of MedQuist's Board of Directors. The Governance Agreement provides that the board of directors will establish the following three committees, with the following responsibilities: . a Nominating Committee, responsible, among other things, for the nomination, subject to the terms of the Governance Agreement, of the Independent Directors and consisting solely of two Independent Directors, one Purchaser Director and one Management Director as selected by the board of directors from time to time; . a Compensation Committee, responsible, among other things, for the adoption, amendment and administration of all employee benefit plans and arrangements and the compensation of all officers of MedQuist, and consisting of two Independent Directors and two Purchaser Directors as selected by the Nominating Committee and Royal Philips, respectively, from time to time; . a Supervisory Committee, consisting of at least three Independent Directors selected by a majority of the Independent Directors, responsible, among other things, for: (A) the general oversight, administration, amendment and enforcement, on behalf of MedQuist, of (1) those provisions of the Tender Offer Agreement that survive Royal Philips' purchase of Shares pursuant to the Offer, (2) the Governance Agreement and (3) the License Agreement; and 24 (B) the entry into, general oversight, administration, amendment and enforcement, on behalf of MedQuist, of any other agreements or arrangements between MedQuist or any of its subsidiaries, on the one hand, and Royal Philips and any of its subsidiaries on the other hand, which would be required pursuant to Regulation S-K promulgated by the SEC to be disclosed in a registration statement filed under the Securities Act or in a proxy statement or other report filed under the Exchange Act. The board of directors may establish such other committees as it may determine in its discretion so long as those other committees do not conflict with, supersede or duplicate the duties or responsibilities of the Nominating Committee, the Compensation Committee or the Supervisory Committee. The Employment Agreements. In connection with the Tender Offer Agreement, MedQuist entered into new employment agreements with Messrs. Cohen, Donohoe, Emery, Scarpone, Suender, Cohen, and Quaintance (collectively, the "executives"). These employment agreements will become effective at the time Royal Philips pays for the Shares pursuant to the Tender Offer Agreement (the "effective date"), so long as each executive is employed by MedQuist at that time. These new agreements will supercede all prior employment agreements between MedQuist and the executives and will remain in effect until the third anniversary of the effective date, with automatic renewals for one year periods unless either party gives 90 days prior written notice. The employment agreements provide that each executive will serve MedQuist in the same position and role in which they served prior to the effective date. Each executive shall receive the same salary as he earned immediately prior to the effective date. In addition, each executive will be eligible for participation in MedQuist's short term targeted bonus plan in an amount equal to up to a specified percentage of base salary. (For Mr. Cohen, such percentage will be 75%, for Mr. Donohoe, 45%, for Messrs. Emery, Scarpone, Suender and Cohen, 30%, and for Quaintance, 25%.) Subject to the completion of the Offer, on or following the effective date, the executives (with the exception of Mr. Cohen) will also be granted options to purchase Shares under MedQuist's Incentive Stock Option Plan for Officers and Key Employees, as follows: Mr. Donohoe will be granted an option to purchase 100,000 Shares at an exercise price of $51.00 and 100,000 Shares at an exercise price of $70.00; Messers. Emery and Suender will each be granted an option to purchase 40,000 Shares at an exercise price of $51.00 and 40,000 Shares at an exercise price of $70.00; and Messrs. Cohen, Scarpone and Quaintance will each be granted an option to purchase 25,000 Shares at an exercise price of $51.00 and 25,000 Shares at an exercise price of $70.00. The executives agreed that the consummation of the transactions authorized by the Tender Offer Agreement will not constitute a "change in control" for purposes of all (in the case of Messrs. Cohen, Donohoe, Suender and Scarpone), 68,943 out of 78,000 (in the case of Mr. Emery), 59,234 out of 68,071 (in the case of Mr. Cohen) or 44,400 out of 49,800 (in the case of Mr. Quaintance) outstanding unvested options held as of the effective date (the "deferred vesting options") and agreed to waive all rights to the accelerated vesting of the deferred vesting options which would have occurred upon the consummation of the transactions authorized by the Tender Offer Agreement. Such waiver shall be deemed revoked, and all deferred vesting options shall immediately vest in the event of the executive's death or disability, a termination of the executive by MedQuist without "cause" (as such term is defined in the employment agreement), the executive's receipt of notice from MedQuist of nonrenewal of the agreement, a voluntary resignation by the executive following a required relocation of the executive's principal place of business by more than fifty miles, or a failure by MedQuist to pay the compensation authorized by the agreement, provided that the executive has given MedQuist notice of such breach and MedQuist has not cured such breach within thirty (30) days of receipt of such notice (a "material breach"). If MedQuist terminates an executive's employment without cause or if such executive voluntarily terminates his employment following a required relocation of his principal place of business by more than fifty (50) miles or following a material breach, the executive will receive (i) accrued but unpaid salary prorated 25 through the date of termination or effective date of resignation ("accrued salary"); (ii) a lump sum cash payment equal to 2 (in the case of Messrs. Cohen and Donohoe) or 1.5 (in the case of the other executives) multiplied by the sum of all cash compensation awarded to such executive in the fiscal year immediately prior to termination, or if such executive's compensation was higher or would be higher on an annualized basis, in the fiscal year in which such termination takes place; (iii) any benefits vested as of the termination date ("vested benefits"); and (iv) unreimbursed expenses incurred prior to the termination date. If the executive terminates due to death or disability or resignation, or if MedQuist terminates the executive's employment for cause, the executive will receive accrued salary, vested benefits, and unreimbursed expenses incurred prior to the termination date. Each executive is entitled to receive an additional tax "gross-up" payment which would put him in the financial position after-tax that he would have been in if the excise tax imposed by Code Section 4999 (the "excise tax") did not apply to any benefits or payments received from MedQuist (the "payments"). Notwithstanding the foregoing, if it is determined that the payments would not be subject to the excise tax if they were reduced by less than ten percent, then the payments will be reduced to the maximum amount that could be paid to the executive without giving rise to the excise tax. In addition, the gross-up payment shall not apply to any stock option grant if the result would be to alter the basis on which compensation expense is measured for purposes of Accounting Principles Board Opinion Number 25. During the term of the employment agreements, and for two years following an executive's termination for any reason, each executive is prohibited from competing with MedQuist (limited to the electronic transcription services and health information management solutions services businesses) or soliciting MedQuist's clients or employees. 12. Source and Amount of Funds. Royal Philips estimates that the total amount of funds required to purchase 22,250,327 Shares pursuant to the Offer and to pay related fees and expenses will be approximately $1.1 billion. Royal Philips presently intends to finance the Offer with its cash position and cash flow from existing businesses. 13. Certain Conditions of the Offer. Notwithstanding any other provision of the Offer and provided that Royal Philips is not obligated to accept for payment any Shares until expiration of all applicable waiting periods under the HSR Act, Royal Philips is not required to accept for payment or pay for, or may delay the acceptance for payment of or payment for, any tendered Shares, or may, in its sole discretion, terminate or amend the Offer as to any Shares not then paid for if less than 22,250,327 Shares are properly and validly tendered pursuant to the Offer and not withdrawn prior to the expiration of the Offer, or, if on or after May 22, 2000, and at or before the time of payment for any of such Shares (whether or not any Shares have theretofore been accepted for payment), any of the following events occurs: (a) MedQuist breaches or fails to perform in any material respect any of its obligations, covenants or agreements under the Tender Offer Agreement or any representation or warranty of MedQuist set forth in the Tender Offer Agreement which is qualified by "Company Material Adverse Effect" was inaccurate or incomplete as so qualified when made or thereafter has become inaccurate or incomplete as so qualified, or any representation or warranty of MedQuist set forth in the Tender Offer Agreement which is not qualified by "Company Material Adverse Effect" was inaccurate or incomplete in any material respect when made or thereafter becomes inaccurate or incomplete in any material respect; (b) there is instituted or pending any action, litigation, proceeding, investigation or other application (an "Action") before any court or other governmental entity by any governmental entity or by any other person, domestic or foreign (it being understood that, with respect to any Action by any person other than a governmental entity, this clause (b) will only apply to bona fide Actions that are reasonably likely to be successful on the merits): (i) challenging the acquisition by Royal Philips of Shares, seeking to restrain or 26 prohibit the consummation of the transactions contemplated by the Offer or seeking to obtain any material damages in connection with the transactions contemplated by the Offer; (ii) seeking to prohibit, or impose any material limitations on, Royal Philips' ownership or operation of all or any portion of their or MedQuist's business or assets (including the business or assets of their respective affiliates and subsidiaries), or to compel Royal Philips to dispose of or hold separate all or any portion of Royal Philips' or MedQuist's business or assets (including the business or assets of their respective affiliates and subsidiaries) as a result of the transactions contemplated by the Offer; (iii) seeking to make the acceptance for payment, purchase of, or payment for, some or all of the Shares illegal or render Royal Philips unable to, or result in a delay (other than an immaterial delay) in, or restrict (other than immaterially), the ability of Royal Philips to accept for payment, purchase or pay for some or all of the Shares; (iv) seeking to impose material limitations on the ability of Royal Philips effectively to acquire or hold or to exercise full rights of ownership of the Shares including, without limitation, the right to vote the Shares purchased by them on an equal basis with all other Shares on all matters properly presented to the shareholders; or (v) that, in any event, in the reasonable judgment of Royal Philips, is reasonably likely to have a Company Material Adverse Effect or have a material adverse effect on the value of the Shares to Royal Philips or the benefits expected to be derived by Royal Philips as a result of consummation of the transactions contemplated by the Offer; (c) any statute, rule, regulation, order or injunction is enacted, promulgated, entered, enforced or deemed applicable to the Offer, or any other action has been taken, proposed or threatened, by any court or other governmental entity other than the application to the Offer of waiting periods under the HSR Act, that could, directly or indirectly, be reasonably expected to result in any of the effects of, or have any of the consequences sought to be obtained or achieved in, any Action referred to in clauses (i) through (v) of paragraph (b) above; (d) there has occurred a Company Material Adverse Effect or any occurrence or event has occurred that is reasonably likely to result in a Company Material Adverse Effect; (e) the board of directors of MedQuist (or a special committee thereof) has amended or modified in a manner adverse to Royal Philips its approval or recommendation of the Offer, has withdrawn such recommendation or has approved or recommended any other Acquisition Proposal, or has resolved to do any of the foregoing; (f) the Tender Offer Agreement is terminated by MedQuist or Royal Philips in accordance with its terms, or Royal Philips reaches an agreement or understanding in writing with MedQuist providing for termination; (g) any of the Employment Agreements are terminated or repudiated by the executive a party thereto, except as may result from the death or disability of such executive; (h) MedQuist terminates or repudiates the License Agreement; (i) any of the Shareholder Agreements are terminated or repudiated by the shareholder a party thereto; or (j) MedQuist terminates or repudiates the Governance Agreement; which, in the good faith reasonable judgment of Royal Philips, in any such case, and regardless of the circumstances (including any action or inaction by Royal Philips other than a material breach of the Tender Offer Agreement) giving rise to any such conditions, makes it inadvisable to proceed with the Offer and/or with such acceptance for payment of or payment for Shares. The foregoing conditions are for the sole benefit of Royal Philips and may be asserted by Royal Philips regardless of the circumstances (including any action or inaction by Royal Philips other than a material breach of this Agreement) giving rise to such condition or may be waived by Royal Philips, in its sole discretion, by express and specific action to that effect, in whole or in part at any time and from time to time. 27 14. Dividends and Distributions. Pursuant to the Tender Offer Agreement, MedQuist has agreed that during the term of the Tender Offer Agreement MedQuist may not declare, set aside or pay any dividend payable in cash, stock or property with respect to the Shares. 15. Certain Legal Matters. General. Except as otherwise disclosed herein, based upon an examination of publicly available filings with respect to MedQuist, Royal Philips is not aware of any licenses or other regulatory permits which appear to be material to the business of MedQuist and which might be adversely affected by the acquisition of the Shares by Royal Philips pursuant to the Offer or of any approval or other action by any governmental, administrative or regulatory agency or authority which would be required for the acquisition or ownership of the Shares by Royal Philips pursuant to the Offer. Should any such approval or other action be required, it is currently contemplated that such approval or action would be sought or taken. There can be no assurance that any such approval or action, if needed, would be obtained or, if obtained, that it would be obtained without substantial conditions or that adverse consequences might not result to MedQuist's or Royal Philips' business or that certain parts of MedQuist's or Royal Philips' business might not have to be disposed of in the event that such approvals were not obtained or such other actions were not taken, any of which might enable Royal Philips to elect to terminate the Offer without the purchase of the Shares thereunder, if the relevant conditions to termination were met. Royal Philips' obligation under the Offer to accept for payment and pay for the Shares is subject to certain conditions. See Section 13. Antitrust Compliance. Under the HSR Act and the rules that have been promulgated thereunder by the Federal Trade Commission ("FTC"), certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the "Antitrust Division") and the FTC and certain waiting period requirements have been satisfied. The acquisition of the Shares by Royal Philips is subject to these requirements. See Section 2 of this Offer to Purchase as to the effect of the HSR Act on the timing of Royal Philips' obligation to accept Shares for payment. Pursuant to the HSR Act, Royal Philips expects to file a Notification and Report Form with respect to the acquisition of the Shares pursuant to the Offer with the Antitrust Division and the FTC on or about June 2, 2000. Under the provisions of the HSR Act applicable to the purchase of the Shares pursuant to the Offer, such purchases may not be made until the expiration of a 15-calendar day waiting period following the filing by Royal Philips. Accordingly, the waiting period under the HSR Act will expire at 11:59 p.m., New York City time, on or about June 17, 2000, unless early termination of the waiting period is granted or Royal Philips receives a request for additional information or documentary material prior thereto. Pursuant to the HSR Act, Royal Philips will request early termination of the waiting period applicable to the Offer. There can be no assurances given, however, that the 15-day HSR Act waiting period will be terminated early. If either the FTC or the Antitrust Division were to request additional information or documentary material from Royal Philips, the waiting period would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by Royal Philips with such request unless the waiting period is sooner terminated by the FTC or the Antitrust Division. Thereafter, the waiting period could be extended only by agreement or by court order. See Section 2. Only one extension of such waiting period pursuant to a request for additional information is authorized by the rules promulgated under the HSR Act, except by agreement or by court order. Any such extension of the waiting period will not give rise to any withdrawal rights not otherwise provided for by applicable law. See Section 4. Royal Philips expects the waiting period under the HSR Act to expire at the end of the 15-day period, if not earlier terminated. The Antitrust Division and the FTC frequently scrutinize the legality under the antitrust laws of transactions such as the proposed acquisition of the Shares by Royal Philips pursuant to the Offer. At any time before or after Royal Philips' purchase of the Shares, the Antitrust Division or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the 28 acquisition of the Shares pursuant to the Offer or seeking divestiture of the Shares acquired by Royal Philips or the divestiture of substantial assets of Royal Philips, MedQuist or any of their respective subsidiaries. Private parties may also bring legal action under the antitrust laws under certain circumstances. There can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if a challenge is made, what the result will be. See Section 13 of this Offer to Purchase for certain conditions to the Offer that could become applicable in the event of such a challenge. State Takeover Laws. Section 14A:10A-4 of the New Jersey Business Corporation Act (the "NJBCA") limits the ability of a New Jersey corporation to engage in "business combinations" (as defined in the NJBCA) with an "interested stockholder" (defined generally as any beneficial owner of 10% or more of the outstanding voting stock of the corporation) unless, among other things, the corporation's board of directors has given its approval to the business combination prior to the shareholder becoming an interested stockholder. MedQuist's board of directors has granted such approvals and taken such actions as are necessary so that the Offer may be consummated as promptly as practicable on the terms contemplated, and has taken such actions so that Royal Philips (or its affiliates) would not be prevented or prohibited from effectuating a business combination with MedQuist after the purchase of the Shares pursuant to the Offer, so long as the subsequent business combination is approved by the Supervisory Committee of MedQuist's board of directors, and the MedQuist board of directors has otherwise acted to eliminate or minimize the effects of such statute or regulation on the transactions contemplated hereby. Based on information supplied by or on behalf of MedQuist, Royal Philips does not believe that any state takeover laws purport to apply to the Offer. Royal Philips has not currently taken any actions necessary to comply with any state takeover statute or regulation. Royal Philips reserves the right to challenge the applicability or validity of any state law purportedly applicable to the Offer and nothing in this Offer to Purchase or any action taken in connection with the Offer is intended as a waiver of such right. If it is asserted that any state takeover statute is applicable to the Offer and if an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer, Royal Philips might be required to file certain information with, or to receive approvals from, the relevant state authorities, and Royal Philips might be unable to accept for payment or pay for any Shares tendered pursuant to the Offer. In such case, Royal Philips may not be obliged to accept for payment or pay for any Shares tendered pursuant to the Offer. 16. Fees and Expenses. Goldman, Sachs & Co. is acting as Dealer Manager in connection with the Offer and one of its affiliates, Goldman Sachs International (together with Goldman, Sachs & Co. "Goldman Sachs") has provided certain financial advisory services to Royal Philips in connection therewith. Royal Philips also has agreed to pay Goldman Sachs reasonable and customary compensation for its services as Dealer Manager and as financial advisor in connection with the Offer. Royal Philips has also agreed to reimburse Goldman Sachs for its reasonable out-of-pocket expenses, including the fees and expenses of its counsel, in connection with the Offer, and has agreed to indemnify Goldman Sachs against certain liabilities and expenses in connection with the Offer, including liabilities under the Federal securities laws. At any time, Goldman Sachs and its affiliates may actively trade the Shares for their own account or for the account of customers and, accordingly, may at any time hold a long or short position in the Shares. Morrow & Co., Inc. is acting as Information Agent in connection with the Offer. The Information Agent may contact holders of the Shares by personal interview, mail, telephone, telex, telegraph and other methods of electronic communication and may request brokers, dealers, banks, trust companies and other nominees to forward the Offer materials to beneficial holders. The Information Agent will receive reasonable and customary compensation for its services, be reimbursed for certain reasonable out-of-pocket expenses and be indemnified against certain liabilities and expenses in connection with its services, including certain liabilities under the Federal securities laws. 29 Royal Philips will pay the Depositary reasonable and customary compensation for its services in connection with the Offer, plus reimbursement for out-of- pocket expenses, and will indemnify the Depositary against certain liabilities and expenses in connection therewith, including liabilities under the Federal securities laws. Brokers, dealers, commercial banks and trust companies will be reimbursed by Royal Philips for customary mailing and handling expenses incurred by them in forwarding material to their customers. 17. Miscellaneous. The Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of the Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. However, Royal Philips may, in its sole discretion, take such action as it may deem necessary to make the Offer in any such jurisdiction and extend the Offer to holders of the Shares in such jurisdiction. Royal Philips is not aware of any jurisdiction in which the making of the Offer or the acceptance of the Shares in connection therewith would not be in compliance with the laws of such jurisdiction. Royal Philips has filed a Schedule TO with the SEC pursuant to Rule l4d-3 of the General Rules and Regulations under the Exchange Act, furnishing certain additional information with respect to the Offer, and may file amendments thereto. The Schedule TO and any amendments thereto, including exhibits, may be examined and copies may be obtained from the principal office of the SEC in Washington, D.C. and the Nasdaq Stock Market in the manner set forth in Section 8. The safe harbor provisions of the Private Securities Litigation Reform Act of 1995 are not applicable to forward-looking statements made in this Offer to Purchase. No person has been authorized to give any information or make any representation on behalf of Royal Philips not contained in this Offer to Purchase or in the Letter of Transmittal and, if given or made, such information or representation must not be relied upon as having been authorized. Koninklijke Philips Electronics N.V. June 1, 2000 30 SCHEDULE A INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF ROYAL PHILIPS The following tables set forth the name, business address, present principal occupation and material positions held within the past five years of each director and executive officer of Royal Philips. DIRECTORS AND EXECUTIVE OFFICERS OF ROYAL PHILIPS*
Present Principal Occupation or Name and Business Employment and Five-Year Employment Address Office(s) History ----------------- -------------------------- ------------------------------------ Cor Boonstra............ President; Chairman of the President, Chairman of the Board of Board of Management and Management and the Group Management the Group Management Committee of Royal Philips Committee Electronics. Prior to 1999, Member of the Supervisory Board of PolyGram N.V. Currently, Member of the Supervisory Boards of Sara Lee DE N.V., Hunter Douglas International N.V., NBM/Amstelland N.V., Ahold N.V., Technical University Eindhoven. Member of the Board of Directors of The Seagram Company Ltd. Jan H.M. Hommen......... Executive Vice-President; Executive Vice-President, Member of Member of the Board of the Board of Management and the Management and the Group Group Management Committee and Chief Management Committee; Financial Officer of Royal Philips Chief Financial Officer Electronics. Prior to 1997, Chief Financial Officer of Alcoa International Holdings Co. From 1997 to 1999, Member of the Supervisory Board of PolyGram N.V. Adri Baan............... Executive Vice-President; Executive Vice-President, Member of Member of the Board of the Board of Management and the Management and the Group Group Management Committee and Management Committee; President/CEO of the Consumer President/CEO of the Electronics Division of Royal Consumer Electronics Philips Electronics. Prior to 1998, Division Chairman of the Philips Business Electronics Division of Royal Philips Electronics. Arthur P.M. van der Executive Vice-President; Executive Vice-President, Member of Poel................... Member of the Board of the Board of Management, Member of Management and the Group the Group Management Committee and Management Committee; President/CEO of the Semiconductor President/CEO of the Division of Royal Philips Semiconductor Division Electronics. Member of the Board of Directors of Taiwan Semiconductor Manufacturing Company Ltd.
- -------- * Each person has a business address at Rembrandt Tower, Amstelplein 1, 1096 HA Amsterdam, the Netherlands and is a citizen of the Netherlands, unless a different address and/or citizenship is indicated under his or her name. A-1
Present Principal Occupation or Name and Business Employment and Five-Year Employment Address Office(s) History ----------------- -------------------------- ------------------------------------ John W. Whybrow......... Executive Vice-President; Executive Vice-President, Member of United Kingdom Member of the Board of the Board of Management, Member of Management and the Group the Group Management Committee and Management Committee; President/CEO of the Lighting President/CEO of the Division of Royal Philips Lighting Division Electronics. Since 1997, Director of Wolseley PLC. Gerard J. Kleisterlee... Executive Vice-President; Executive Vice-President, Member of Member of the Board of the Board of Management, Member of Management and the Group the Group Management Committee and Management Committee; President/CEO of the Components President/CEO of the Division of Royal Philips Components Division Electronics. Prior to January 1, 1999, Chairman of Philips Taiwan Ltd. Ad H.A. Veenhof......... Senior Vice-President; Senior Vice-President, Member of the Member of the Group Group Management Committee, Management Committee; President/CEO of the Domestic President/CEO of the Appliances and Personal Care Domestic Appliances and Division of Royal Philips Personal Care Division Electronics. Prior to 1996, Member of the Management of Philips Consumer Electronics. Hans M. Barella......... Senior Vice-President; Senior Vice-President, Member of the Member of the Group Group Management Committee of Royal Management Committee; Philips Electronics. President/CEO President/CEO of the of the Medical Systems Division of Medical Systems Division Royal Philips Electronics. Jan P. Oosterveld....... Senior Vice-President and Senior Vice-President, Member of the Member of the Group Group Management Committee Management Committee responsible for strategy and regions responsible for strategy of Royal Philips Electronics. Prior and regions. to 1997, Member of the Management of Philips Key Modules. Arie Westerlaken........ Senior Vice-President; Senior Vice-President, Member of the Member of the Group Group Management Committee, General Management Committe; Secretary, Chief Legal Officer and General Secretary; Chief Secretary to the Board of Management Legal Officer; Secretary of Royal Philips Electronics. Member to the Board of Management of the Supervisory Board of ASM Lithography Holding N.V. Ad Huijser.............. Senior Vice-President; Senior Vice-President, Member of the Member of the Group Group Management Committee and CEO Management Committee and of Philips Research of Royal Philips CEO of Philips Research Electronics. Prior to 1999, Managing Director of Philips Research Coordination. Prior to 1998, Management of Philips Multimedia Center. Prior to 1996, Chairman of the Management Committee of the Philips Research Laboratories.
A-2
Present Principal Occupation or Name and Business Employment and Five-Year Employment Address Office(s) History ----------------- -------------------------- ------------------------------------ Tjerk Hooghiemstra...... Senior Vice-President; Senior Vice-President and Member of Member of the Group the Group Management Committee Management Committee responsible for Corporate Human responsible for Corporate Resources Management of Royal Human Resources Management Philips Electronics. From 1996 to 2000, Member of the HRM of the Philips Consumer Electronics Division and prior to 1996, Director of Hay Management Consultants. Guy Demuynck............ Senior Vice-President; Senior Vice-President, Member of the Member of the Group Group Management Committee and CEO Management Committee; CEO of Consumer Electronics Mainstream of Consumer Electronics of Royal Philips Electronics. Prior Mainstream to April 2000, Member of the management of various Philips Consumer Electronics businesses. L.C. van Wachem......... Chairman of the Retired. Member of the Supervisory Supervisory Board Board of Royal Philips Electronics since 1993. Chairman of the Supervisory Board of Royal Dutch Petroleum Company; Member of the Supervisory Boards of Akzo Nobel, BMW, and member of the Board of Directors of IBM, ATCO and Zurich Insurance. W. de Kleuver........... Vice-Chairman and Retired. Member of the Supervisory Secretary of the Board of Royal Philips Electronics Supervisory Board since 1998. Prior to September 1998, Executive Vice-President, Member of the Board of Management and the Group Management Committee of Royal Philips Electronics. Prior to 1996, Member of the Group Management Committee and Chairman of the Components Division of Royal Philips Electronics. W. Hilger............... Member of the Supervisory Retired. Member of the Supervisory Germany Board Board of Royal Philips Electronics since 1990. Member of the Supervisory Boards of Victoria Versicherung and Victoria Lebensversicherung. L. Schweitzer........... Member of the Supervisory Member of the Supervisory Board of 34 Quai du Point du Board Royal Philips Electronics since Jour 1997. Chairman and Chief Executive BP 103 92109 Officer of Renault; Member of the Boulogne Boards of Pechiney, Banque Nationale Bilancourt de Paris, Electricite de France. Cedex, France
A-3
Present Principal Occupation or Name and Business Employment and Five-Year Employment Address Office(s) History ----------------- -------------------------- ------------------------------------ Sir Richard Greenbury... Member of the Supervisory Member of the Supervisory Board of United Kingdom Board Royal Philips Electronics since 1998. Former Chairman and CEO of Marks & Spencer and former non- executive member of the Board of Directors of Lloyds TSB, British Gas, ICI and Zeneca. J.M. Hessels............ Member of the Supervisory Member of the Supervisory Board of Board Royal Philips Electronics since 1999. Chief Executive Officer of Vendex KBB. Member of the Supervisory Boards of Achmea, Amsterdam Exchanges, Barnes & Noble.com, Laurus, Schiphol Group and Royal Vopak. K. van Miert............ Member of the Supervisory Member of the Supervisory Board of Board Royal Philips Electronics since 2000. Chairman--Rector of Nijenrode University. Former member of the European Commission.
A-4 Manually signed facsimile copies of the Letter of Transmittal, properly completed and duly executed, will be accepted. The Letter of Transmittal, certificates for the Shares and any other required documents should be sent or delivered by each shareholder of MedQuist or his broker-dealer, commercial bank, trust company or other nominee to the Depositary as follows: The Depositary for the Offer is: American Stock Transfer & Trust Company By Registered Mail: By Hand Delivery: By Overnight Courier: 40 Wall Street, 46th 40 Wall Street, 46th 40 Wall Street, 46th Floor Floor Floor New York, New York 10005 New York, New York 10005 New York, New York 10005 By Facsimile Transmission: (718) 234-5001 Confirm Facsimile by Telephone Only: (718) 921-8200 ext. 6820 Any questions or requests for assistance or additional copies of the Offer to Purchase and the Letter of Transmittal, the Notice of Guaranteed Delivery and related materials may be directed to the Information Agent or the Dealer Manager at their respective telephone numbers and locations listed below. You may also contact your broker, dealer, commercial bank or trust company or other nominee for assistance concerning the Offer. The Information Agent for the Offer is: 445 Park Avenue, 5th Floor New York, New York 10022 Banks and Brokerage Firms Call: (880) 662-5200 Shareholders Please Call: (800) 566-9061 The Dealer Manager for the Offer is: Goldman, Sachs & Co. 85 Broad Street New York, NY 10004 (212) 902-1000 (call collect) (800) 323-5678 (call toll free) EX-99.(A)(2) 3 0003.txt LETTER OF TRANSMITTAL Exhibit (a)(2) Letter of Transmittal To Tender Shares of Common Stock of MedQuist Inc. Pursuant to the Offer to Purchase dated June 1, 2000 by Koninklijke Philips Electronics N.V. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JUNE 28, 2000, UNLESS THE OFFER IS EXTENDED. The Depositary for the Offer is: American Stock Transfer & Trust Company By Registered Mail: By Hand Delivery: By Overnight 40 Wall Street, Courier: 46th Floor 40 Wall Street, 46th 40 Wall Street, 46th Floor Floor New York, New York New York, New York New York, New York 10005 10005 10005 By Facsimile Transmission: Confirm Facsimile by Telephone Only: (718) 921-8200 ext. 6820 (718) 234-5001 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF AN INSTRUCTION VIA A FACSIMILE COPY NUMBER OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. DESCRIPTION OF THE SHARES TENDERED - --------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Holder(s) (Please fill in, if blank, exactly as name(s) appear(s) on the Number of Shares Number of Certificate(s) or on the Certificate Evidenced by Shares security position listing) Number(s)(*) Certificate(s)(*) Tendered(**) - ------------------------------------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- Total Shares Tendered
- -------------------------------------------------------------------------------- * Need not be completed by Book-Entry Holders. ** Unless otherwise indicated, it will be assumed that all shares delivered to the Depositary are being tendered. See Instruction 4. This Letter of Transmittal is to be completed by holders of certificates representing Shares (as such term is defined in the Offer to Purchase) (such holders of Shares, collectively, the "Holders"), if certificates for Shares are to be forwarded herewith or, unless an Agent's Message (as defined in the Offer to Purchase) is utilized, if tenders of Shares are to be made by Book-Entry Transfer into the account of American Stock Transfer & Trust Company, as Depositary (the "Depositary"), at The Depository Trust Company (the "Book-Entry Transfer Facility" or "DTC") pursuant to the procedures set forth in Section 3--"Procedures for Tendering Shares" of the Offer to Purchase. Holders who tender Shares by Book-Entry Transfer are referred to herein as "Book-Entry Holders". Any Holders who desire to tender Shares and whose certificate(s) evidencing such Shares (the "Certificates") are not immediately available, or who cannot comply with the procedures for Book-Entry Transfer described in the Offer to Purchase on a timely basis, may nevertheless tender such Shares by following the procedures for guaranteed delivery set forth in Section 3--"Procedures for Tendering Shares" of the Offer to Purchase. See Instruction 2 of this Letter of Transmittal. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. BOOK-ENTRY TRANSFER (See Instruction 2) [_]CHECK HERE IF SHARES ARE BEING TENDERED BY BOOK-ENTRY TRANSFER TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER): Name(s) of Tendering Institution(s): ________________________________________ Account Number: _____________________________________________________________ Transaction Code Number: ____________________________________________________ PRIOR GUARANTEED DELIVERY (See Instruction 2) [_]CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s): ____________________________________________ Window Ticket Number (if any): ______________________________________________ Date of Execution of Notice of Guaranteed Delivery: _________________________ Name of Institution which Guaranteed Delivery: ______________________________ Account Number (if delivered by Book-Entry Transfer): _______________________ Transaction Code Number: ____________________________________________________ [_]CHECK HERE IF TENDER IS BEING MADE IN RESPECT OF LOST, MUTILATED OR DESTROYED CERTIFICATES. SEE INSTRUCTION 9. 2 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to Koninklijke Philips Electronics N.V., a company incorporated under the laws of the Netherlands ("Royal Philips" or "Purchaser"), the above-described shares of common stock, no par value (the "Shares"), of MedQuist Inc., a New Jersey corporation ("MedQuist"), at $51.00 per Share, net to the seller in cash (the "Share Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase dated June 1, 2000 and in this related Letter of Transmittal (which, as they may be amended and supplemented from time to time, together constitute the "Offer"). The undersigned understands that Royal Philips reserves the right to assign to any other direct or indirect wholly owned subsidiary of Royal Philips the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but the undersigned further understands that any such assignment will not relieve the Purchaser of its obligations under the Offer and that any such assignment will in no way prejudice the rights of tendering Holders to receive payment for the Shares validly tendered (and not withdrawn) and accepted for payment pursuant to the Offer. This Offer is being made pursuant to the Tender Offer Agreement, dated as of May 22, 2000 (as amended from time to time, the "Tender Offer Agreement"), between the Purchaser and MedQuist. Subject to, and effective upon, acceptance for payment of, and payment for, the Shares tendered herewith in accordance with the terms of the Offer (including, if the Offer is extended or amended, the terms and conditions of such extension or amendment), the undersigned hereby sells, assigns and transfers to, or upon the order of, the Purchaser, all right, title and interest in and to all of the Shares that are being tendered hereby and any and all dividends, distributions, rights or other securities issued or issuable in respect of such Shares on or after May 22, 2000 (collectively, "Distributions"), and irrevocably appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares and all Distributions with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest) to (a) deliver such Certificates and all Distributions and transfer ownership of such Shares on the account books maintained by the Book-Entry Transfer Facility, together with all accompanying evidences of transfers and authenticity, to or upon the order of the Purchaser, (b) present such Shares and all Distributions for transfer on the books of MedQuist and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares and all Distributions, all in accordance with the terms and subject to the conditions of the Offer as set forth in the Offer to Purchase. The undersigned hereby irrevocably appoints each designee of the Purchaser as such attorney-in-fact and proxy of the undersigned, with full power of substitution, to vote the Shares as described below in such manner as each such attorney-in-fact and proxy (or any substitute thereof) shall deem proper in its sole discretion, and to otherwise act (including pursuant to written consent) to the full extent of the undersigned's rights with respect to the Shares and all Distributions tendered hereby and accepted for payment by the Purchaser prior to the time of such vote or action. All such proxies shall be considered coupled with an interest in the tendered Shares and shall be irrevocable and are granted in consideration of, and are effective upon, the acceptance for payment of such Shares and all Distributions in accordance with the terms of the Offer. Such acceptance for payment by the Purchaser shall revoke, without further action, any other proxy or power of attorney granted by the undersigned at any time with respect to such Shares and all Distributions and no subsequent proxies or powers of attorney will be given (or, if given, will not be deemed effective) with respect thereto by the undersigned. The designees of the Purchaser will, with respect to the Shares for which the appointment is effective, be empowered to exercise all voting and other rights as they in their sole discretion may deem proper at any annual, special, adjourned or postponed meeting of MedQuist's shareholders, by written consent or otherwise, and the Purchaser reserves the right to require that, in order for Shares or any Distributions to be deemed validly tendered, immediately upon the Purchaser's acceptance for payment of such Shares, the Purchaser must be able to exercise all rights (including, without limitation, all voting rights) with respect to such Shares and receive all Distributions. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares and all Distributions tendered hereby and that, when the same are accepted for payment by 3 the Purchaser, the Purchaser will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances, and the same will not be subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or the Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares and all Distributions tendered hereby. In addition, the undersigned shall promptly remit and transfer to the Depositary for the account of the Purchaser any and all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer and, pending such remittance or appropriate assurance thereof, the Purchaser shall be, subject to applicable law, entitled to all rights and privileges as owner of any such Distributions and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by the Purchaser in its sole discretion. No authority herein conferred or agreed to be conferred shall be affected by, and all such authority shall survive, the death or incapacity of the undersigned. All obligations of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Subject to the withdrawal rights set forth in Section 4--"Rights of Withdrawal" of the Offer to Purchase, the tender of the Shares and related Distributions hereby made is irrevocable. The undersigned understands that tenders of the Shares pursuant to any of the procedures described in Section 3--"Procedures for Tendering Shares" of the Offer to Purchase and in the instructions hereto will constitute a binding agreement between the undersigned and the Purchaser upon the terms and subject to the conditions set forth in the Offer. Without limiting the generality of the foregoing, if the price to be paid in the Offer is amended in accordance with the terms of the Tender Offer Agreement, the price to be paid to the undersigned will be amended. The undersigned recognizes that under certain circumstances set forth in the Offer to Purchase, the Purchaser may not be required to accept for payment any of the Shares tendered hereby. Unless otherwise indicated herein under "Special Payment Instructions", please issue the check for the purchase price and/or return any Certificates not tendered or not accepted for payment in the name(s) of the registered Holder(s) appearing under "Description of Shares Tendered". Similarly, unless otherwise indicated under "Special Delivery Instructions", please mail the check for the purchase price and/or return any Certificates not tendered or not accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered Holder(s) appearing under "Description of Shares Tendered". In the event that both the Special Delivery Instructions and the Special Payment Instructions are completed, please issue the check for the purchase price and/or issue any Certificates not so tendered or accepted for payment in the name of, and deliver said check and/or return such Certificates to, the person or persons so indicated. Unless otherwise indicated under Special Payment Instructions, please credit any Shares tendered herewith by Book-Entry Transfer that are not accepted for payment by crediting the account at the Book-Entry Transfer Facility designated above. The undersigned recognizes that the Purchaser has no obligation, pursuant to the Special Payment Instructions, to transfer any Shares from the name(s) of the registered holder(s) thereof if the Purchaser does not accept for payment any of the Shares so tendered. 4 SPECIAL PAYMENT INSTRUCTIONS (See SPECIAL DELIVERY INSTRUCTIONS Instructions 1, 5, 6 and 7) (See Instructions 1, 5, 6 and 7) To be completed ONLY if To be completed ONLY if Certificate(s) that are not Certificate(s) that are not tendered or that are not tendered or that are not purchased, including as a result purchased and/or the check for of proration, and/or the check the purchase price of Shares for the purchase price of Shares purchased are to be sent to purchased are to be issued in the someone other than the name of someone other than the undersigned, or to the undersigned, or if Shares undersigned at an address other tendered by Book-Entry Transfer than that shown above. which are not accepted for payment are to be returned by Mail check and Certificate(s) to: credit to an account maintained at the Book-Entry Transfer Name _____________________________ Facility other than that Please Type or Print designated. Address __________________________ Issue check and Certificate(s) to: __________________________________ Name _____________________________ __________________________________ Please Type or Print (Include Zip Code) Address __________________________ __________________________________ (Tax Identification or Social __________________________________ Security No.) (See Substitute Form W-9 Included __________________________________ Herewith) (Include Zip Code) __________________________________ *(Tax Identification or Social Security No.) (See Substitute Form W-9 Included Herewith) [_]Credit Shares tendered by Book-Entry Transfer that are not accepted for payment to the Book- Entry Transfer Facility account designated below. (DTC Account No.) ________________ *Signature Guarantee required 5 IMPORTANT HOLDER(S) SIGN HERE (See Instructions 1 and 5) (Please Complete Substitute Form W-9 Contained Herein) Signature(s) of Holder(s) Date: ............ , 2000 (Must be signed by registered Holder(s) exactly as name(s) appear(s) on Certificate(s) or on a security position listing or by person(s) authorized to become registered Holder(s) by Certificate(s) and documents transmitted with this Letter of Transmittal. If signature is by trustee(s), executor(s), administrator(s), guardian(s), attorney(s)-in-fact, officers of corporations or other person(s) acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.) Name(s) ...................................................................... (Please Print) Capacity (Full Title) ........................................................ Address ...................................................................... .............................................................................. (Include Zip Code) .............................................................................. (Daytime Area Code and Telephone No.) .............................................................................. (Tax Identification or Social Security Number) GUARANTEE OF SIGNATURE(S) (See Instructions 1 and 5) Authorized Signature: ........................................................ Name: ........................................................................ (Please Type or Print) Title: ....................................................................... Name of Firm: ................................................................ Address: ..................................................................... .............................................................................. (Include Zip Code) Area Code and Telephone Number: .............................................. Date: ............ , 2000 6 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Signature Guarantee. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a financial institution (including most banks, savings and loan associations and brokerage houses) that is a participant in the Security Transfer Agents Medallion Program, The New York Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange Medallion Program (each, an "Eligible Institution"). Signatures on this Letter of Transmittal need not be guaranteed (a) if this Letter of Transmittal is signed by the registered Holder(s) (which term, for purposes of this document, includes any participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) of the Shares tendered herewith and such Holder(s) has not completed the box entitled either "Special Payment Instructions" or "Special Delivery Instructions" on this Letter of Transmittal or (b) if such Shares are tendered for the account of an Eligible Institution. See Instruction 5 of this Letter of Transmittal. 2. Delivery of Letter of Transmittal and Certificates or Book-Entry Confirmations. This Letter of Transmittal must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date (as defined in the Offer to Purchase). Holders whose Certificates are not immediately available or who cannot deliver their Certificates and all other required documents to the Depositary prior to the Expiration Date or who cannot complete the procedures for Book- Entry Transfer on a timely basis may nevertheless tender their Shares by properly completing and duly executing a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth in Section 3--"Procedures for Tendering Shares" of the Offer to Purchase. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Purchaser, must be received by the Depositary prior to the Expiration Date; and (iii) Certificates, as well as a Letter of Transmittal (or copy thereof), properly completed and duly executed with any required signature guarantees (or, in the case of a book-entry delivery, an Agent's Message (as defined in the Offer to Purchase), and all other documents required by this Letter of Transmittal must be received by the Depositary within three business days after the date of execution of such Notice of Guaranteed Delivery. If Certificates are forwarded to the Depositary in multiple deliveries, a properly completed and duly executed Letter of Transmittal (or copy thereof) must accompany each such delivery. The method of delivery of this Letter of Transmittal, the Shares, Certificates and all other required documents, including delivery through the Book-Entry Transfer Facility, is at the option and risk of the tendering Holder, and the delivery will be deemed made only when actually received by the Depositary (including, in the case of Book-Entry Transfer, by Book-Entry Confirmation (as defined in the Offer to Purchase)). If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. All tendering Holders, by execution of this Letter of Transmittal (or a copy hereof), waive any right to receive any notice of the acceptance of their Shares for payment. 3. Inadequate Space. If the space provided under "Description of Shares Tendered" is inadequate, the share Certificate numbers and/or the number of Shares should be listed on a separate schedule and attached hereto. 4. Partial Tenders (Applicable to Certificate Holders Only; Not Applicable to Shares Which are Tendered by Book-Entry Transfer). If fewer than all the Shares evidenced by any Certificate submitted are to be tendered, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered". In such cases, new Certificate(s) evidencing the remainder of the Shares that were evidenced by 7 Certificate(s) delivered to the Depositary will be sent to the person signing this Letter of Transmittal, unless otherwise provided in the box entitled "Special Delivery Instructions" on this Letter of Transmittal, as soon as practicable after the Expiration Date. All Shares represented by Certificate(s) delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If this Letter of Transmittal is signed by the registered Holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the Certificate(s) without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any of the tendered Shares are registered in different names on several Certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of the Shares. If this Letter of Transmittal or any Certificate or stock power is signed by a trustee, executor, administrator, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and evidence satisfactory to the Depositary and the Purchaser of such person's authority so to act must be submitted. If this Letter of Transmittal is signed by the registered Holder(s) of the Shares transmitted hereby, no endorsements of Certificate(s) or separate stock powers are required unless payment is to be made to, or Certificate(s) evidencing the Shares not tendered or purchased are to be issued in the name of, a person other than the registered Holder(s). Signatures on such Certificate(s) or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered Holder(s) of the Shares tendered hereby, the Certificate(s) must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered Holder(s) appear(s) on such Certificate(s). Signatures on such Certificate(s) or stock powers must be guaranteed by an Eligible Institution. 6. Transfer Taxes. Except as otherwise provided in this Instruction 6, the Purchaser will pay or cause to be paid any transfer taxes with respect to the transfer and sale of purchased Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price of any Shares purchased is to be made to or, in the circumstances permitted hereby, if Certificate(s) for the Shares not tendered or purchased are to be registered in the name of, any person other than the registered holder, or if tendered Certificate(s) are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any transfer taxes (whether imposed on the registered Holder or such person) payable on account of the transfer to such person will be deducted from the purchase price for such Shares if satisfactory evidence of the payment of such taxes, or exemption therefrom, is not submitted. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the Certificate(s) listed in this Letter of Transmittal. 7. Special Payment and Delivery Instructions. If a check for the purchase price is to be issued in the name of, and/or Certificates for the Shares not tendered or not accepted for payment are to be issued in the name of, a person other than the signer of this Letter of Transmittal or if a check and/or such Certificates for Shares are to be mailed to someone other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. A Book- Entry Holder may request that Shares not accepted for payment be credited to such account maintained at the Book- 8 Entry Transfer Facility as such Book-Entry Holder may designate under "Special Payment Instructions". If no such instructions are given, such Shares not accepted for payment will be returned by crediting the account at the Book- Entry Transfer Facility designated above. 8. Requests for Assistance or Additional Copies. Questions or requests for assistance may be directed to, or additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and other tender offer materials may be obtained from, the Information Agent or the Dealer Manager at their respective addresses set forth on the back cover of the Offer to Purchase or from your broker, dealer, commercial bank or trust company. 9. Lost, Mutilated or Destroyed Certificates. If any Certificates have been lost, mutilated or destroyed, the Holder should promptly notify the Depositary by checking the box immediately preceding the special payment/special delivery instructions and indicating the number of Shares lost. The Holder will then be instructed as to the procedure to be followed in order to replace the relevant Certificates. This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost, mutilated or destroyed Certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL OR A COPY HEREOF, TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE. IMPORTANT TAX INFORMATION Under the "backup withholding" provisions of federal tax law, the Depositary may be required to withhold 31% of the purchase price of Shares purchased pursuant to the Offer. To prevent backup withholding, each tendering shareholder should complete and sign the Substitute Form W-9 included in this Letter of Transmittal and either: (a) provide the shareholder's correct taxpayer identification number ("TIN") and certify, under penalties of perjury, that the TIN provided is correct (or that such shareholder is awaiting a TIN), and that (i) the shareholder has not been notified by the Internal Revenue Service ("IRS") that the shareholder is subject to backup withholding as a result of failure to report all interest or dividends, or (ii) the IRS has notified the shareholder that the shareholder is no longer subject to backup withholding; or (b) provide an adequate basis for exemption. If "Applied for" is written in Part I of the substitute Form W-9, the Depositary will retain 31% of any payment of the purchase price for tendered Shares during the 60-day period following the date of the Substitute Form W-9. If the shareholder furnishes the Depositary with his or her TIN within 60 days of the date of the Substitute W-9, the Depositary will remit such amount retained during the 60- day period to the shareholder and no further amounts will be retained or withheld from any payment made to the shareholder thereafter. If, however, the shareholder has not provided the Depositary with his or her TIN within such 60- day period, the Depositary will remit such previously-retained amounts to the IRS as backup withholding and shall withhold 31% of any payment of the purchase price for the tendered Shares made to the shareholder thereafter unless the shareholder furnishes a TIN to the Depositary prior to such payment. In general, an individual's TIN is the individual's Social Security number. If a certificate for tendered Shares is registered in more than one name or is not in the name of the actual owner, consult the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. If the Depositary is not provided with the correct TIN or an adequate basis for exemption, the shareholder may be subject to a $50 penalty imposed by the IRS and backup withholding at a rate of 31%. Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order to satisfy the Depositary that a foreign individual qualifies as an exempt recipient, such foreign individual must submit a statement (generally, IRS Form W-8), signed under penalties of perjury, attesting to that individual's exempt status. A form for such statements can be obtained from the Depositary. 9 For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how an individual who does not have a TIN can obtain one and how to complete the Substitute Form W-9 if Shares are held in more than one name), consult the Guidelines of the IRS for Certification of Taxpayer Identification Number on Substitute Form W-9 attached to this Letter of Transmittal. Failure to complete the Substitute Form W-9 will not, by itself, cause Shares to be deemed invalidly tendered, but may require the Depositary to withhold 31% of the amount of any payments for such Shares. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided the appropriate information is furnished to the IRS. 10 PAYOR: THE AMERICAN STOCK TRANSFER & TRUST COMPANY, AS DEPOSITARY Name _________________________________________________ SUBSTITUTE Address ______________________________________________ Form W-9 (Number and Street) ----------------------------------------------------- Department of (City) (State) (Zip Code) the Treasury Internal Revenue Service Check appropriate box: Individual[_] Corporation[_] Request for Partnership[_] Other (specify)[_] Taxpayer Part I.--Please provide SSN: __________________ Identification your taxpayer Number (TIN) and identification number in Certification the space at right. If awaiting TIN, write "Applied For." or -------------------------------------------------------- EIN: __________________ -------------------------------------------------------- Part II.--For payees exempt from backup withholding. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W- 9." -------------------------------------------------------- Part III.--CERTIFICATION Under penalties of perjury, I certify that: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding either because: (a) I have not been notified by the IRS that I am subject to backup withholding as a result of a failure to report all interests or dividends, or (b) the IRS has notified me that I am no longer subject to backup withholding. Certification Instructions--You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). -------------------------------------------------------- SIGNATURE ____________________________________________ DATE _________________________________________________ NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 11 Questions and requests for assistance may be directed to the Information Agent or Dealer Manager at their respective addresses and telephone numbers set forth below. Additional copies of the Offer to Purchase, this Letter of Transmittal or other related tender offer materials may be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies. The Information Agent for the Offer is: 445 Park Avenue, 5th Floor New York, New York 10022 Banks and Brokerage Firms Call: (880) 662-5200 Shareholders Please Call: (800) 566-9061 The Dealer Manager for the Offer is: Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 (212) 902-1000 (call collect) (800) 323-5678 (call toll free) EX-99.(A)(3) 4 0004.txt NOTICE OF GUARANTEED DELIVERY Exhibit (a)(3) THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action to be taken, you should seek your own financial advice immediately from your own appropriately authorized independent financial advisor. If you have sold or transferred all of your registered holdings of Shares (as defined below), please forward this document and all accompanying documents to the stockbroker, bank or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. Notice of Guaranteed Delivery (Not to be used for Signature Guarantees) For Tender of Shares of Common Stock of MedQuist Inc. Pursuant to the Offer to Purchase dated June 1, 2000 By Koninklijke Philips Electronics N.V. As set forth under Section 3--"Procedures for Tendering Shares" in the Offer to Purchase, dated June 1, 2000, and any supplements or amendments thereto (the "Offer to Purchase"), this form (or a copy hereof) must be used to accept the Offer (as defined in the Offer to Purchase) if (i) certificates (the "Certificates") representing shares of common stock, no par value (the "Shares"), of MedQuist Inc., a New Jersey corporation ("MedQuist"), are not immediately available, (ii) if the procedures for Book-Entry Transfer cannot be completed on a timely basis or (iii) time will not permit Certificates and all other required documents to reach the American Stock Transfer & Trust Company (the "Depositary") prior to the Expiration Date (as defined in the Offer to Purchase). This Notice of Guaranteed Delivery may be delivered by hand, by mail or by overnight courier or transmitted by facsimile transmission to the Depositary and must include a signature guarantee by an Eligible Institution (as defined in the Offer to Purchase) in the form set forth herein. See the guaranteed delivery procedures described in the Offer to Purchase under Section 3--"Procedures for Tendering Shares". The Depositary for the Offer is: American Stock Transfer & Trust Company By Hand/Overnight Courier By Mail: 40 Wall Street, 46th Floor 40 Wall Street, 46th Floor New York, New York 10005 New York, New York 10005 By Facsimile: For Confirmation Telephone: (718) 234-5001 (718) 921-8200 ext. 6820 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTION VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE A SIGNATURE. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN ELIGIBLE INSTITUTION UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL. 1 Ladies and Gentlemen: The undersigned hereby tenders to Koninklijke Philips Electronics N.V., a company incorporated under the laws of the Netherlands, upon the terms and subject to the conditions set forth in the Offer to Purchase and the related Letter of Transmittal, receipt of each of which is hereby acknowledged, the number of Shares indicated below pursuant to the Guaranteed Delivery Procedures described in the Offer to Purchase under Section 3--"Procedures for Tendering Shares." Name of Record Holder(s): ______________________________________________________ Address(es): ___________________________________________________________________ Area Code(s) and Tel. No(s).: __________________________________________________ Signature(s): __________________________________________________________________ Date: __________________________________________________________________________ Number of Shares: ______________________________________________________________ Certificate Number(s) if available: ____________________________________________ If Shares will be tendered by Book-Entry Transfer check box: [_] The Depository Trust Company: ______________________________________________ Account Number: ________________________________________________________________ 2 THE GUARANTEE BELOW MUST BE COMPLETED GUARANTEE (Not to be used for Signature Guarantee) The undersigned, an Eligible Institution (as defined in the Offer to Purchase), hereby guarantees that the undersigned will deliver to the Depositary, at one of its addresses set forth above, either the Certificates representing the Shares tendered hereby, in proper form for transfer, or Book- Entry Confirmation (as defined in the Offer to Purchase), together with a properly completed and duly executed Letter of Transmittal, including any required signature guarantees, or, in the case of book-entry delivery of Shares, an Agent's Message (as defined in the Offer to Purchase) in lieu of a Letter of Transmittal, and any other documents required by the Letter of Transmittal, all within three business days after the date hereof. - -------------------------------------------------------------------------------- Name of Firm - -------------------------------------------------------------------------------- Address - -------------------------------------------------------------------------------- (Zip Code) Area Code and Tel. No. _________________________________________________________ - -------------------------------------------------------------------------------- Authorized Signature Name ___________________________________________________________________________ (Please Print) Title __________________________________________________________________________ Date ________________________________ NOTE: DO NOT SEND CERTIFICATES WITH THIS NOTICE OF GUARANTEED DELIVERY. CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 3 EX-99.(A)(4) 5 0005.txt GUIDELINES SUBSTITUTE FORM W-9 Exhibit (a)(4) GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Guidelines for Determining the Proper Identification Number for the Payee (You) to Give the Payer.-- Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer. All "Section" references are to the Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue Service. - ------------------------------------- -------------------------------------
Give the For this type of SOCIAL SECURITY account: number of-- - -------------------------------------------- 1. Individual The individual 2. Two or more The actual owner of individuals (joint the account or, if account) combined funds, the first individual on the account(1) 3. Custodian account of The minor(2) a minor (Uniform Gift to Minors Act) 4.a. The usual The grantor- revocable savings trustee(1) trust account (grantor is also trustee) b. So-called trust The actual owner(1) account that is not a legal or valid trust under state law 5. Sole proprietorship The owner(3)
Give the EMPLOYER For this type of IDENTIFICATION account: number of-- -- 6.Sole proprietorship The owner(3) 7. A valid trust, The legal entity(4) estate, or pension trust 8. Corporate The corporation 9. Association, club, The organization religious, charitable, educational, or other tax-exempt organization 10. Partnership The partnership 11. A broker or The broker or registered nominee nominee 12. Account with the The public entity Department of Agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments - ------------------------------------------- --
(1) List first and circle the name of the person whose number you furnish. If only one person on a joint account has a social security number, that person's number must be furnished. (2) Circle the minor's name and furnish the minor's social security number. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your social security number or your employer identification number (if you have one). (4) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the taxpayer identification number of the personal representative or trustee unless the legal entity itself is not designated in the account title). Note: If no name is circled when there is more than one name listed, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Page 2 Obtaining a Number If you don't have a taxpayer identification number or you don't know your number, obtain Internal Revenue Service Form SS-5, Application for a Social Security Administration office, or Form SS-4, Application for Employer Identification Number, by calling 1 (800) TAX-FORM, and apply for a number. Payees Exempt from Backup Withholding Payees specifically exempted from the withholding include . An organization exempt from tax under Section 501(a), an individual retirement account (IRA), or a custodial account under Section 403(b)(7), if the account satisfies the requirements of Section 401(f)(2). . The United States or a state thereof, the District of Columbia, a possession of the United States, or a political subdivision or wholly owned agency or instrumentality of any of the foregoing. . An international organization or any agency or instrumentality thereof. . A foreign government and any political subdivision, agency or instrumentality thereof. Payees that may be exempt from backup withholding include: . A corporation. . A financial institution. . A dealer of securities or commodities required to register in the United States, the District of Columbia, a possession of the United States. . A real estate investment trust. . A common trust fund operated by a bank under Section 584(a). . An entity registered at all times during the tax year under the Investment Company Act of 1940. . A middleman known in the investment community as a nominee or who is listed in the most recent publication of the American Society of Corporate Secretaries, Inc. Nominee List. . A futures commission merchant registered with the Commodity Futures Trading Commission. . A foreign central bank. Payees of dividends and patronage dividends generally exempt from backup withholding include: . Payments to nonresident aliens subject to withholding under Section 1441. . Payments to partnerships not engaged in a trade or business in the United States and that have at least one nonresident alien partner. . Payments of patronage dividends not paid in money. . Payments made by certain foreign organizations. . Section 404(k) payments made by an ESOP. Payees of interest generally exempt from backup withholding include: . Payments of tax-exempt interest (including exempt-interest dividends under Section 852). . Payments described in Section 6049(b)(5) to nonresident aliens. . Payments on tax-free covenant bonds under Section 1451. . Payments made by certain foreign organizations. Certain payments, other than payments of interest, dividends, and patronage dividends, that are exempt from information reporting are also exempt from backup withholding. For details, see Sections 6041, 6041A, 6042, 6044, 6045, 60499, 6050A and 6050N and the regulations thereunder. Exempt payees should complete a substitute Form W-9 to avoid possible erroneous backup withholding. Furnish your taxpayer identification number, write "EXEMPT" on the form, sign and date the form and return it to the payer. Privacy Act Notice.--Section 6019 requires you to provide your correct taxpayer identification number to payers, who must report the payments to the IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of your return and may also provide this information to various government agencies for tax enforcement or litigation purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. Penalties (1) Failure to Furnish Taxpayer Identification Number.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not willful neglect. (2) Civil Penalty for False Information With Respect to Withholding.--If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. (3) Criminal Penalty for Falsifying Information.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.(A)(5) 6 0006.txt FORM OF LETTER TO BROKERS, DEALERS Exhibit (a)(5) Offer to Purchase for Cash 22,250,327 Shares of Common Stock of MedQuist Inc. at $51.00 Net Per Share by Koninklijke Philips Electronics N.V. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JUNE 28, 2000 UNLESS THE OFFER IS EXTENDED. June 1, 2000 To Brokers, Dealers, Commercial Banks, Trust Companies And Other Nominees: We have been appointed by Koninklijke Philips Electronics N.V., a company incorporated under the laws of the Netherlands ("Purchaser"), to act as Dealer Manager in connection with Purchaser's offer to purchase 22,250,327 shares of common stock, no par value (the "Shares"), of MedQuist Inc., a New Jersey corporation ("MedQuist"), at $51.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated June 1, 2000, and in the related Letter of Transmittal (which, as they may be amended or supplemented from time to time, together constitute the "Offer") copies of which are enclosed herewith. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares registered in your name or in the name of your nominee. Enclosed herewith for your information and forwarding to your clients are copies of the following documents: 1. The Offer to Purchase, dated June 1, 2000. 2. The Letter of Transmittal to tender Shares for your use and for the information of your clients. Facsimile copies of the Letter of Transmittal may be used to tender Shares. 3. A letter to shareholders of MedQuist from David A. Cohen, Chairman and Chief Executive Officer, together with a Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Securities and Exchange Commission by MedQuist and mailed to shareholders of MedQuist. 4. The Notice of Guaranteed Delivery for Shares to be used to accept the Offer if the procedures for tendering Shares set forth in the Offer to Purchase cannot be completed prior to the Expiration Date (as defined in the Offer to Purchase). 5. A printed form of letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer. 6. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9. 7. A return envelope addressed to the Depositary. 1 WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JUNE 28, 2000, UNLESS THE OFFER IS EXTENDED. Please note the following: 1. The tender price is $51.00 per Share, net to the seller in cash, without interest thereon, as set forth in the Introduction to the Offer to Purchase. 2. The Offer is conditioned upon, among other things, (i) there being validly tendered and not properly withdrawn prior to the Expiration Date (as defined in the Offer to Purchase) at least 22,250,327 Shares, (ii) the termination or expiration of the waiting period under the HSR Act (as defined in the Offer to Purchase) and (iii) certain other conditions. See the Introduction and Sections 1--"Terms of the Offer" and 13--"Certain Conditions of the Offer" of the Offer to Purchase. 3. The Offer is being made for 22,250,327 Shares. 4. Tendering holders of Shares ("Holders") whose Shares are registered in their own name and who tender directly to the American Stock Transfer & Trust Company, as depositary (the "Depositary"), will not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares by the Purchaser pursuant to the Offer. However, federal income tax backup withholding at a rate of 31% may be required, unless an exemption is available or unless the required tax identification information is provided. See Instruction 9 of the Letter of Transmittal. 5. The Offer and the withdrawal rights will expire at 12:00 midnight, New York City time, on Wednesday, June 28, 2000, unless the Offer is extended. 6. At a meeting held on May 21, 2000, the board of directors of MedQuist unanimously determined that the terms of the Offer are fair to, and in the best interests of, the shareholders of MedQuist, and approved the Tender Offer Agreement and the other agreements described in the Offer to Purchase. The board of directors recommends that MedQuist's shareholders accept the Offer and tender their Shares in the Offer. 7. Notwithstanding any other provision of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates evidencing such Shares (the "Certificates") or, if such Shares are held in book-entry form, timely confirmation of a Book-Entry Transfer (a "Book-Entry Confirmation") of such Shares into the account of the Depositary, at The Depository Trust Company, (ii) a properly completed and duly executed Letter of Transmittal or a copy thereof with any required signature guarantees (or, in the case of a Book- Entry Transfer, an Agent's Message (as defined in the Offer to Purchase) in lieu of the Letter of Transmittal) and (iii) any other documents required by the Letter of Transmittal. Accordingly, tendering Holders may be paid at different times depending upon when Certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. Under no circumstances will interest be paid on the purchase price of the Shares to be paid by the Purchaser, regardless of any extension of the Offer or any delay in making such payment. In order to take advantage of the Offer, Certificates, as well as a Letter of Transmittal (or copy thereof), properly completed and duly executed with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal), and all other documents required by the Letter of Transmittal must be received by the Depositary, all in accordance with the instructions set forth in the Letter of Transmittal and the Offer to Purchase. Any Holder who desires to tender Shares and whose Certificate(s) evidencing such Shares are not immediately available, or who cannot comply with the procedures for Book-Entry Transfer described in the Offer to Purchase on a timely basis, may tender such Shares by following the procedures for guaranteed delivery set forth in Section 3--"Procedures for Tendering Shares" of the Offer to Purchase. 2 The Purchaser will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of Shares pursuant to the Offer (other than the Dealer Manager, the Depositary and the Information Agent as described in the Offer to Purchase). The Purchaser will, however, upon request, reimburse you for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. The Purchaser will pay or cause to be paid any transfer taxes with respect to the transfer and sale of purchased Shares to it or its order pursuant to the Offer, except as otherwise provided in Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Offer should be addressed to Goldman, Sachs & Co., the Dealer Manager for the Offer, at 85 Broad Street, New York, New York 10004, telephone numbers (212) 902-1000 (call collect) or (800) 323-5678 (call toll free), or to Morrow & Co., Inc., the Information Agent for the Offer, at (800) 566-9061. Requests for copies of the enclosed materials may also be directed to the Dealer Manager or to the Information Agent at the above addresses and telephone numbers. Very truly yours, Goldman, Sachs & Co. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON THE AGENT OF THE PURCHASER, MEDQUIST, THE DEALER MANAGER, THE DEPOSITARY, THE INFORMATION AGENT OR ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. 3 EX-99.(A)(6) 7 0007.txt FORM OF LETTER TO CLIENTS Exhibit (a)(6) Offer to Purchase for Cash 22,250,327 Shares of Common Stock of MedQuist Inc. at $51.00 Net Per Share by Koninklijke Philips Electronics N.V. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JUNE 28, 2000 UNLESS THE OFFER IS EXTENDED. June 1, 2000 To Our Clients: Enclosed for your consideration are the Offer to Purchase dated June 1, 2000 (the "Offer to Purchase") and the related Letter of Transmittal (which, as they may be amended or supplemented from time to time, together constitute the "Offer") in connection with the offer by Koninklijke Philips Electronics N.V., a company incorporated under the laws of the Netherlands ("Purchaser"), to purchase 22,250,327 shares of common stock, no par value (the "Shares"), of MedQuist Inc., a New Jersey corporation ("MedQuist"), at $51.00 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase. Any holders who desire to tender Shares and whose certificate(s) evidencing such Shares (the "Certificates") are not immediately available, or who cannot comply with the procedures for Book-Entry Transfer described in the Offer to Purchase on a timely basis, may tender such Shares by following the procedures for guaranteed delivery set forth in Section 3-- "Procedures for Tendering Shares" of the Offer to Purchase. We are (or our nominee is) the holder of record of Shares held for your account. A tender of such Shares can be made only by us as the holder of record and pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Shares held by us for your account. Accordingly, we request instructions as to whether you wish to have us tender on your behalf any or all Shares held by us for your account pursuant to the terms and conditions set forth in the Offer. Please note the following: 1. The Share Price is $51.00 per Share, net to the seller in cash, without interest thereon, as set forth in the Introduction to the Offer to Purchase. 2. The Offer is conditioned upon, among other things, (i) there being validly tendered and not properly withdrawn prior to the Expiration Date (as defined in the Offer to Purchase) at least 22,250,327 Shares, (ii) the termination or expiration of the waiting period under the HSR Act (as defined in the Offer to Purchase) and (iii) certain other conditions. See the Introduction and Sections 1--"Terms of the Offer" and 13--"Certain Conditions of the Offer" of the Offer to Purchase. 3. The Offer is being made for 22,250,327 Shares. 4. Tendering holders of Shares ("Holders") whose Shares are registered in their own name and who tender directly to the American Stock Transfer & Trust Company, as depositary (the "Depositary"), will 1 not be obligated to pay brokerage fees or commissions or, except as set forth in Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of Shares pursuant to the Offer. However, federal income tax backup withholding at a rate of 31% may be required, unless an exemption is available or unless the required tax identification information is provided. See Instruction 9 of the Letter of Transmittal. 5. The Offer and withdrawal rights will expire at 12:00 midnight, New York City time, on Wednesday, June 28, 2000, unless the Offer is extended. 6. At a meeting held on May 21, 2000, the board of directors of MedQuist unanimously determined that the terms of the Offer are fair to, and in the best interests of, the shareholders of MedQuist, and approved the Tender Offer Agreement and the other agreements described in the Offer to Purchase. The board of directors recommends that MedQuist's shareholders accept the Offer and tender their Shares in the Offer. 7. Notwithstanding any other provision of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) Certificates or, if such Shares are held in book-entry form, timely confirmation of a Book-Entry Transfer (a "Book- Entry Confirmation") of such Shares into the Depositary's account at The Depository Trust Company, (ii) a properly completed and duly executed Letter of Transmittal or a copy thereof with any required signature guarantees (or, in the case of a Book-Entry Transfer, an Agent's Message (as defined in the Offer to Purchase) in lieu of the Letter of Transmittal) and (iii) any other documents required by the Letter of Transmittal. Accordingly, tendering Holders may be paid at different times depending upon when or Certificates for Shares or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. Under no circumstances will interest be paid on the purchase price of the Shares to be paid by the Purchaser, regardless of any extension of the Offer or any delay in making such payment. If you wish to have us tender any or all of the Shares held by us for your account, please so instruct us by completing, executing, detaching and returning to us the instruction form set forth herein. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified below. An envelope to return your instructions to us is enclosed. Your instructions should be forwarded to us in ample time to permit us to submit a tender on your behalf prior to the Expiration Date. The Offer is being made solely by the Offer to Purchase and the related Letter of Transmittal and is being made to all Holders. The Purchaser is not aware of any jurisdiction where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If the Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, the Purchaser will make a good faith effort to comply with such state statute or seek to have such statute declared inapplicable to the Offer. If, after such good faith effort, the Purchaser cannot comply with any such state statute, the Offer will not be made to (and tenders will not be accepted from or on behalf of) Holders in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by Goldman, Sachs & Co. or one or more registered brokers or dealers which are licensed under the laws of such jurisdiction. 2 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH 22,250,327 SHARES OF COMMON STOCK OF MedQuist Inc. The undersigned acknowledge(s) receipt of your letter, the Offer to Purchase, dated June 1, 2000, and the related Letter of Transmittal (which, as they may be amended and supplemented from time to time, together constitute the "Offer") in connection with the offer by Koninklijke Philips Electronics N.V., a company incorporated under the laws of the Netherlands (the "Purchaser"), to purchase 22,250,327 shares of common stock, no par value (the "Shares"), of MedQuist Inc., a New Jersey corporation, at a purchase price of $51.00 per Share, upon the terms and subject to the conditions set forth in the Offer to Purchase and the related Letter of Transmittal. This will instruct you to tender to the Purchaser the number of Shares indicated below (or, if no number is indicated below, all Shares) which are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer. Number of Shares to be Tendered*: ___________________________________________ Date: __________________________________________________________________________ SIGN HERE Signature(s): __________________________________________________________________ Print Name(s): _________________________________________________________________ Print Address(es): _____________________________________________________________ Area Code and Telephone Number(s): _____________________________________________ Taxpayer Identification or Social Security Number(s): __________________________ - -------- * Unless otherwise indicated, it will be assumed that all of your Shares held by us for your account are to be tendered. 3 EX-99.(A)(7) 8 0008.txt SUMMARY NEWSPAPER ADVERTISEMENT DATED 6/1/2000 Exhibit (a)(7) This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares (as defined below). The Offer (as defined below) is made only by the Offer to Purchase, dated June 1, 2000, and the related Letter of Transmittal and any amendments or supplements thereto, and is being made to all holders of Shares. The Purchaser (as defined below) is not aware of any jurisdiction where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If the Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, the Purchaser will make a good faith effort to comply with such state statute or seek to have such statute declared inapplicable to the Offer. If, after such good faith effort, the Purchaser cannot comply with any such state statute, the Offer will not be made to (and tenders will not be accepted from or on behalf of) tendering holders of Shares in such state. If any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by Goldman, Sachs & Co. (the "Dealer Manager" ) or one or more registered brokers or dealers which are licensed under the laws of such jurisdiction. Notice of Offer to Purchase for Cash 22,250,327 of the Outstanding Shares of Common Stock of MedQuist Inc. at $51.00 Net Per Share by Koninklijke Philips Electronics N.V. Koninklijke Philips Electronics N.V., a company incorporated under the laws of the Netherlands ("Royal Philips" or the "Purchaser"), hereby offers to purchase 22,250,327 shares of common stock, no par value (the "Shares"), of MedQuist Inc., a New Jersey corporation ("MedQuist"), which constitutes approximately 57% of the fully diluted Shares, at $51.00 per Share, net to the seller in cash (the "Share Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase, dated June 1, 2000 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, as they may be amended and supplemented from time to time, together constitute the "Offer"). Tendering shareholders who are record holders of their Shares and tender directly to the American Stock Transfer & Trust Company (the "Depositary") will not be obligated to pay brokerage fees or commissions or, subject to Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase of the Shares by Royal Philips pursuant to the Offer. Shareholders who hold their Shares through a broker, dealer, commercial bank, trust company or other nominee should consult such institution as to whether it charges any service fees in connection with the tender of Shares into the Offer on behalf of its clients. Royal Philips will pay all charges and expenses of the Dealer Manager, and of the Depositary and Morrow & Co., Inc. (the "Information Agent"). THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JUNE 28, 2000, UNLESS THE OFFER IS EXTENDED. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn at least 22,250,327 Shares, which constitutes approximately 57% of the fully diluted Shares (the "Tender Offer Condition"), and the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, having expired or been terminated. The Offer is also subject to the other conditions set forth in the Offer to Purchase. See Section 13 of the Offer to Purchase. The Offer is being made pursuant to a Tender Offer Agreement, dated as of May 22, 2000 (the "Tender Offer Agreement"), between Royal Philips and MedQuist. The purpose of the Offer is for Royal Philips to acquire a majority voting interest in MedQuist. Under a Governance Agreement, dated as of May 22, 2000, between Royal Philips and MedQuist, which shall become effective if Royal Philips purchases Shares pursuant to the terms and conditions of the Offer, Royal Philips and MedQuist have agreed to various arrangements concerning Royal Philips' ability to sell and purchase Shares, and the governance of MedQuist, after the expiration of the Offer. At a meeting held on May 21, 2000, the board of directors of MedQuist unanimously determined that the terms of the Offer are fair to, and in the best interests of, the shareholders of MedQuist, and approved the Tender Offer Agreement and the other agreements described in the Offer to Purchase MedQuist. The board of directors recommends that MedQuist's shareholders accept the Offer and tender their Shares in the Offer. Upon the terms and subject to the conditions set forth in the Offer (including the terms and conditions set forth in Section 13 of the Offer to Purchase (the "Offer Conditions") and, if the Offer is extended or amended, the terms and conditions of such extension or amendment), Royal Philips will accept for payment, and will pay for, 22,250,327 Shares. If more than 22,250,327 Shares are validly tendered and not withdrawn, Royal Philips will accept for purchase an amount of the tendered Shares equal to 22,250,327 Shares, on a pro rata basis from each shareholder who has validly tendered Shares pursuant to the Offer, promptly after the Expiration Date (as defined below). Subject to compliance with Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") Royal Philips expressly reserves the right to delay payment for Shares in order to comply in whole or in part with any applicable law. The term "Expiration Date" means 12:00 Midnight, New York City time, on Wednesday, June 28, 2000, unless and until Royal Philips extends the period for which the Offer is open, in which event the term "Expiration Date" means the latest time and date on which the Offer, as so extended by Royal Philips, expires. In the event that proration of tendered Shares is required, Royal Philips will determine the appropriate proration factor as soon as practicable following the Expiration Date. Proration for each shareholder tendering Shares will be based on the ratio of the number of Shares Royal Philips is offering to purchase to the total number of Shares properly tendered and not withdrawn by all shareholders (with adjustments to avoid purchases of fractional shares). Because of the difficulty in determining the number of Shares properly tendered and not withdrawn, Royal Philips does not expect that it will be able to announce the final proration factor or commence payment for any Shares purchased pursuant to the Offer until approximately four trading days after the Expiration Date. The preliminary results of any proration will be announced by press release as promptly as practicable after the Expiration Date. Shareholders may obtain such preliminary information from the Information Agent and from their brokers. In the event of any proration, the Depositary will select certain identifiable Shares for payment from the total Shares properly tendered and not withdrawn by a shareholder in accordance with such shareholder's directions, if any, as set forth in such shareholder's Letter of Transmittal. For purposes of the Offer, Royal Philips will be deemed to have accepted for payment the Shares validly tendered and not withdrawn, if and when Royal Philips gives oral or written notice to the Depositary of its acceptance for payment of such Shares pursuant to the Offer. Payment for any Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for the tendering shareholders for the purpose of receiving payments from Royal Philips and transmitting such payments to the tendering shareholders. In all cases, payment for any Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares (or a timely Book- Entry Confirmation (as defined in the Offer to Purchase) with respect thereto), (ii) the Letter of Transmittal (or a manually signed facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a Book-Entry Transfer, an Agent's Message (as defined in the Offer to Purchase) in lieu of a Letter of Transmittal and (iii) any other documents required by the Letter of Transmittal. Accordingly, payment may be made to tendering shareholders at different times if delivery of the certificates and other required documents occur at different times. The price paid to any holder of the Shares pursuant to the Offer will be the highest price per Share paid to any other holder of such Shares pursuant to the Offer. Under no circumstances will interest on the Share Price for the Shares be paid, regardless of any extension of the Offer or any delay in making such payment. If, by the Expiration Date, any or all of the Offer Conditions have not been satisfied, Royal Philips may, prior to the Expiration Date, in its sole discretion, elect to: (i) extend the Offer from time to time for up to and including an additional twenty (20) business days in the aggregate and, subject to applicable withdrawal rights, retain all tendered Shares until the expiration of the Offer, as extended, subject to the terms of the Offer; (ii) waive all of the unsatisfied conditions (other than antitrust approval which may not be waived, and the Tender Offer Condition, which may be amended only as described below) and, subject to complying with applicable rules and regulations of the Securities and Exchange Commission (the "SEC"), accept for payment 22,250,327 Shares so tendered, subject to the pro rata provisions; or (iii) terminate the Offer and not accept for payment any Shares and return all tendered Shares to tendering shareholders. Subject to the applicable regulations of the SEC, Royal Philips expressly reserves the right, in its sole discretion, to waive, set forth or change any term and condition of the Offer; provided, that, unless previously approved by MedQuist in writing, no provision may be set forth or changed which: (i) increases or, except as set forth in the next succeeding sentence, decreases the Tender Offer Condition; (ii) decreases the price per Share to be paid in the Offer; (iii) changes the form of consideration payable in the Offer (other than by adding consideration); (iv) imposes additional conditions to the Offer other than those set forth in the Tender Offer Agreement; or (v) amends or modifies any term or condition of the Offer in a manner adverse to the holders of Shares. Without the prior written consent of MedQuist, Royal Philips may not extend the expiration date of the Offer beyond the initial expiration date of the Offer; provided, that, if on the initially scheduled expiration date of the Offer (or any subsequent expiration date) any of the conditions to the Offer have not been satisfied, Royal Philips may in its sole discretion extend from time to time the Offer for up to and including an additional twenty (20) business days in the aggregate after the initial expiration date of the Offer, and may in its sole discretion, in connection with any such extension, amend the terms of the Offer, but only to reduce the Tender Offer Condition to any number of Shares greater than 20,300,320 Shares, it being understood that if Royal Philips accepts for payment any Shares validly tendered and not withdrawn pursuant to the Offer, it will accept for payment all such Shares up to 22,250,327 Shares. During any such extension of the Offering Period, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the right of a tendering shareholder to withdraw such shareholder's Shares. Any extension, delay, termination or amendment of the Offer will be followed as promptly as practicable by public announcement thereof, such announcement in the case of an extension to be issued no later than 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. Tenders of the Shares made pursuant to the Offer are irrevocable except that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the expiration of the Offering Period (as defined below) and, unless theretofore accepted for payment by Royal Philips pursuant to the Offer, may also be withdrawn at any time after Sunday, July 30, 2000. The term "Offering Period" means the period from the date hereof until 12:00 midnight, New York City time, on Wednesday, June 28, 2000, as such period may be extended. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of the Offer to Purchase. Any such notice of withdrawal must specify the name of the person having tendered the Shares to be withdrawn, the number of the Shares to be withdrawn and the names in which the certificate(s) evidencing the Shares to be withdrawn are registered, if different from that of the person who tendered such Shares. The signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution (as defined in the Offer to Purchase), unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedures for Book-Entry Transfer as set forth in Section 3 of the Offer to Purchase, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility (as defined in the Offer to Purchase) to be credited with the withdrawn Shares. If certificates for the Shares to be withdrawn have been delivered or otherwise identified to the Depositary, the name of the registered holder and the serial numbers of the particular certificates evidencing the Shares to be withdrawn must also be furnished to the Depositary as aforesaid prior to the physical release of such certificates. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Royal Philips, in its sole discretion, which determination will be final and binding. None of Royal Philips, the Dealer Manager, the Depositary, the Information Agent, or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give such notification. Withdrawals of tendered Shares may not be rescinded, and any Shares properly withdrawn will be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by following any one of the procedures described in Section 3 of the Offer to Purchase at any time prior to the Expiration Date. If Royal Philips extends the Offer, is delayed in its acceptance for payment of any Shares, or is unable to accept for payment any Shares pursuant to the Offer for any reason, then, without prejudice to Royal Philips' rights under this Offer, the Depositary may, nevertheless, on behalf of Royal Philips, retain tendered Shares, but such Shares may be withdrawn to the extent that tendering shareholders are entitled to withdrawal rights as set forth in Section 4 of the Offer to Purchase. Sales of the Shares pursuant to the Offer will be taxable transactions for federal income tax purposes and may also be taxable under applicable state, local and other tax laws. The consequences of the receipt of cash in exchange for Shares pursuant to the Offer may vary depending on the particular circumstances of a shareholder. For federal income tax purposes, a shareholder whose Shares are purchased pursuant to the Offer will realize gain or loss equal to the difference between the adjusted basis of the Shares sold and the amount of cash received therefor. Such gain or loss will be capital gain or loss if the Shares are held as capital assets by the shareholder and will be long-term capital gain or loss if the shareholder's holding period in the Shares for federal income tax purposes is more than one year at the time the Shares are accepted for payment. Long-term capital gain of a non-corporate shareholder is generally subject to a maximum tax rate of 20%. A shareholder's ability to use capital losses to offset ordinary income is limited. The income tax discussion set forth above is included for general information only and may not be applicable to shareholders in special situations such as shareholders who received their Shares upon the exercise of stock options or otherwise as compensation and shareholders who are not United States persons. Shareholders should consult their own tax advisors with respect to the specific tax consequences to them, in their particular circumstances, of the Offer, including the application and effect of federal, state, local, foreign or other tax laws. The information required to be disclosed by Paragraph (d)(1) of Rule 14d-6 of the General Rules and Regulations under the Exchange Act, is contained in the Offer to Purchase and is incorporated herein by reference. MedQuist has provided Royal Philips with MedQuist's shareholder lists and security position listings for the purpose of disseminating the Offer to holders of the Shares. The Offer to Purchase, the related Letter of Transmittal and other relevant materials will be mailed by Royal Philips to record holders of the Shares and will be furnished by Royal Philips to brokers, dealers, banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the shareholder lists or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of the Shares. The Offer to Purchase and the related Letter of Transmittal contain important information that should be read in their entirety before any decision is made with respect to the Offer. Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth below. Copies of the Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other related tender offer materials may be obtained from the Information Agent or the Dealer Manager. Shareholders may also contact their broker, dealer, commercial bank or trust company. Royal Philips will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of Shares pursuant to the Offer (other than the Dealer Manager, the Depositary and the Information Agent as described in the Offer to Purchase). The Information Agent for the Offer is: MORROW & CO., INC. 445 Park Avenue, 5th Floor New York, New York 10022 Banks and Brokerage Firms Call: (800) 662-5200 Shareholders Please Call: (800) 566-9061 The Dealer Manager for the Offer is: Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 (212) 902-1000 (Call Collect) (800) 323-5678 (Call Toll Free) June 1, 2000 EX-99.(D)(1)(A) 9 0009.txt TENDER OFFER AGREEMENT DATED AS OF 05/22/2000 EXHIBIT (d)(1)(A) TENDER OFFER AGREEMENT ---------------------- TENDER OFFER AGREEMENT (hereinafter called this "Agreement"), dated as --------- of May 22, 2000 between, MedQuist Inc., a New Jersey corporation (the "Company"), and Koninklijke Philips Electronics N.V., a corporation organized ------- under the laws of the Netherlands ("Purchaser"). --------- RECITALS WHEREAS, the Boards of Directors of Purchaser and the Company each has determined that it is in the best interests of their respective shareholders for Purchaser to acquire Shares (as defined herein) of the Company upon the terms and subject to the conditions set forth herein; WHEREAS, to induce the Company to enter in the Agreement, the Company has requested, and Purchaser has agreed, to enter into a Governance Agreement (as defined in Section 1.1(b)) and a License Agreement (as defined in Section 2.1(c)), each to become effective at the time Purchaser pays for Shares (as defined in Section 1.1(a)) pursuant to the terms of the Offer (as defined in Section 1.1(a)); and WHEREAS, the Company and Purchaser desire to make certain representations, warranties, covenants and agreements in connection with this Agreement. NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein the parties hereto hereby agree as follows: ARTICLE I The Tender Offer 1.1. Tender Offer. (a) Provided that this Agreement shall not have ------------ been terminated in accordance with Article IV hereof and none of the events set forth in Annex A hereto shall have occurred or be existing, within seven business days of the date hereof, Purchaser will commence a tender offer (the "Offer") for 22,250,327 shares of common stock, no par value, of the Company ----- (the "Shares"), at a price of $51.00 per Share in cash, net to the seller, ------ subject to the conditions set forth in Annex A hereto. Subject to the terms and conditions of the Offer, Purchaser will promptly accept for payment and pay for all Shares validly tendered and not withdrawn that it is obligated to purchase thereunder. The Company's Board of Directors shall recommend acceptance of the Offer to its shareholders in a Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") to be filed with the Securities and Exchange -------------- Commission (the "SEC") upon commencement of the Offer; provided, however, that --- -------- ------- if the Company's Board of Directors determines in good faith, after consultation with its outside counsel, that it is necessary to amend or withdraw its recommendation in order for its directors to comply with their respective fiduciary duties, such amendment or withdrawal shall not constitute a breach of this Agreement. The initial expiration date of the Offer shall be the date twenty business days from and including the date (the "Commencement Date") the Offer Documents (as defined ----------------- in Section 1.1(c) below) are first filed with the Securities and Exchange Commission. Purchaser expressly reserves the right, in its sole discretion, to waive, set forth or change any term and condition of the Offer; provided, that, -------- unless previously approved by the Company in writing, no provision may be set forth or changed which: (i) increases or, except as set forth in the next succeeding sentence, decreases the Tender Offer Condition (as defined in Annex A hereto); (ii) decreases the price per Share to be paid in the Offer; (iii) changes the form of consideration payable in the Offer (other than by adding consideration); (iv) imposes conditions to the Offer in addition to those set forth in Annex A hereto; or (v) amends or modifies any term or condition of the Offer in a manner adverse to the holders of Shares. Without the prior written consent of the Company, Purchaser shall not extend the expiration date of the Offer beyond the initial expiration date of the Offer; provided, that, if on the -------- ---- initially scheduled expiration date of the Offer (or any subsequent expiration date) any of the conditions to the Offer have not been satisfied, Purchaser may in its sole discretion extend from time to time the Offer for up to and including an additional twenty (20) business days in the aggregate after the initial expiration date of the Offer, and may in its sole discretion, in connection with any such extension, amend the terms of the Offer, but only to reduce the Tender Offer Condition to any number of Shares greater than 20,300,320 Shares (the "Reduced Tender Offer Condition"); it being understood that if Purchaser shall accept for payment any Shares validly tendered and not withdrawn pursuant to the Offer, it shall accept for payment all such Shares up to the Tender Offer Condition. The Offer shall further provide that Shares (including Shares issued pursuant to any of the Company's employee or director benefit plans (including the Stock Plans)) may be tendered utilizing a notice of guaranteed delivery, which shall require delivery of the Shares to the depository within three business days (or such longer period as may be permitted under applicable law and agreed to by Purchase and the Company) following acceptance for payment by Purchaser. (b) The Company hereby represents, warrants and agrees (as applicable) that: (i) the Board of Directors of the Company at a meeting duly called and held on May 21, 2000, has unanimously (A) determined that this Agreement and the transactions contemplated hereby are in the best interests of the holders of Shares, (B) approved and adopted this Agreement and the transactions contemplated hereby and (C) resolved to recommend in the Schedule 14D-9 that the holders of Shares accept the Offer and tender their Shares to Purchaser thereunder; (ii) the Board of Directors of the Company has taken all action necessary to render Section 14A:10A-4 of the New Jersey Business Corporation Act ("NJBCA") inapplicable to the Offer; (iii) the Schedule 14D-9 as ----- initially filed with the SEC will set forth the information contained in this Section 1.1(b)(i) and (ii); and (iv) UBS Warburg LLC (the "Financial Advisor") ----------------- has delivered to the Board of Directors of the Company its oral opinion (which opinion shall be confirmed in writing) to the effect that, as of the date of this Agreement, the $51.00 per Share in -2- cash to be received in the Offer (or pursuant to the Shareholder Agreements (as defined in Section 2.1)) by holders of Shares (other than Purchaser and its affiliates) is fair, from a financial point of view, to such holders. The Company has been authorized by the Financial Advisor to permit the inclusion of a copy of such opinion (and a reference thereto in form and substance satisfactory to the Financial Advisor) in the Schedule 14D-9. Subject to the terms and conditions of this Agreement, the Company hereby consents to the inclusion in the Offer Documents of the recommendations of the Board of Directors of the Company described herein. The Company shall promptly take all actions required pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 thereunder in order to fulfill its obligations under the Governance Agreement, dated as of the date hereof, between the Company and Purchaser (the "Governance ---------- Agreement"), relating to appointment of Purchaser's designees to the Company's - --------- Board of Directors and shall provide for inclusion in Purchaser's Schedule TO to be filed with the SEC contemporaneously with the commencement of the Offer such information with respect to the Company and its officers and directors as is required under such Section and Rule in order to fulfil its obligations thereunder. (c) Purchaser agrees, as to the Offer to Purchase and related Letter of Transmittal (which together constitute the "Offer Documents") and the Company --------------- agrees, as to the Schedule 14D-9, that such documents shall, in all material respects, comply as to form with the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules and regulations ------------ thereunder and other applicable laws. Purchaser represents and warrants to the Company as to the Offer Documents, and the Company represents and warrants to Purchaser as to the Schedule 14D-9, that on the date filed with the SEC and on the date first published, sent or given to the Company's shareholders, the Offer Documents and the Schedule 14D-9, as applicable, shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that (i) Purchaser makes no representation with respect to information supplied by the Company for inclusion in the Offer Documents, and (ii) the Company makes no representation with respect to information supplied by Purchaser for inclusion in the Schedule 14D-9. The Company and its counsel, as to the Offer Documents (or any amendment thereto) and Purchaser and its counsel, as to the Schedule 14D-9 (or any amendment thereto), shall be given a reasonable opportunity to review such documents prior to their being filed with the SEC. (d) In connection with the Offer, the Company will instruct its Transfer Agent to furnish promptly to Purchaser a list, as of a recent date, of the record holders of Shares and their addresses, as well as mailing labels containing the names and addresses of all record holders of Shares and lists of security positions of Shares held in stock depositories. The Company will furnish Purchaser with such additional information (including, but not limited to, updated lists of holders of Shares and their addresses, mailing labels and lists of security positions) and such other customary -3- assistance as Purchaser or its agents may reasonably request in communicating the Offer to the record and beneficial holders of Shares. ARTICLE II Representations and Warranties 2.1. Representations and Warranties of the Company. The Company hereby --------------------------------------------- represents and warrants to Purchaser that except as set forth in the corresponding section of the disclosure letter delivered by the Company to Purchaser, dated the date hereof (the "Company Disclosure Letter"): ------------------------- (a) Corporate Organization and Qualification. Each of the Company and ---------------------------------------- its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation and is in good standing as a foreign corporation in each jurisdiction where the properties owned, leased or operated, or the business conducted, by it require such qualification, except for such failure to so qualify or be in such good standing, which, when taken together with all other such failures, is not reasonably likely to have a material adverse effect on the condition (financial or otherwise), business or results of operations of the Company and its subsidiaries taken as a whole (other than any effect arising out of (i) general economic conditions or (ii) economic conditions generally affecting the medical services industry) (a "Company Material Adverse Effect"). Each of the Company ------------------------------- and its subsidiaries has the requisite corporate power and authority to carry on its respective business as they are now being conducted. A complete and correct copy of the Company's Certificate and By-Laws, each as amended to date is available on The Electronic Data Gathering, Analysis and Retrieval system of the SEC ("EDGAR"). The Company's Amended and Restated Certificate of Incorporation, ----- as amended (the Certificate") and By-Laws as so filed on EDGAR as of the date ----------- hereof are in full force and effect. (b) Authorized Capital. The authorized capital stock of the Company ------------------ consists of 60,000,000 Shares, of which 35,452,704 Shares were outstanding on May 19, 2000, and 12,111,975 shares of Preferred Stock, no par value (the "Preferred Shares"), none of which were outstanding on May 22, 2000. All of the ---------------- outstanding Shares have been duly authorized and are validly issued, fully paid and nonassessable. The Company has no Shares or Preferred Shares reserved for issuance, except that, as of May 19, 2000, there were 3,547,439 Shares reserved for issuance pursuant to the outstanding options issued under the MedQuist Inc. Incentive Stock Option Plan for Officers and Key Employees (the "Option Plan"), ----------- the MedQuist Inc. 1996 Employee Stock Purchase Plan and the MedQuist Inc. Board Deferred Stock Plan, the 1992 MRC Plan, the MedQuist Inc. 1998 Stock Option Plan, the MedQuist Inc. Non-Employee Director Plan, and the MRC Special Director Plan (collectively, the "Stock Plans"). The Company has provided Purchaser a ----------- correct and complete list of each outstanding option to purchase Shares under the Stock Plans (each a "Company Option"), including the holder, date of grant, -------------- exercise price, number of Shares subject thereto and expiration date. Each of the outstanding -4- shares of capital stock of each of the Company's subsidiaries is duly authorized, validly issued, fully paid and nonassessable and owned, either directly or indirectly, by the Company free and clear of all liens, pledges, security interests, claims or other encumbrances. Except as set forth above, there are no preemptive rights nor any outstanding subscriptions, options, warrants, rights, convertible securities or other agreements or commitments to which the Company or any of its Subsidiaries is a party of any character relating to the issued or unissued capital stock or other securities of the Company or any of its subsidiaries. Section 2.1(b) sets forth a true and complete list of each Person in which the Company owns, directly or indirectly any equity, membership, partnership, limited liability, voting or similar interest, and the percentage ownership of such Person; no such ownership will require a filing by Purchaser under the HSR Act. The purchase by Purchaser of the Shares pursuant to the Offer will not create or trigger any obligation of the Company to issue, transfer or sell any Shares pursuant to any Benefit Plan (as defined in Section 3.1(d)). (c) Corporate Authority. The Company has the requisite corporate ------------------- power and authority and has taken all corporate action necessary in order to execute and deliver this Agreement, the Governance Agreement and the Licensing Agreement, dated the date hereof between the Company and Licensor Affiliate (as defined below) (the "License Agreement") and to consummate the transactions ----------------- contemplated hereby and thereby. Each of this Agreement, the Governance Agreement and the License Agreement is a valid and binding agreement of the Company enforceable against the Company in accordance with its terms, subject, in each case, to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (d) Governmental Filings; No Violations. (i) Other than the filings ----------------------------------- required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") and the Exchange Act (the "Regulatory Filings"), no notices, reports --- --- ------------------ or other filings are required to be made by the Company with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by the Company from, any governmental or regulatory authority, agency, commission or other entity, domestic or foreign ("Governmental Entity"), in ------------------- connection with the execution and delivery of any of this Agreement, the Governance Agreement and the License Agreement by the Company and the consummation by the Company of the transactions contemplated hereby and thereby. (ii) The execution and delivery of each of this Agreement, the Governance Agreement and the License Agreement by the Company do not, and the consummation by the Company of the transactions contemplated by each of this Agreement, the Governance Agreement and the License Agreement will not, constitute or result in (i) a breach or violation of, or a default under, the Certificate or By-Laws of the Company or the comparable governing instruments of any of its subsidiaries, (ii) a breach or violation of, a default under or the triggering of any material payment or other material obligations pursuant to, any of the Company's existing Benefit Plans or any grant or -5- award made under any of the foregoing, (iii) a breach or violation of, or a default under, the acceleration of or the creation of a lien, pledge, security interest or other encumbrance on assets (with or without the giving of notice or the lapse of time) pursuant to, any provision of any agreement, lease, contract, note, mortgage, indenture, arrangement or other obligation ("Contracts") of the --------- Company or any of its subsidiaries or any law, rule, ordinance or regulation or judgment, decree, order, award or governmental or non-governmental permit or license to which the Company or any of its subsidiaries is subject or (iv) any change in the rights or obligations of any party under any of the Contracts, except, in the case of clauses (iii) or (iv) above, for such breaches, violations, defaults, accelerations or changes that are not reasonably likely, individually or in the aggregate, to have a Company Material Adverse Effect or that could not prevent, materially delay or materially burden the transactions contemplated by this Agreement. The Company will use its commercially reasonable efforts to identify and obtain each consent under any Contract (or series of related Contracts with related parties) to which the Company is a party that involves either the payment by the Company and its subsidiaries or receipt by the Company and its subsidiaries of more than $1,000,000 annually, or is otherwise material to the operation of the Company and its subsidiaries taken as a whole. (e) Company Reports; Financial Statements. Each registration ------------------------------------- statement, schedule, report, proxy statement or information statement prepared by it since December 31, 1999 (the "Audit Date"), including, without limitation, ---------- (i) the Company's Annual Report on Form 10-K for the year ended December 31, 1999 and (ii) the Company's Quarterly Reports on Form 10-Q for the period ended March 31, 2000, each in the form (including exhibits and any amendments thereto) filed with the SEC (collectively, the "Company Reports") is available on Edgar. --------------- As of their respective dates, the Company Reports did not, and any Company Reports filed with the SEC subsequent to the date hereof will not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. Each of the consolidated balance sheets included in or incorporated by reference into the Company Reports (including the related notes and schedules) fairly presents in all material respects the consolidated financial position of the Company and its subsidiaries as of its date and each of the consolidated statements of income, cash flows and changes in shareholders' equity included in or incorporated by reference into the Company Reports (including any related notes and schedules) fairly presents in all material respects the results of operations, cash flows and changes in shareholders' equity, as the case may be, of the Company and its subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments which will not be material in amount or effect), in each case in accordance with generally accepted accounting principles ("GAAP") consistently applied during the periods ---- involved, except as may be noted therein. (f) Absence of Certain Changes. Except as disclosed in the Company -------------------------- Reports filed with the SEC prior to the date hereof, since December 31, 1999, the Company and its subsidiaries have conducted their respective businesses only in, and -6- have not engaged in any material transaction other than according to, the ordinary and usual course of such businesses and there has not been (i) any Company Material Adverse Effect or any event or occurrence or combination of the foregoing which is reasonably likely to result in a Company Material Adverse Effect; (ii) any declaration, setting aside or payment of any dividend or other distribution with respect to the capital stock of the Company; (iii) any change by the Company in accounting principles, practices or methods except as required by applicable law or GAAP; (iv) any damage, destruction or other casualty loss with respect to any material asset or property owned, leased or otherwise used by the Company or any of its subsidiaries, whether or not covered by insurance, which is reasonably likely to have a Company Material Adverse Effect; (v) any amendment of any of the Compensation and Benefit Plans other than in the ordinary course of business consistent with past practice; (vi) any granting by the Company or any of its subsidiaries to any executive officer of the Company or any of its subsidiaries of any increase in compensation, except for increases in the ordinary course of business consistent with past practice; and (vii) any granting by the Company or any of its subsidiaries to any such executive officer any increase in severance or termination pay. (g) Litigation and Liabilities. Except as disclosed in the Company -------------------------- Reports filed with the SEC prior to the date hereof, there are no civil, criminal, administrative or investigative actions, suits, claims, hearings or proceedings pending or, to the knowledge of the Company, threatened against the Company or any of its subsidiaries, other than those that are not reasonably likely, individually or in the aggregate, to have a Company Material Adverse Effect. Except for those liabilities and obligations that are fully reflected or reserved against on the consolidated balance sheet of the Company included in its Annual Report on Form 10-K for the year ended December 31, 1999, and for obligations and liabilities incurred in the ordinary course of business consistent with past practice since the Audit Date, neither the Company nor any of its subsidiaries has incurred any obligation or liabilities of any nature whatsoever, whether absolute, accrued, contingent, known, unknown or otherwise, and whether or not required to be disclosed on a balance sheet prepared in accordance with GAAP, or any other facts or circumstance of which the Company has knowledge that could reasonably result in any claims against, or obligations or liabilities of, the Company or any of its Affiliates, except for those that are not reasonably likely, individually or in the aggregate, to have a Company Material Adverse Effect or prevent, materially delay or materially impair the ability of the Company to consummate the transactions contemplated by this Agreement. As used in this Agreement, the term "knowledge" or any similar formulation of knowledge, including "known by it", when used with respect to the Company, shall mean the actual knowledge (after a reasonable investigation) of the persons set forth on Schedule 2.1(g) of the Company Disclosure Letter. (h) Employee Benefits. ----------------- (i) The Company Reports accurately describe all bonus, deferred compensation, pension, retirement, profit-sharing, thrift, savings, employee -7- stock ownership, stock bonus, stock purchase, restricted stock and stock option plans, all employment or severance contracts, other material employee benefit plans and any applicable "change of control" or similar provisions in any plan, contract or arrangement which cover employees or former employees of the Company and its subsidiaries (the "Compensation and Benefit Plans"). The Compensation ------------------------------ and Benefit Plans and all other benefit plans, contracts or arrangements (regardless of whether they are funded or unfunded or foreign or domestic) covering employees or former employees of the Company and its subsidiaries (the "Employees"), including, but not limited to, "employee benefit plans" within the --------- meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") are listed on Schedule 2.1(h) of the Company Disclosure ----- Letter. True and complete copies of all Compensation and Benefit Plans and such other benefit plans, contracts or arrangements, including, but not limited to, any trust instruments and/or insurance contracts, if any, forming a part of any such plans and agreements, and all amendments thereto have been made available to Purchaser. (ii) All employee benefit plans, other than "multiemployer plans" within the meaning of Sections 3(37) or 4001(a)(3) of ERISA, covering Employees (the "Plans"), to the extent subject to ERISA, are in substantial compliance ----- with ERISA. Each Plan which is an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA ("Pension Plan") and which is intended to be ------------ qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), has received a favorable determination letter from the Internal ---- Revenue Service, and the Company is not aware of any circumstances likely to result in revocation of any such favorable determination letter. There is no material pending or, to the knowledge of the Company, threatened litigation relating to the Plans. Neither the Company nor any Subsidiary has engaged in a transaction with respect to any Plan that, assuming the taxable period of such transaction expired as of the date hereof, could subject the Company or any of its Subsidiaries to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA in an amount which is reasonably likely, individually or in the aggregate, to have a Company Material Adverse Effect. (iii) No liability under Subtitle C or D of Title IV of ERISA has been or is expected to be incurred by the Company or any Subsidiary with respect to any ongoing, frozen or terminated "single-employer plan", within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them, or the single-employer plan of any entity which is considered one employer with the Company under Section 4001 of ERISA or Section 414 of the Code (an "ERISA Affiliate"). The Company and the Subsidiaries have not incurred and do --------------- not expect to incur any withdrawal liability with respect to a multiemployer plan under Subtitle E of Title IV of ERISA (regardless of whether based on contributions of an ERISA Affiliate). No notice of a "reportable event", within the meaning of Section 4043 of ERISA for which the 30-day reporting requirement has not been waived, has been required to be filed for any Pension Plan or by any ERISA Affiliate within the 12-month period ending on the date hereof. -8- (iv) All contributions required to be made under the terms of any Plan have been timely made or have been reflected on the Balance Sheet. Neither any Pension Plan nor any single-employer plan of an ERISA Affiliate has an "accumulated funding deficiency" (whether or not waived) within the meaning of Section 412 of the Code or Section 302 of ERISA. Neither the Company nor its Subsidiaries has provided, or is required to provide, security to any Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code. (v) Under each Pension Plan which is a single-employer plan, as of the last day of the most recent plan year ended prior to the date hereof, the actuarially determined present value of all "benefit liabilities", within the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the actuarial assumptions contained in the Plan's most recent actuarial valuation), did not exceed the then current value of the assets of such Plan, and there has been no material change in the financial condition of such Plan since the last day of the most recent Plan Year. The withdrawal liability of the Company and the Subsidiaries under each Benefit Plan which is a multiemployer plan to which the Company, the Subsidiaries or an ERISA Affiliate has contributed during the preceding 12 months, determined as if a "complete withdrawal", within the meaning of Section 4203 of ERISA, had occurred as of the date hereof, does not exceed $100,000. (vi) Neither the Company nor the Subsidiaries have any obligations for retiree health and life benefits under any Plan, except as required under part 6 of Title I of ERISA. The Company or its subsidiaries may amend or terminate any such Plan at any time without incurring any liability thereunder. (vii) The consummation of the transactions contemplated by this Agreement will not (x) entitle any employees of the Company or any subsidiaries to severance pay, (y) accelerate the time of payment or vesting or trigger any payment or funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or trigger any other material obligation pursuant to, any of the Compensation and Benefit Plans or (z) result in any payments under any of the Compensation and Benefit Plans which would not be deductible under Section 162(m) or Section 280G of the Code. (viii) All Compensation and Benefit Plans covering foreign Employees comply in all material respects with applicable local law. The Company and the Subsidiaries have no material unfunded liabilities with respect to any Pension Plan which covers foreign Employees. (i) Brokers and Finders. Neither the Company nor any of its officers, ------------------- directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finders' fees in connection with the transactions contemplated herein, except that the Company has employed the Financial Advisor, the -9- arrangements with which have been disclosed in writing to Purchaser prior to the date hereof. (j) Takeover Statutes. No "fair price", "moratorium", "control share ----------------- acquisition", "interested stockholder" or other similar antitakeover statute, regulation or provision contained in the NJBCA (including, without limitation, Section 14A:10A-4 of the NJBCA) or the Company's Certificate or Bylaws (each a "Takeover Statute") is or, following Purchaser's purchase of Shares pursuant to ---------------- the Offer, will be, applicable to the Company, the Shares, the Offer or any transactions contemplated by this Agreement, the Governance Agreement, the License Agreement or the agreements set forth in Schedule A-3 hereto (collectively, the "Shareholder Agreements"). Without limiting the generality of ---------------------- the foregoing, the Board of Directors of the Company has taken all action under the NJBCA so that neither Purchaser nor any affiliate of Purchaser will be prohibited from, or require any subsequent approval or consent in connection with, entering into or consummating a "business combination" with the Company (after purchase of the Shares hereunder pursuant to the Offer) as an "interested stockholder" (in each case, as such terms are defined in Section 14A:10A-4 of the NJBCA) as a result of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. (k) Environmental Matters. Except as disclosed in the Company Reports --------------------- filed with the SEC prior to the date hereof and except for such matters that are not reasonably likely, individually or in the aggregate, to have a Company Material Adverse Effect, to the knowledge of the Company, (i) the Company and its subsidiaries have complied with all applicable Environmental Laws; (ii) the properties presently or formerly owned or operated by the Company or its subsidiaries (the "Properties") do not contain any Hazardous Substance (as ---------- hereinafter defined) other than as permitted under applicable Environmental Law; (iii) neither the Company nor any of its subsidiaries has received any notices, demand letters or request for information from any Governmental Entity or any third party that the Company may be in violation of, or liable under, any Environmental Law and none of the Company, its subsidiaries or the Properties are subject to any court order, administrative order, decree or indemnity to any third party relating to any Environmental Law and (iv) no Hazardous Substance has been disposed of, transferred, released or transported from any of the Properties during the time such Property was owned or operated by the Company or one of its subsidiaries, in a manner that could result in liability under applicable Environmental Law. As used herein, "Environmental Law" means any law, regulation, order, ----------------- decree, common law, opinion or agency requirement relating to the protection of the environment or human health and safety and "Hazardous Substance" means any ------------------- substance in any concentration that is listed, classified or regulated pursuant to any Environmental Law including petroleum products, asbestos, lead products and polychlorinated biphenyls. -10- (l) Taxes. The Company and its subsidiaries (i) have prepared in good ----- faith and duly and timely filed (taking into account any extension of time within which to file) all Tax Returns (as defined below) required to be filed by any of them and all such filed Tax Returns are complete and accurate in all material respects; (ii) have paid all Taxes (as defined below) that are required to be paid or that have been withheld from amounts owing to any employee, creditor or third party and are due and payable, except with respect to matters contested in good faith; and (iii) have not waived any statute of limitations with respect to Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. As of the date hereof, no audits, examinations, investigations or other proceedings against the Company or any of its subsidiaries in respect of Taxes or Tax matters are pending, and no such audits, examinations, investigations or proceedings are, to the knowledge of the Company or any subsidiary, threatened. No material issues have been raised by any Governmental Entity concerning the Tax liability of the Company or any of its subsidiaries. The Company has made available to Purchaser true and correct copies of the United States federal income Tax Returns filed by the Company and each of its subsidiaries for all Taxable years ending on or before December 31, 1998. The Company (or, to the extent applicable, its relevant subsidiary) has paid all Taxes shown as due on the Tax Returns mentioned in clause (i) of the first sentence of this paragraph, and the Company has made adequate provision or set up an adequate accrual or reserve for the payment of all other material Taxes owing by the Company and its subsidiaries (which provision, accrual or reserve is reflected in the Company Reports). As used in this Agreement, (i) the term "Tax" (including, with --- correlative meaning, the terms "Taxes" and "Taxable") includes all federal, ----- ------- state, local and foreign income, profits, franchise, gross receipts, environmental, customs duty, capital stock, severance, stamp, payroll, sales, employment, unemployment, disability, use, property, withholding, excise, production, value added, occupancy and other taxes, duties or assessments of any nature whatsoever, together with all interest, penalties and additions imposed with respect to such amounts and any interest in respect of such penalties and additions, and (ii) the term "Tax Return" includes all returns and reports ---------- (including elections, declarations, disclosures, schedules, estimates and information returns) required to be supplied to a Governmental Entity relating to Taxes. (m) Compliance with Laws. The Company and its subsidiaries hold all -------------------- permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities (the "Company Permits") required in order to own their --------------- respective assets and to conduct their respective businesses as currently conducted, except where the failure to hold such Company Permits is not reasonably likely, individually or in the aggregate with all other such failures, to have a Company Material Adverse Effect. The Company and its subsidiaries are in compliance with the terms of the Company Permits and the operations of the Company (including, without limitation, the obtaining of any Company Permits) and its subsidiaries have been conducted in compliance with all applicable laws, ordinances, regulations, rules, judgments, orders, injunctions, decrees, arbitration awards, agency requirements, writs, franchises, variances, exemptions, approvals, licenses or -11- permits ("Laws") of any Governmental Entity, except where the failure to comply ---- or the violation is not reasonably likely, individually or in the aggregate with all other such failures, to have a Company Material Adverse Effect. Except as set forth in the Company Reports filed prior to the date hereof, no change is required in the Company's or any of its subsidiaries' processes, properties or procedures in connection with any Laws, except for such changes that are not reasonably likely, individually or in the aggregate, to have a Company Material Adverse Effect. (n) Material Contracts. Except as identified in the Company Reports, ------------------ neither the Company nor any of its subsidiaries is party to, nor is the Company or any of its subsidiaries (or their respective assets) bound by, any Contract that, individually or in the aggregate, is material to the Company and its subsidiaries taken as a whole. Except as identified in the Company Reports, there are no (i) Contracts between the Company or any subsidiary, on the one hand, and any current or former director, officer, employee or 5% or greater shareholder of the Company or any of their affiliates or family members, on the other hand, or (ii) Contracts to which the Company or any of its subsidiaries is a party which contain any provision or covenant that purport to limit in any respect the ability of the Company or any of its subsidiaries or affiliates to (A) sell any products or services of or to another person, (B) engage in any line of business, (C) compete with or to obtain products or services from any person or (D) receive or purchase products or services from any person. All Contracts to which the Company or any of the subsidiaries is a party or by which any of their respective assets is bound, and any Contract between third parties that has been assigned to the Company or any of its subsidiaries, have been legally assigned, if applicable, and to the knowledge of the Company, are valid and binding, in full force and effect in accordance with their terms and enforceable against the parties (or, if applicable, assignees) thereto in accordance with their respective terms (subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles), except for such failures to be so assigned, valid and binding, in full force and effect or enforceable that are not reasonably likely, individually or in the aggregate, to have a Company Material Adverse Effect. There is not under any such Contract any existing default, or event, which after notice or lapse of time, or both, would constitute a default, by the Company or any of its subsidiaries, or to the Company's knowledge, any other party, except to the extent any such defaults or events are not reasonably likely, individually or in the aggregate, to have a Company Material Adverse Effect. (o) Labor Relations. There is no work stoppage involving the --------------- Company or any of its subsidiaries pending or, to the knowledge of the Company, threatened and neither the Company nor any of its subsidiaries is involved in, or to the knowledge of the Company, threatened with, or affected by any labor dispute, arbitration, lawsuit or administrative proceeding that is reasonably likely, individually or in the aggregate, to have a Company Material Adverse Effect. Except as disclosed in the Company Reports, none of the employees of the Company or of any of its subsidiaries is represented by any labor union or any collective bargaining organization and, no labor -12- union has publicly announced that it is attempting to organize employees of the Company or any of its subsidiaries. There is no pending charge or complaint against the Company or any of its subsidiaries by the National Labor Relations Board or any comparable state agency. (p) Intellectual Property. --------------------- (i) The Company and its subsidiaries own (free and clear of any and all liens, pledges, security interests, claims or other encumbrances), or are licensed or otherwise possess sufficient legally enforceable rights to use as currently used by the Company, all patents, trademarks, trade names, service marks, brand marks, brand names, copyrights, and any applications therefor, technology, know-how, computer software programs or applications, databases, industrial designs and tangible or intangible proprietary information or materials that are currently used (or, with respect to trademarks, trade names, brand marks, brand names and service marks, have been used within the last five years) in its and its subsidiaries' businesses (collectively, "Intellectual Property Rights"), except for any such failures to own, be ---------------------------- licensed or possess that are not reasonably likely, individually or in the aggregate, to have a Company Material Adverse Effect. (ii) Except as disclosed in the Company Reports filed prior to the date hereof, and except for such matters that are not reasonably likely, individually or in the aggregate, to have a Company Material Adverse Effect, (x) the use of the Intellectual Property Rights by the Company or its subsidiaries does not conflict with, infringe upon, violate or interfere with or constitute a misappropriation of any right, title, interest or goodwill, including, without limitation, any intellectual property right, patent, trademark, trade name, service mark, brand mark, brand name, copyright, technology, know-how, computer software program or application, database or industrial design of any other Person and (y) there have been no claims made and neither the Company nor any of its subsidiaries has received notice of any claim or otherwise knows that any Intellectual Property Right is invalid, conflicts with the asserted right of any other Person, or has not been used or enforced or has failed to be used or enforced in a manner that would result in the abandonment, cancellation or unenforceability of any Intellectual Property Right of the Company or any of its subsidiaries. (q) Insurance. All material fire and casualty, general liability, --------- directors' and officers' and errors and omissions policies maintained by the Company or any of its subsidiaries are with reputable insurance carriers and provide insurance coverage customary and adequate for the operation of their respective businesses, except for any such failures to maintain insurance policies that are not reasonably likely to, individually or in the aggregate, have a Company Material Adverse Effect. The Company and its subsidiaries have given notice to insurance carriers of all material claims that may be covered and the Company and its subsidiaries have not received, with respect to any such claims, any refusal of coverage or any notice that a defense will be afforded with reservation of rights or any notice of cancellation or any other indication -13- that any insurance policy is no longer in full force and effect or will not be renewed or that the issuer of any policy is not willing or able to perform its obligations thereunder. 2.2. Representations and Warranties of Purchaser. Purchaser represents ------------------------------------------- and warrants to the Company that: (a) Corporate Organization and Qualification. Purchaser is a ---------------------------------------- corporation duly organized, validly existing and in good standing under the laws of The Netherlands and is in good standing as a foreign corporation in each jurisdiction where the properties owned, leased or operated, or the business conducted by it, require such qualification except for such failure to so qualify or to be in such good standing, which, when taken together with all other such failures, is not reasonably likely to prevent, materially delay or materially burden the transactions contemplated by this Agreement, the Governance Agreement or the License Agreement. (b) Corporate Authority. Purchaser has the requisite corporate power ------------------- and authority and has taken all corporate action necessary in order to execute and deliver each of this Agreement and the Governance Agreement and to consummate the transactions contemplated hereby and thereby. This Agreement is a valid and binding agreement of Purchaser enforceable against Purchaser in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. The affiliate of Purchaser that is the signatory to the License Agreement (the "Licensor Affiliate") has the requisite corporate power and authority and has ------------------ taken all corporate action necessary in order to execute and deliver the License Agreement and to consummate the transactions contemplated thereby. The License Agreement is a valid and binding agreement of Licensor Affiliate enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (c) Governmental Filings; No Violations. (i) Other than the ----------------------------------- Regulatory Filings, no notices, reports or other filings are required to be made by Purchaser with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by Purchaser from, any Governmental Entity in connection with the execution and delivery of either of this Agreement or the Governance Agreement by Purchaser or the execution and delivery of the License Agreement by the Licensor Affiliate and the consummation of the transactions contemplated hereby and thereby by Purchaser and Licensor Affiliate, the failure to make or obtain any or all of which is reasonably likely to prevent, materially delay or materially burden the transactions contemplated by this Agreement. (ii) The execution and delivery of each of this Agreement and the Governance Agreement by Purchaser and the License Agreement by Licensor Affiliate do not, and the consummation of the transactions contemplated hereby and -14- thereby by Purchaser will not, constitute or result in (i) a breach or violation of, or a default under, the Articles of Incorporation of Purchaser or the Articles of Incorporation of Licensor Affiliate or (ii) a breach or violation of, a default under, the acceleration of or the creation of a lien, pledge, security interest or other encumbrance on assets (with or without the giving of notice or the lapse of time) pursuant to, any provision of any Contract of Purchaser or Licensor Affiliate, as applicable, or any law, ordinance, rule or regulation or judgment, decree, order, award or governmental or non-governmental permit or license to which Purchaser or Licensor Affiliate, as applicable, is subject, except, in the case of clause (ii) above, for such breaches, violations, defaults or accelerations that, alone or in the aggregate, are not reasonably likely to prevent or materially delay the transactions contemplated by this Agreement. (d) Funds. Purchaser has and will have upon acceptance for purchase ----- of the Shares pursuant to the Offer the funds necessary to consummate the Offer. (e) Brokers and Finders. Neither Purchaser nor any of its officers, ------------------- directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finders' fees in connection with the transactions contemplated herein, except that the Company has employed Goldman, Sachs & Co. as its financial advisor in connection with the transactions contemplated by this Agreement. ARTICLE III Covenants 3.1. Interim Operations of the Company. The Company covenants and --------------------------------- agrees that, prior to the earlier of the purchase of the Shares pursuant to the Offer or the termination of this Agreement in accordance with its terms (unless Purchaser shall otherwise agree in writing and except as otherwise expressly contemplated by this Agreement): (a) the business of the Company and its subsidiaries shall be conducted only in the ordinary and usual course and, to the extent consistent therewith, each of the Company and its subsidiaries shall use its commercially reasonable best efforts to preserve its business organization intact and maintain its existing relations with customers, suppliers, employees, creditors and business associates; (b) the Company shall not (i) sell or pledge or agree to sell or pledge any stock owned by it in any of its subsidiaries; (ii) amend its Certificate or By-Laws; (iii) split, combine or reclassify the outstanding Shares; or (iv) declare, set aside or pay any dividend payable in cash, stock or property with respect to the Shares; (c) neither the Company nor any of its subsidiaries shall (i) issue, sell, pledge, dispose of or encumber any additional shares of, or securities convertible or exchangeable for, or options, warrants, calls, commitments or rights of any -15- kind to acquire, any shares of its capital stock of any class of the Company or its subsidiaries or any other property or assets (other than, in the case of the Company, (x) Shares issuable pursuant to options outstanding on the date hereof under the Stock Plans and (y) options to be granted pursuant to the terms of Section 3.12 hereof); (ii) transfer, lease, license, guarantee, sell, mortgage, pledge, dispose of or encumber any assets or incur or modify any indebtedness or other liability other than in the ordinary and usual course of business; (iii) acquire directly or indirectly by redemption or otherwise any shares of the capital stock of the Company; (iv) make or authorize capital expenditures other than in the ordinary and usual course of business and in amounts not exceeding those contemplated by the Company's current capital expenditure budget provided to Purchaser; or (v) make or authorize any acquisition of, or investment in, assets or stock of any other person or entity other than the acquisition of, or investment in, any entity listed on Schedule 3.1(c) of the Company Disclosure Schedule involving amounts not in excess of $10,000,000 individually or $25,000,000 in the aggregate; (d) other than the Employment Agreements, neither the Company nor any of its subsidiaries shall grant any severance or termination pay to, or enter into any employment or severance agreement with, any director or officer of the Company or such subsidiaries; and, other than the options to be granted pursuant to the terms of Section 3.12 hereof, neither the Company nor any of its subsidiaries shall establish, adopt, enter into, make any new grants or awards under or amend, any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, employee stock ownership, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any directors, officers or employees (the "Benefit Plans"); ------------- (e) neither the Company nor any of its subsidiaries shall (i) settle or compromise any claims or litigation (including any claims for Taxes made by a Governmental Entity) in excess of $1,000,000, (ii) modify, amend or terminate any of its material Contracts or waive, release or assign any material rights or claims, (iii) cancel or forgive any indebtedness owed to the Company or any of its subsidiaries by any officer or director of the Company or by any of its subsidiaries, or (iv) cancel or forgive any other indebtedness owed to the Company or any of its subsidiaries other than in the ordinary and usual course of business; (f) neither the Company nor any of its subsidiaries shall make any Tax Election for a Tax Return or permit any insurance policy naming it as a beneficiary or a loss payable payee to be canceled or terminated without notice to Purchaser, in each case except in the ordinary and usual course of business; -16- (g) neither the Company nor any of its subsidiaries shall waive, release or fail to use commercially reasonable efforts to enforce any of its rights under any confidentiality agreement, standstill agreement or any similar agreement to which it is a party, unless the Board of Directors of the Company determines in good faith, after consultation with its outside counsel, that it is necessary to do so in order for its directors to comply with their respective fiduciary duties; (h) neither the Company nor any of its subsidiaries shall enter into any material contract or agreement; (i) neither the Company nor any of its subsidiaries shall, except as specifically permitted in Section 3.2, take or fail to take any action that is reasonably likely to result in any failure of the Offer, or is reasonably likely to make any representation or warranty of the Company contained herein inaccurate if qualified by "Company Material Adverse Effect" or inaccurate in any material respect if not so qualified at, or as of any time prior to, Purchaser's purchase of Shares pursuant to the Offer; and (j) neither the Company nor any of its subsidiaries will authorize or enter into an agreement to do any of the foregoing. 3.2. Acquisition Proposals. The Company agrees that neither the --------------------- Company nor any of its subsidiaries nor any of the respective officers and directors of the Company or its subsidiaries shall, and that it shall direct and use its best efforts to cause its employees, agents and representatives (including, without limitation, any investment banker, attorney or accountant retained by the Company or any of its subsidiaries) not to, initiate, solicit or encourage, directly or indirectly, any inquiries or the making of any proposal or offer (including, without limitation, any proposal or offer to shareholders of the Company) with respect to a merger, consolidation, share exchange or similar transaction involving, or any purchase of all or 15% or more of the assets or the equity securities of, the Company or any of its subsidiaries (any such proposal or offer being hereinafter referred to as an "Acquisition ----------- Proposal") (it being understood that the initial press release relating to this - -------- Agreement and the transactions contemplated hereby shall not be deemed an initiation, solicitation or encouragement of an Acquisition Proposal.) The Company further agrees that neither it nor any of its subsidiaries nor any of the officers and directors of it or its subsidiaries, shall, and that it shall direct and use its best efforts to cause its employees, agents and representatives (including, without limitation, any investment banker, attorney or accountant retained by it or any of its subsidiaries) not to, directly or indirectly, engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person relating to an Acquisition Proposal, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal; provided, however, that nothing contained in -------- ------- this Agreement shall prevent the Company or its Board of Directors from (A) complying with Rules 14d-9 and 14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal; (B) providing information in response to a request therefor by a Person who has made an -17- unsolicited bona fide written Acquisition Proposal if the Board of Directors obtains from the Person so requesting such information an executed confidentiality agreement containing material terms no more favorable to a third-party than those contained in the Confidentiality Agreement (as defined in Section 3.4); (C) engaging in any negotiations or discussions with any Person who has made an unsolicited bona fide written Acquisition Proposal; or (D) recommending such an Acquisition Proposal to the shareholders of the Company, if and only to the extent that, in each such case referred to in clause (B), (C) or (D) above, the Board of Directors of the Company determines (i) in good faith, after consultation with outside counsel, that such action is necessary in order for its directors to comply with their respective fiduciary duties under applicable law, (ii) in good faith, that such Acquisition Proposal, if accepted, is reasonably likely to be consummated, taking into account appropriate legal, financial and regulatory aspects of the proposal and the Person making the proposal and (iii) in good faith, after consultation with an investment banking firm of national standing, that such Acquisition Proposal is reasonably likely, if consummated, to result in a transaction more favorable to the Company's shareholders from a financial point of view than the transaction contemplated by this Agreement (any such more favorable Acquisition Proposal being referred to in this Agreement as a "Superior Proposal"). The Company will immediately cease ----------------- and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. The Company will take the necessary steps to inform the individuals or entities referred to in the first sentence hereof of the obligations undertaken in this Section 3.2. The Company will notify Purchaser immediately if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with the Company or any of its representatives. The Company will further identify the offeror and furnish to Purchaser a copy of any such inquiry or proposal, if it is in writing, or shall inform Purchaser of the material terms of any such inquiry or proposal, if it is oral, and shall promptly advise Purchaser of any material development relating to such inquiry or proposal. The Company also will promptly request each person which has heretofore executed a confidentiality agreement in connection with its consideration of acquiring the Company to return all confidential information heretofore furnished to such person by or on behalf of the Company. 3.3. Filings; Other Action. Subject to the terms and conditions herein --------------------- provided, the Company and Purchaser shall: (a) promptly make their respective filings and thereafter make any other required submissions under the HSR Act with respect to the Offer and the transactions contemplated by this Agreement, the License Agreement, the Governance Agreement and the Shareholder Agreements; and (b) use all reasonable efforts to promptly take, or cause to be taken, all other action and do, or cause to be done, all other things necessary, proper or appropriate under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, the License Agreement, the Governance Agreement and the Shareholder Agreements as soon as practicable; provided, however, that nothing in this Section 3.3 shall require, -------- ------- or be construed to require, Purchaser to proffer to, or agree to, sell or hold separate and agree to sell, before or after the purchase of Shares pursuant to the Offer, any assets, businesses, -18- or interest in any assets or businesses of Purchaser, the Company or any of their respective affiliates (or to consent to any sale, or agreement to sell, by the Company of any of its assets or businesses) or to agree to any material changes or restriction in the operations of any such assets or businesses. Subject to applicable laws relating to the exchange of information, Purchaser and the Company shall have the right to review in advance, and to the extent practicable each will consult the other on, all the information relating to Purchaser or the Company, as the case may be, and any of their respective subsidiaries, that appear in any filing made with, or written materials submitted to, any third party and/or any Governmental Entity in connection with the Offer and the other transactions contemplated by this Agreement, the License Agreement, the Governance Agreement and the Shareholder Agreements. In exercising the foregoing right, each of the Company and Purchaser shall act reasonably and as promptly as practicable. 3.4. Access. Upon reasonable prior notice, the Company shall (and ------ shall cause each of its subsidiaries to) afford Purchaser's officers, employees, counsel, accountants and other authorized representatives ("Representatives") --------------- access, during normal business hours throughout the period prior to the purchase of the Shares pursuant to the Offer, to its properties, books, Contracts and records and, during such period, the Company shall (and shall cause each of its subsidiaries to) furnish promptly to Purchaser all information concerning its business, properties and personnel as Purchaser or its Representatives may reasonably request, provided that no investigation pursuant to this Section 3.4 shall affect or be deemed to modify any representation or warranty made by the Company and provided, further, that the foregoing shall not require the Company -------- ------- to permit any inspection, or to disclose any information, which in the reasonable judgment of the Company would result in the disclosure of any trade secrets of third parties or violate any obligation of the Company with respect to confidentiality if the Company shall have used commercially reasonable efforts to obtain the consent of such third party to such inspection or disclosure. All requests for information made pursuant to this Section 3.4 shall be directed to an executive officer of the Company or such person as may be designated by any such officer. Purchaser will not, and will cause its Representatives not to, use any information obtained pursuant to this Section 3.4 for any purpose unrelated to the consummation of the transactions contemplated by this Agreement and will hold such information subject to the Confidentiality Agreement dated April 17, 2000 (the "Confidentiality --------------- Agreement"), which the parties confirm shall remain in full force and effect in - --------- accordance with its terms. 3.5. Notification of Certain Matters. Upon the Company having ------------------------------- knowledge thereof, the Company shall give prompt notice to Purchaser of: (a) any notice of, or other communication relating to, a default or event that, with notice or lapse of time or both, would become a default, received by the Company or any of its subsidiaries subsequent to the date of this Agreement and prior to the purchase of the Shares pursuant to the Offer, under any material Contract to which the Company or any of its subsidiaries is a party or is subject; (b) any Company Material Adverse Effect or any occurrence or event which is reasonably likely to result in a Company Material Adverse Effect; and (c) the occurrence or non-occurrence of any fact or event which is reasonably likely (A) to -19- cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date hereof until the time Shares are purchased pursuant to the terms of the Offer or (B) to cause any covenant, condition or agreement under this Agreement not to be complied with or satisfied in any material respect. Each of the Company and Purchaser shall give prompt notice to the other party of any notice or other communication from any third party alleging that the consent of such third party is or may be required in connection with the transactions contemplated by this Agreement. 3.6. Publicity. Any press release or written public communication --------- with respect to this Agreement and the transactions contemplated hereby shall not be issued or published unless approved by each of Purchaser and the Company, such approval not to be unreasonably withheld or delayed; provided, however, -------- ------- that each of Purchaser and the Company may make disclosures required by applicable Law or any securities exchange whether domestic or foreign) so long as the other shall be given a reasonable opportunity to comment thereon. 3.7. Benefits. Purchaser agrees that, during the period commencing on -------- the date Shares are purchased pursuant to the Offer and ending on the first anniversary thereof, the employees of the Company will continue to be provided with employee benefit plans which in the aggregate are substantially comparable to those currently provided by the Company to such employees, provided that employees covered by collective bargaining agreements need not be provided such benefits. Without limiting the generality of the foregoing, Purchaser will cause the Company to honor without modification all employee (or former employee) benefit obligations, including severance obligations, accrued as of the time Purchaser purchases Shares pursuant to the term of the Offer (it being understood that any severance obligations provided to an employee pursuant to an employment agreement between the Company and such employee shall supersede any other severance obligations to which the employee would otherwise be entitled). 3.8. Indemnification; Directors' and Officers' Insurance. (a) From --------------------------------------------------- and after the date on which Shares are purchased pursuant to the Offer, Purchaser agrees that it will cause the Company to indemnify and hold harmless each present and former director and officer of the Company, determined as of such date (the "Indemnified Parties"), against any costs or expenses (including ----------- ------- reasonable attorneys' fees), judgments, fines, losses, claims, damages or liabilities (collectively, "Costs") incurred in connection with any claim, ----- action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or prior to the date on which Shares are purchased pursuant to the Offer, whether asserted or claimed prior to, at or after such date, to the fullest extent that the Company would have been permitted under New Jersey law and its Certificate or By-Laws in effect on the date hereof to indemnify such person (and Purchaser shall also advance expenses as incurred to the fullest extent permitted under applicable law provided the person to whom -20- expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification). (b) Any Indemnified Party wishing to claim indemnification under paragraph (a) of Section 3.8, upon learning of any such claim, action, suit, proceeding or investigation, shall promptly notify the Company thereof, but the failure to so notify shall not relieve the Company of any liability it may have to such Indemnified Party except to the extent such failure prejudices the indemnifying party. In the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the date on which Shares are purchased pursuant to the Offer), (i) the Company shall have the right to assume and control the defense thereof and the Company shall not be liable to such Indemnified Parties for any legal expenses of other counsel or any other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof, except that if the Company elects not to assume such defense or counsel for the Indemnified Parties advises in writing that there are issues which raise conflicts of interest between the Company and the Indemnified Parties, the Indemnified Parties may retain counsel (which counsel shall be reasonably satisfactory to the Company), and the Company shall pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received; provided, however, that the -------- ------- Company shall be obligated pursuant to this paragraph (b) to pay for only one firm of counsel for all Indemnified Parties in any jurisdiction, (ii) the Indemnified Parties will cooperate in the defense of any such matter and (iii) the Company shall not be liable for any settlement effected without its prior written consent; and provided further that the Company shall not have any obligation hereunder to any Indemnified Party when and if a court of competent jurisdiction shall ultimately determine, and such determination shall have become final, that the indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by applicable law. (c) After Purchaser's purchase of Shares pursuant to the Offer, Purchaser shall cause the Company to maintain the Company's existing officers' and directors' liability insurance ("D&O Insurance") for a period of six years ------------- after the purchase of Shares pursuant to the Offer so long as the annual premium therefor is not in excess of 200% of the last annual premium paid prior to the date hereof (the "Current Premium"); provided, however, that (x) Purchaser may ------- ------- -------- ------- substitute therefor policies (which may be "tail" policies) containing terms with respect to coverage and amount no less favorable in any material respect to such directors and officers, and (y) if the existing D&O Insurance expires, is terminated or canceled during such six-year period, Purchaser will use its commercially reasonable best efforts to obtain as much D&O Insurance as can be obtained for the remainder of such period for a premium not in excess (on an annualized basis) of 200% of the Current Premium. 3.9. Takeover Statute. If any "fair price", "moratorium", "control ---------------- share acquisition", "interested stockholder" or other form of antitakeover statute or regulation shall become applicable to the Offer or any of the transactions contemplated by this Agreement, the License Agreement, the Governance Agreement or the Shareholder -21- Agreements, the Company and the Board of Directors of the Company shall, to the fullest extent permitted by applicable law, subject to their fiduciary duties, (a) grant such approvals and take such actions as are necessary so that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby, and so that Purchaser (or its affiliates) would not be prevented or prohibited from effectuating a business combination with the Company after the purchase of the Shares pursuant to the Offer, and (b) otherwise act to eliminate or minimize the effects of such statute or regulation on the transactions contemplated hereby. 3.10. Options held by Company Employees. Prior to the time --------------------------------- Purchaser accepts for purchase Shares pursuant to the terms of the Offer, the Company shall use its commercially reasonable efforts to secure from all employees of the Company on the date of this Agreement that hold Company Options waivers providing that such options shall not accelerate, vest or otherwise become exercisable as a result of Purchaser's purchase of Shares pursuant to the Offer. 3.11. Other Agreements. Purchaser shall not, for so long as this ---------------- Agreement is in effect, terminate or repudiate (i) any Shareholder Agreement (ii) the Governance Agreement, or (iii) the License Agreement. 3.12. Option Grant. Notwithstanding any other provision of this ------------ Agreement, the Company shall be permitted to grant options under the Option Plan to purchase 2,000,000 Shares, such options to vest 20% per year on the first, second, third, fourth and fifth anniversary date of the date on which Purchaser accepts for payment Shares pursuant to the terms of the Offer; the Company and Purchaser agree that fifty (50) percent of such options shall have an exercise price of $51.00 per Share and fifty (50) percent of such options shall have an exercise price of $70.00 per Share. All of the option grants provided for in this Section 3.12 shall be awarded (a) subject to the approval of the Compensation Committee of the Company's Board of Directors and (b) to such persons and in such individual amounts as the Chief Executive Officer of the Company on the date of this Agreement and Purchaser shall mutually agree; provided, however, that if the Chief Executive Officer of the Company on the - -------- ------- date of this Agreement ceases to be an officer of the Company, the Compensation Committee and the Purchaser shall mutually determine the individual grants. ARTICLE IV Termination 4.1. Termination by Mutual Consent. This Agreement may be ----------------------------- terminated by the mutual consent of Purchaser and the Company, by action of their respective Boards of Directors. -22- 4.2. Termination by either Purchaser or the Company. This ---------------------------------------------- Agreement may be terminated by action of the Board of Directors of either Purchaser or the Company if Purchaser shall have terminated the Offer without purchasing any Shares pursuant thereto; provided, in the case of termination of -------- this Agreement by Purchaser, such termination of the Offer is not in violation of the terms of the Offer or this Agreement. 4.3. Termination by Purchaser. This Agreement may be terminated by ------------------------ Purchaser at any time prior to the time Purchaser purchases Shares pursuant to the Offer by action of the Board of Directors of Purchaser, if (x) the Company shall have failed to comply in any material respect with any of the covenants or agreements contained in this Agreement to be complied with or performed by the Company, and which failure shall not have been cured prior to the earlier of (A) 5 business days following the giving of written notice to the Company of such failure or (B) the business day prior to the date on which the Offer is then scheduled to expire, (y) the Board of Directors of the Company shall have amended or modified in a manner adverse to Purchaser its approval or recommendation of the Offer, shall have withdrawn such recommendation or shall have, approved or recommended any other Acquisition Proposal, or shall have resolved to do any of the foregoing, or (z) if the Company or any of the other persons or entities described in Section 3.2 shall take any actions that would be proscribed by Section 3.2 but for the exception therein allowing certain actions to be taken by the Company's Board of Directors after consultation with outside counsel if necessary to comply with its fiduciary obligations under applicable law. 4.4. Termination by the Company. This Agreement may be terminated -------------------------- by the Company at any time prior to the time Purchaser purchases Shares pursuant to the Offer by action of the Board of Directors of the Company, (x) if Purchaser (i) shall have failed to comply in any material respect with any of the covenants or agreements contained in this Agreement to be complied with or performed by Purchaser, and which failure shall not have been cured prior to the earlier of (A) 5 business days following the giving of written notice to Purchaser of such failure or (B) the business day prior to the date on which the Offer is then scheduled to expire or (ii) shall have failed to commence the Offer within the time required in Section 1.1 or (y) if the Board of Directors of the Company receives or there is publicly announced a bona fide written Acquisition Proposal (which Acquisition Proposal was unsolicited and did not otherwise result from a breach of Section 3.2) and the Board of Directors of the Company determines in good faith (i) after consultation with an investment banking firm of national standing, that such Acquisition Proposal is a Superior Proposal and (ii) after consultation with outside counsel, that approval, acceptance or recommendation of such Acquisition Proposal or tender or exchange offer is necessary in order for its directors to comply with their respective fiduciary duties, and the Company shall substantially concurrently with such termination enter into a definitive agreement containing the terms of a Superior Proposal; provided, however, that the Company shall not terminate this Agreement -------- ------- pursuant to this Section 4.4(y), and any purported termination pursuant to this Section 4.4(y) shall be void and of no force or effect, unless the Company shall have complied with (i) all the -23- provisions of Section 3.2 and the notification provisions in this Section 4.4, (ii) the following proviso, and (iii) all applicable requirements of Section 4.5, including the payment of the termination fee described in Section 4.5(b) prior to or concurrently with such termination; and provided further, however, -------- ------- that the Company shall not exercise its right to terminate this Agreement pursuant to this Section 4.4(y) until after three days following Purchaser's receipt of written notice (a "Notice of Superior Proposal") from the Company --------------------------- advising Purchaser that the Company's Board of Directors has received a Superior Proposal (or that a tender or exchange offer with respect to the Shares has been commenced) and that such Board of Directors will, subject to any action taken by Purchaser pursuant to this sentence, cause the Company to accept such Superior Proposal (or recommend such tender or exchange offer), and specifying the material terms and conditions of the Superior Proposal and identifying the person making such Superior Proposal (it being understood and agreed that any amendment to the price or any other material term of a Superior Proposal shall require an additional Notice of Superior Proposal and a new three day period). 4.5. Effect of Termination and Abandonment. (a) In the event of ------------------------------------- termination of this Agreement pursuant to this Article IV, no party hereto (or any of its directors or officers) shall have any liability or further obligation to any other party to this Agreement, except as provided in Section 4.5(b) and Section 5.2 below and except that nothing herein will relieve any party from liability for any breach of this Agreement. (b) If (i) the Offer shall have remained open for a minimum of at least 20 business days, (ii) the Tender Offer Condition shall not have been satisfied and the Offer is terminated without the purchase of any Shares thereunder, and (iii)(x) at the time the Offer is terminated, any corporation, partnership, person, other entity or group (as defined in Section 13(d)(3) of the Exchange Act) other than Purchaser or any of its subsidiaries or affiliates (collectively, a "Person") shall have publicly announced an intention (whether or not conditional) to make a proposal or offer relating to an Acquisition Proposal and (y) within fifteen (15) months after the date of such termination, the Company shall consummate or enter into an agreement with respect to any Acquisition Proposal (it being understood that in the event the Board of Directors of the Company recommends the acceptance by the shareholders of the Company of a third-party tender offer or exchange offer, such recommendation shall be treated as though an agreement had been entered into), then the Company shall at the time such Acquisition Proposal is consummated, entered into or recommended (as applicable), (I) pay Purchaser a fee of $44,750,000 (the "Termination Fee") and (II) reimburse Purchaser's actual out-of-pocket costs and --------------- expenses incurred in connection with this Agreement and the transactions contemplated hereby up to a maximum of two million five hundred thousand dollars ($2,500,000) (it being understood that if Goldman, Sachs & Co. or any of its affiliates is entitled to receive a portion of the Termination Fee pursuant to the terms of its engagement with Purchaser, such fee to be paid to Goldman, Sachs & Co. or its affiliates shall not be deemed part of Purchaser's costs and expenses), which amounts shall be payable in same day funds. In addition, if (A) the Purchaser shall have terminated this Agreement pursuant to Section 4.3(x) or (y), or (B) the Company shall -24- have terminated the Agreement pursuant to Section 4.4(y) hereof, then the Company shall promptly, but in no event later than two days after the date of such termination, (I) pay Purchaser the Termination Fee and (II) reimburse Purchaser's actual out-of-pocket costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby up to a maximum of two million five hundred thousand dollars ($2,500,000) (it being understood that if Goldman, Sachs & Co. or any of its affiliates is entitled to receive a portion of the Termination Fee pursuant to the terms of its engagement with Purchaser, such fee to be paid to Goldman, Sachs & Co. or its affiliates shall not be deemed part of Purchaser's costs and expenses), which amounts shall be payable in same day funds. The Company acknowledges that the agreements contained in this Section 4.5(b) are an integral part of the transactions contemplated in this Agreement, and that, without these agreements, Purchaser would not enter into this Agreement; accordingly, if the Company fails to promptly pay the amount due pursuant to this Section 4.5(b), and, in order to obtain such payment, Purchaser commences a suit which results in a judgment against the Company for the fee set forth in this paragraph (b), the Company shall pay to Purchaser its costs and expenses (including attorneys' fees) in connection with such suit, together with interest on the amount of the fee at the prime rate of Citibank N.A. on the date such payment was required to be made. ARTICLE V Miscellaneous and General 5.1. Payment of Expenses. Whether or not the purchase of the ------------------- Shares pursuant to the Offer shall be consummated, except as provided in Section 4.5 hereof, each party hereto shall pay its own expenses incident to preparing for, entering into and carrying out this Agreement and the consummation of the Offer. 5.2. Survival. The covenants and agreements of Purchaser contained -------- in Sections 3.7 and 5.1 shall survive the purchase of the Shares pursuant to the Offer. The covenants and agreements of the Company and Purchaser contained in Sections 3.4, 3.6, 4.5 and this Article V shall survive the termination of this Agreement. All other representations, warranties, agreements and covenants in this Agreement shall not survive the consummation of the purchase of the Shares pursuant to the Offer or the termination of this Agreement. 5.3. Modification or Amendment. Subject to the applicable ------------------------- provisions of the NJGCA, at any time prior to the purchase of the Shares pursuant to the Offer, the parties hereto may modify or amend this Agreement only by written agreement executed and delivered by duly authorized officers of the respective parties. After the date on which Purchaser's designees become members of the Board of Directors of the Company, this Agreement shall not be amended in any manner materially adverse to the Company or any third-party beneficiary as provided by Section 5.7(b) hereof without the written consent of the members of the Supervisory Committee (as defined in the Shareholder Agreement). -25- 5.4. Counterparts; Facsimile. For the convenience of the parties ----------------------- hereto, this Agreement may be executed in any number of counterparts including by facsimile, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. 5.5. Governing Law ------------- (a) GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL. THIS AGREEMENT --------------------------------------------- SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The parties hereby irrevocably submit to the jurisdiction of the Federal courts of the United States of America located in the State of New York solely in respect of the interpretation and enforcement of the provisions of this Agreement, and of the documents referred to in this Agreement, and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a Federal court. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 5.6 or in such other manner as may be permitted by law shall be valid and sufficient service thereof. (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 5.5. -26- 5.6. Notices. Any notice, request, instruction or other document ------- to be given hereunder by any party to the others shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, or by facsimile: if to Purchaser: --------------- Koninklijke Philips Electronics N.V., Rembrandt Tower, Amstelplein 1, 1096 HA Amsterdam, The Netherlands. Attention: General Secretary fax: (011) 31-20-597-7150 (with a copy to Stephen M. Kotran, Esq., Sullivan & Cromwell 125 Broad Street New York, NY 10004 fax: (212) 558-3588) if to the Company: ----------------- MedQuist Inc., Five Greentree Centre, Suite 311, Marlton, NJ, 08053. Attention: Chief Executive Officer; and Senior Vice President and General Counsel fax: (856) 596-3351 (with a copy to James Epstein, Esq., Pepper Hamilton LLP 3000 Two Logan Square Philadelphia, PA 19103-2799 fax: (215) 981-4750) or to such other persons or addresses as may be designated in writing by the party to receive such notice as provided above. 5.7. Entire Agreement, etc. (a) This Agreement (including the --------------------- Disclosure Letter, any exhibits or Annexes hereto and the Confidentiality Agreement referred to herein) (i) constitutes the entire agreement, and supersedes all other prior agreements, understandings, representations and warranties both written and oral, among the parties, with respect to the subject matter hereof, and (ii) shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns, and (iii) shall not be assignable by operation of law or otherwise and, except to set forth in subsection (b) below, is not intended to create any obligations to, or rights in respect of, any persons other than the parties hereto; provided, however, that -------- ------- Purchaser may assign, -27- in its sole discretion, any or all of its rights, interests and obligations hereunder to any direct or indirect wholly-owned subsidiary of Purchaser (it being understood that no such assignment shall relieve Purchaser of its obligations hereunder). (b) It is expressly agreed that all of the persons (and their successors and assigns) who are beneficiaries of Section 3.8 (whether as individuals or members of a class or group) shall be entitled to enforce such Sections against Purchaser and such Section shall be binding on all successors and assigns of Purchaser. In addition, Section 3.7 hereof shall be enforceable on behalf of the Company and the benefited employees by the Supervisory Committee. 5.8. Definition of "Subsidiary". When a reference is made in this -------------------------- Agreement to a subsidiary of a party, the word "subsidiary" means any corporation or other organization whether incorporated or unincorporated of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of its subsidiaries, or by such party and one or more of its subsidiaries. 5.9. Captions. The Article, Section and paragraph captions herein -------- are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. -28- IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto on the date first hereinabove written. KONINKLIJKE PHILIPS ELECTRONICS N.V. By: /s/ A. Baan ------------------------------------------- Name: A. Baan Title: Executive Vice President Royal Philips Electronics By: /s/ J.H.M. Hommen ------------------------------------------- Name: J.H.M. Hommen Title: Executive Vice President Royal Philips Electronics MEDQUIST INC. By: /s/ David A. Cohen ------------------------------------------- Name: David A. Cohen Title: Chairman and Chief Executive Officer Annex A Certain Conditions of the Offer. Capitalized terms used but not ------------------------------- defined herein shall have the respective meanings assigned to such terms in the Tender Offer Agreement of which this Annex A is a part. Notwithstanding any other provision of the Offer and provided that Purchaser shall not be obligated to accept for payment any Shares until expiration of all applicable waiting periods under the HSR Act, Purchaser shall not be required to accept for payment or pay for, or may delay the acceptance for payment of or payment for, any tendered Shares, or may, in its sole discretion, terminate or amend the Offer as to any Shares not then paid for if less than 22,250,327 Shares (the "Tender ------ Offer Condition") shall have been properly and validly tendered pursuant to the - --------------- Offer and not withdrawn prior to the expiration of the Offer, or, if on or after May 22, 2000, and at or before the time of payment for any of such Shares (whether or not any Shares have theretofore been accepted for payment), any of the following events shall occur: (a) the Company shall have breached or failed to perform in any material respect any of its obligations, covenants or agreements under the Tender Offer Agreement or any representation or warranty of the Company set forth in the Tender Offer Agreement which is qualified by "Company Material Adverse Effect" shall have been inaccurate or incomplete as so qualified when made or thereafter shall become inaccurate or incomplete as so qualified, or any representation or warranty of the Company set forth in the Tender Offer Agreement which is not qualified by "Company Material Adverse Effect" shall have been inaccurate or incomplete in any material respect when made or thereafter shall become inaccurate or incomplete in any material respect; (b) there shall be instituted or pending any action, litigation, proceeding, investigation or other application (hereinafter, an "Action") ------ before any court or other Governmental Entity by any Governmental Entity or by any other person, domestic or foreign (it being understood that, with respect to any Action by any person other than a Governmental Entity, this clause (b) shall only apply to bona fide Actions that are reasonably likely to be successful on the merits): (i) challenging the acquisition by Purchaser of Shares, seeking to restrain or prohibit the consummation of the transactions contemplated by the Offer or seeking to obtain any material damages in connection with the transactions contemplated by the Offer; (ii) seeking to prohibit, or impose any material limitations on, Purchaser's ownership or operation of all or any portion of their or the Company's business or assets (including the business or assets of their respective affiliates and subsidiaries), or to compel Purchaser to dispose of or hold separate all or any portion of Purchaser's or the Company's business or assets (including the business or assets of their respective affiliates and subsidiaries) as a result of the transactions contemplated by the Offer; (iii) seeking to make the acceptance for payment, purchase of, or payment for, some or all of the Shares illegal or render Purchaser unable to, or result in a delay (other than an immaterial delay) in, or restrict (other than immaterially), the ability of Purchaser -1- to accept for payment, purchase or pay for some or all of the Shares; (iv) seeking to impose material limitations on the ability of Purchaser effectively to acquire or hold or to exercise full rights of ownership of the Shares including, without limitation, the right to vote the Shares purchased by them on an equal basis with all other Shares on all matters properly presented to the shareholders; or (v) that, in any event, in the reasonable judgment of Purchaser, is reasonably likely to have a Company Material Adverse Effect or have a material adverse effect on the value of the Shares to Purchaser or the benefits expected to be derived by Purchaser as a result of consummation of the transactions contemplated by the Offer; (c) any statute, rule, regulation, order or injunction shall be enacted, promulgated, entered, enforced or deemed applicable to the Offer, or any other action shall have been taken, proposed or threatened, by any court or other Governmental Entity other than the application to the Offer of waiting periods under the HSR Act, that could, directly or indirectly, be reasonably expected to result in any of the effects of, or have any of the consequences sought to be obtained or achieved in, any Action referred to in clauses (i) through (v) of paragraph (b) above; (d) there shall have occurred a Company Material Adverse Effect or any occurrence or event shall have occurred that is reasonably likely to result in a Company Material Adverse Effect; (e) the Board of Directors of the Company (or a special committee thereof) shall have amended or modified in a manner adverse to Purchaser, its approval or recommendation of the Offer, shall have withdrawn such recommendation or shall have approved or recommended any other Acquisition Proposal, or shall have resolved to do any of the foregoing; (f) the Tender Offer Agreement shall have been terminated by the Company or Purchaser in accordance with its terms or Purchaser shall have reached an agreement or understanding in writing with the Company providing for termination; (g) any of the employment agreements set forth on Schedule A-1 hereto (the "Employment Agreements") shall have been terminated or repudiated by --------------------- the employee a party thereto, except as may result from the death or disability of such employee; (h) the Company shall have terminated or repudiated the License Agreement; (i) any of the Shareholder Agreements set forth on Schedule A-3 hereto shall have terminated or repudiated by the employee a party thereto; or -2- (j) the Company shall have terminated or repudiated the Governance Agreement; which, in the good faith reasonable judgment of Purchaser, in any such case, and regardless of the circumstances (including any action or inaction by Purchaser other than a material breach of this Agreement) giving rise to any such conditions, makes it inadvisable to proceed with the Offer and/or with such acceptance for payment of or payment for Shares. The foregoing conditions are for the sole benefit of Purchaser and may be asserted by Purchaser regardless of the circumstances (including any action or inaction by Purchaser other than a material breach of this Agreement) giving rise to such condition or may be waived by Purchaser, in its sole discretion, by express and specific action to that effect, in whole or in part at any time and from time to time. -3- EX-99.(D)(1)(B) 10 0010.txt SHRHLDR AGREE./ROYAL PHILIPS & JOHN M. SUENDER EXHIBIT (d)(1)(B) SHAREHOLDER AGREEMENT AGREEMENT, dated as of May 22, 2000 between Koninklijke Philips Electronics N.V., a corporation organized under the laws of The Netherlands ("Purchaser") and the beneficial owner ("Shareholder") of Shares of MedQuist --------- ----------- Inc., a New Jersey corporation (the "Company"). ------- WHEREAS, in order to induce Purchaser to enter into the Tender Offer Agreement, dated as of the date hereof, with the Company (the "Tender Offer ------------ Agreement"), Purchaser has requested Shareholder, and Shareholder has agreed, to - --------- enter into this Agreement and an employment agreement with the Company, dated of even date herewith, to become effective upon Purchaser's payment for Shares pursuant to the terms of the Offer (the "Employment Agreement"); -------------------- WHEREAS, to induce the Company to enter into the Tender Offer Agreement, the Company has requested, and Purchaser has agreed, to enter into a Governance Agreement and a License Agreement, each to become effective upon Purchaser's payment for Shares pursuant to the terms of the Offer; WHEREAS, Shareholder and Purchaser desire to make certain representations, warranties, covenants and agreements in connection with this Agreement; and WHEREAS, capitalized terms used herein but not defined herein shall have the respective meanings ascribed to such terms in the Tender Offer Agreement. NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein the parties hereto hereby agree as follows: ARTICLE I RESTRICTION ON TRANSFER; PURCHASE AND SALE OF SHAREHOLDER'S SHARES SECTION 1.1 Restrictions on Transfer. ------------------------ (a) Shareholder hereby agrees that, except as contemplated by Section 1.1(b) and Section 1.3 hereof (and provided that nothing herein shall prevent Shareholder from exercising any option for Shares held by Shareholder), during the period beginning on the date hereof and continuing to and including the date two years after the date hereof, the undersigned will not offer, sell, contract to sell, tender for sale, enter into a repurchase contract with respect to, lend, pledge, assign, hypothecate, encumber, dispose of, grant any right (including without limitation, any put or call option) to purchase, make any short sale or otherwise dispose of (i) any Shares, or any options or warrants to purchase any Shares, or any securities convertible into, exchangeable for or that represent the right to receive Shares, owned on the date hereof, (ii) any Shares issued upon the exercise of options or warrants to purchase any Shares referred to in the preceding clause (i), (iii) any options to purchase any Shares issued in accordance with the option grant contemplated by the Employment Agreement or (iv) any Shares issued upon the exercise of the options to purchase Shares referred to in the preceding clause (iii), in each case, owned directly by the undersigned or with respect to which the undersigned has beneficial ownership within the rules and regulations of the SEC (collectively the "Shareholder's Shares"). Without limiting the -------------------- generality of the foregoing, it is expressly agreed that Shareholder shall not engage in any derivative, hedging, swap or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of, or reduction of economic risk with respect to, the Shareholder's Shares even if such Shares would be disposed of by someone other than the Shareholder. (b) Notwithstanding the foregoing restrictions contained in subsection (a) above, Shareholder may (x) transfer any of Shareholder's Shares (i) as a bona fide gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the restrictions set forth herein, (ii) to any trust for the direct or indirect benefit of the Shareholder or the immediate family of the Shareholder, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value, or (iii) with the prior written consent of Purchaser or (y) take any of the actions that would otherwise be prohibited by subsection (a) above with respect to or in respect of zero Shares (which number of Shares includes, and is not in addition to, the Purchased Shares (as defined in Section 1.3)). For purposes of this Agreement, "immediate family" shall mean any relationship by blood, marriage or adoption, not more remote than first cousin. SECTION 1.2 Voting. ------ Shareholder hereby agrees that, during the time this Agreement is in effect, at any meeting of the shareholders of the Company, however called, or in any written consent in lieu -2- thereof, Shareholder shall, or shall cause the record holder(s) of Shareholder's Shares to (i) vote Shareholder's Shares against any action or agreement that would result in a breach in any material respect of any covenant, representation or warranty or any other obligation or agreement of the Company under the Tender Offer Agreement; and (ii) vote Shareholder's Shares against any action or agreement that would impede, interfere with, delay, postpone or attempt to discourage the Offer, including, but not limited to: (A) any acquisition agreement or other similar agreement related to an Acquisition Proposal, (B) any change in the Company's management or the Company Board, except as otherwise agreed to in writing by Purchaser or (C) any other material change in the Company's corporate structure or business. SECTION 1.3 Purchase and Sale of Shares by Purchaser. Subject to the ---------------------------------------- terms of this Agreement, promptly following expiration of the Offer (and in no event later than five (5) business days thereafter), and provided that Purchaser shall have accepted for payment and paid for Shares pursuant to the terms of the Offer, Shareholder shall sell to Purchaser, and Purchaser shall purchase from Shareholder, 56,289 Shares (the "Purchased Shares") at a price equal to the ---------------- price to be paid per Share in the Offer (the aggregate amount to be paid for the Shares being the "Purchase Price"). The closing of the transaction constituting -------------- the sale and purchase of the Shares shall take place at such location, time and date as Purchaser and Shareholder shall mutually agree (the "Closing"). At the ------- Closing, (i) Purchaser shall pay Shareholder the Purchase Price in immediately available funds by wire transfer to a bank account designated by Shareholder and (ii) Shareholder shall deliver to Purchaser (A) certificates representing the Purchased Shares, duly endorsed in blank for transfer or accompanied by duly executed blank stock powers together will all necessary stock transfer stamps affixed thereto, and such instruments as shall reasonably be required by Purchaser to transfer to Purchaser all right, title and interest in the Shares, free and clear of any liens or encumbrances and (B) such other documents and instruments as may be reasonably requested by Purchaser. SECTION 1.4 Expiration. Except as provided in Section 5.12, this ---------- Agreement and all of Shareholder's obligations hereunder shall terminate concurrent with the earlier of (a) the termination of the Tender Offer Agreement in accordance with its terms and (b) the occurrence of any of the conditions that result in a revocation of the Waiver (as such term is defined in Section 5(b) of the Employment Agreement). -3- ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER SECTION 2.1 Valid Title; Absence of Liens. Shareholder is the sole, ----------------------------- true, lawful and beneficial owner of Shareholder's Shares. Shareholder owns the Purchased Shares free and clear of any liens or encumbrances of any kind and there is no restriction on Shareholder's ability, power or right to transfer or dispose of the Purchased Shares. Upon delivery of the certificate or certificates for the Purchased Shares at the Closing, Purchaser will acquire valid title to the Purchased Shares free and clear of any encumbrances or liens of any kind other than restrictions imposed by applicable securities laws SECTION 2.2 Authority; Enforceability; Noncontravention. ------------------------------------------- (a) Shareholder has the requisite power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Shareholder and the consummation by Shareholder of the transactions contemplated by this Agreement have been duly authorized by all necessary action (including any consultation, approval or other action by or with any other person). This Agreement has been duly executed and delivered by Shareholder and constitutes a valid and binding obligation of Shareholder, enforceable against Shareholder in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (b) The execution and delivery of this Agreement by Shareholder does not, and the consummation by Shareholder of the transactions contemplated by this Agreement and compliance by Shareholder with the provisions of this Agreement will not, conflict with or result in any violation of, or default (with or without notice or lapse of time, or both) under, or result in the creation of any lien or encumbrance upon the Purchased Shares under, any provision of applicable law or regulation or of any agreement, judgment, injunction, order, decree, or other instrument binding on Shareholder. No consent, approval, order or authorization of, or registration, declaration or filing with or exemption by any Federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign, is required by or with respect to Shareholder in connection with -4- the execution and delivery of this Agreement by Shareholder or the consummation by Shareholder of the transactions contemplated by this Agreement, except for applicable requirements, if any, of (a) Sections 13 and 16 of the Exchange Act and the rules and regulations thereunder and (b) the HSR Act. SECTION 2.3 Total Shares. Schedule 2.3 sets forth (i) a true and ------------ accurate number of the number of Shares beneficially owned by Shareholder as of the date hereof, and (ii) a true and complete list of all options held by Shareholder as of the date hereof and the number, exercise price, vesting date and expiration date of each option. SECTION 2.4 Proxy. Shareholder represents that any proxy heretofore ----- given with respect to the Shareholder's Shares is not irrevocable. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER SECTION 3.1 Corporate Power and Authority; Enforceability. --------------------------------------------- Purchaser has the requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Purchaser and the consummation of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser and constitutes a valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. SECTION 3.2 Investment Intent; Financing. Purchaser is acquiring ---------------------------- the Purchased Shares for its own account for investment purposes only and not with a view to, or for sale or resale in connection with, any public distribution thereof or with any present intention of selling, distributing or otherwise disposing of the Purchased Shares. Purchaser is an "accredited investor" within the meaning of Regulation D of the Securities Act. Purchaser has and will have at the Closing the funds necessary to pay the Purchase Price. -5- ARTICLE IV COVENANTS OF SHAREHOLDER SECTION 4.1 Covenants of Shareholder. For so long as the Agreement ------------------------ is in effect, Shareholder agrees as follows: (a) Shareholder shall not, except as contemplated by the terms of this Agreement, knowingly take any action that would in any way restrict, limit or interfere with the performance of its obligations hereunder or the purchase of the Purchased Shares. (b) Shareholder will not, except as contemplated by the terms of this Agreement, (a) knowingly take, agree or commit to take any action that would make any representation or warranty of Shareholder hereunder inaccurate in any respect as of any time prior to the termination of this Agreement or (b) knowingly omit, or agree or commit to omit, to take any action necessary to prevent any such representation or warranty from being inaccurate in any respect at any such time. ARTICLE V MISCELLANEOUS SECTION 5.1 Expenses. All costs and expenses incurred by any party -------- in connection with this Agreement shall be paid by the party incurring such cost or expense (it being understood that Shareholder's costs and expenses incurred in connection with this Agreement may be paid for by the Company). SECTION 5.2 Specific Performance. Shareholder agrees that -------------------- irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that Purchaser shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the Federal courts of the United States of America located in the State of New Jersey, this being in addition to any other remedy to which they are entitled at law or in equity. SECTION 5.3 Notices. All notices, requests, claims, demands and ------- other communications hereunder shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) or by telecopy (with copies by overnight courier) to Purchaser at its -6- address set forth in the Tender Offer Agreement or Shareholder at the address for the Company set forth in the Tender Offer Agreement or to such other address as such party may have furnished to the other parties in writing in accordance herewith. SECTION 5.4 Amendments. This Agreement may not be modified, ---------- amended, altered or supplemented, except upon the execution and delivery of a written agreement executed by the parties hereto. SECTION 5.5 Successors and Assigns. Neither this Agreement nor any ---------------------- of the rights, interests or obligations hereunder shall be assigned by any of the parties without the prior written consent of the other parties, except that Purchaser may assign, in its sole discretion, any or all of its rights, interests and obligations hereunder to any direct or indirect wholly-owned subsidiary of Purchaser (it being understood that no such assignment shall relieve Purchaser of its obligations hereunder). Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by, the parties and their respective successors and assigns. Shareholder agrees that this Agreement and the obligations of Shareholder hereunder shall attach to Shareholder's Shares and shall be binding upon and inure to the benefit of any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including Shareholder's heirs, guardians, administrators or successors. SECTION 5.6 (a) Governing Law and Venue; Waiver of Jury Trial. --------------------------------------------- This Agreement shall be deemed to be made in and in all respects shall be interpreted, construed and governed by and in accordance with the law of the State of New Jersey applicable to contracts wholly made and performed in such state. The parties hereby irrevocably submit to the jurisdiction of the Federal courts of the United States of America located in the State of New Jersey solely in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that -7- all claims with respect to such action or proceeding shall be heard and determined in such a New Jersey Federal court. The parties hereby consent to and grant such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 5.3 or in such other manner as may be permitted by law shall be valid and sufficient service thereof. (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 5.6. SECTION 5.7 Counterparts; Effectiveness. This Agreement may be --------------------------- signed (including by facsimile) in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. SECTION 5.8 Stop Transfer Restriction. In furtherance of this ------------------------- Agreement, Shareholder hereby authorizes Purchaser's counsel to notify the Company's transfer agent that there is a stop transfer restriction with respect to all of Shareholder's Shares (and that this Agreement places limits on the voting and transfer of such shares). SECTION 5.9 Entire Agreement; No Third-Party Beneficiaries. This ---------------------------------------------- Agreement (i) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and (ii) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. -8- SECTION 5.10 Shareholder Capacity. By executing and delivering this -------------------- Agreement, Shareholder makes no agreement or understanding herein in his capacity as a director or officer of the Company or any subsidiary of the Company. Shareholder signs solely in his capacity as the beneficial owner of Shareholder's Shares and nothing herein shall limit or affect any actions taken by Shareholder in his capacity as an officer or director of the Company or any subsidiary of the Company. SECTION 5.11 Severability. If any term or other provision of this ------------ Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. SECTION 5.12 Survival. Sections 1.4 (Expiration), 5.1 (Expenses), -------- 5.2 (Specific Performance), 5.3 (Notices), 5.5 (Successors and Assigns), 5.6 (Governing Law), 5.9 (Entire Agreement; No Third-Party Beneficiaries), 5.11 (Severability) and this Section 5.12 shall survive expiration of this Agreement. All other representations, warranties, agreement and covenants in this Agreement shall not survive the termination of this Agreement. -9- The parties hereto have caused this Agreement to be duly executed as of the day and year first above written. KONINKLIJKE PHILIPS ELECTRONICS N.V. By: /s/ A. BAAN _____________________ Name: A. BAAN Title: Executive Vice President Royal Philips Electronics By: /s/ J.H.M. HOMMEN ______________________ Name: J.H.M. HOMMEN Title: Executive Vice President Royal Philips Electronics SHAREHOLDER By: /s/ JOHN SUENDER ______________________ Name: JOHN SUENDER Title: SVP -10- EX-99.(D)(1)(C) 11 0011.txt SHRHLDR AGREE./ROYAL PHILIPS & DAVID A. COHEN EXHIBIT (d)(1)(C) SHAREHOLDER AGREEMENT AGREEMENT, dated as of May 22, 2000 between Koninklijke Philips Electronics N.V., a corporation organized under the laws of The Netherlands ("Purchaser") and the beneficial owner ("Shareholder") of Shares of MedQuist --------- ----------- Inc., a New Jersey corporation (the "Company"). ------- WHEREAS, in order to induce Purchaser to enter into the Tender Offer Agreement, dated as of the date hereof, with the Company (the "Tender Offer ------------ Agreement"), Purchaser has requested Shareholder, and Shareholder has agreed, to - --------- enter into this Agreement and an employment agreement with the Company, dated of even date herewith, to become effective upon Purchaser's payment for Shares pursuant to the terms of the Offer (the "Employment Agreement"); -------------------- WHEREAS, to induce the Company to enter into the Tender Offer Agreement, the Company has requested, and Purchaser has agreed, to enter into a Governance Agreement and a License Agreement, each to become effective upon Purchaser's payment for Shares pursuant to the terms of the Offer; WHEREAS, Shareholder and Purchaser desire to make certain representations, warranties, covenants and agreements in connection with this Agreement; and WHEREAS, capitalized terms used herein but not defined herein shall have the respective meanings ascribed to such terms in the Tender Offer Agreement. NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein the parties hereto hereby agree as follows: ARTICLE I RESTRICTION ON TRANSFER; PURCHASE AND SALE OF SHAREHOLDER'S SHARES SECTION 1.1 Restrictions on Transfer. ------------------------ (a) Shareholder hereby agrees that, except as contemplated by Section 1.1(b) and Section 1.3 hereof (and provided that nothing herein shall prevent Shareholder from exercising any option for Shares held by Shareholder), during the period beginning on the date hereof and continuing to and including the date two years after the date hereof, the undersigned will not offer, sell, contract to sell, tender for sale, enter into a repurchase contract with respect to, lend, pledge, assign, hypothecate, encumber, dispose of, grant any right (including without limitation, any put or call option) to purchase, make any short sale or otherwise dispose of (i) any Shares, or any options or warrants to purchase any Shares, or any securities convertible into, exchangeable for or that represent the right to receive Shares, owned on the date hereof, (ii) any Shares issued upon the exercise of options or warrants to purchase any Shares referred to in the preceding clause (i), (iii) any options to purchase any Shares issued in accordance with the option grant contemplated by the Employment Agreement or (iv) any Shares issued upon the exercise of the options to purchase Shares referred to in the preceding clause (iii), in each case, owned directly by the undersigned or with respect to which the undersigned has beneficial ownership within the rules and regulations of the SEC (collectively the "Shareholder's Shares"). Without limiting the -------------------- generality of the foregoing, it is expressly agreed that Shareholder shall not engage in any derivative, hedging, swap or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of, or reduction of economic risk with respect to, the Shareholder's Shares even if such Shares would be disposed of by someone other than the Shareholder. (b) Notwithstanding the foregoing restrictions contained in subsection (a) above, Shareholder may (x) transfer any of Shareholder's Shares (i) as a bona fide gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the restrictions set forth herein, (ii) to any trust for the direct or indirect benefit of the Shareholder or the immediate family of the Shareholder, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value, or (iii) with the prior written consent of Purchaser or (y) take any of the actions that would otherwise be prohibited by subsection (a) above with respect to or in respect of zero Shares (which number of Shares includes, and is not in addition to, the Purchased Shares (as defined in Section 1.3)). For purposes of this Agreement, "immediate family" shall mean any relationship by blood, marriage or adoption, not more remote than first cousin. SECTION 1.2 Voting. ------ Shareholder hereby agrees that, during the time this Agreement is in effect, at any meeting of the shareholders of the Company, however called, or in any written consent in lieu -2- thereof, Shareholder shall, or shall cause the record holder(s) of Shareholder's Shares to (i) vote Shareholder's Shares against any action or agreement that would result in a breach in any material respect of any covenant, representation or warranty or any other obligation or agreement of the Company under the Tender Offer Agreement; and (ii) vote Shareholder's Shares against any action or agreement that would impede, interfere with, delay, postpone or attempt to discourage the Offer, including, but not limited to: (A) any acquisition agreement or other similar agreement related to an Acquisition Proposal, (B) any change in the Company's management or the Company Board, except as otherwise agreed to in writing by Purchaser or (C) any other material change in the Company's corporate structure or business. SECTION 1.3 Purchase and Sale of Shares by Purchaser. Subject to the ---------------------------------------- terms of this Agreement, promptly following expiration of the Offer (and in no event later than five (5) business days thereafter), and provided that Purchaser shall have accepted for payment and paid for Shares pursuant to the terms of the Offer, Shareholder shall sell to Purchaser, and Purchaser shall purchase from Shareholder, 779,530 Shares (the "Purchased Shares") at a price equal to the ---------------- price to be paid per Share in the Offer (the aggregate amount to be paid for the Shares being the "Purchase Price"). The closing of the transaction constituting -------------- the sale and purchase of the Shares shall take place at such location, time and date as Purchaser and Shareholder shall mutually agree (the "Closing"). At the ------- Closing, (i) Purchaser shall pay Shareholder the Purchase Price in immediately available funds by wire transfer to a bank account designated by Shareholder and (ii) Shareholder shall deliver to Purchaser (A) certificates representing the Purchased Shares, duly endorsed in blank for transfer or accompanied by duly executed blank stock powers together will all necessary stock transfer stamps affixed thereto, and such instruments as shall reasonably be required by Purchaser to transfer to Purchaser all right, title and interest in the Shares, free and clear of any liens or encumbrances and (B) such other documents and instruments as may be reasonably requested by Purchaser. SECTION 1.4 Expiration. Except as provided in Section 5.12, this ---------- Agreement and all of Shareholder's obligations hereunder shall terminate concurrent with the earlier of (a) the termination of the Tender Offer Agreement in accordance with its terms and (b) the occurrence of any of the conditions that result in a revocation of the Waiver (as such term is defined in Section 5(b) of the Employment Agreement). -3- ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER SECTION 2.1 Valid Title; Absence of Liens. Shareholder is the sole, ----------------------------- true, lawful and beneficial owner of Shareholder's Shares. Shareholder owns the Purchased Shares free and clear of any liens or encumbrances of any kind and there is no restriction on Shareholder's ability, power or right to transfer or dispose of the Purchased Shares. Upon delivery of the certificate or certificates for the Purchased Shares at the Closing, Purchaser will acquire valid title to the Purchased Shares free and clear of any encumbrances or liens of any kind other than restrictions imposed by applicable securities laws SECTION 2.2 Authority; Enforceability; Noncontravention. ------------------------------------------- (a) Shareholder has the requisite power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Shareholder and the consummation by Shareholder of the transactions contemplated by this Agreement have been duly authorized by all necessary action (including any consultation, approval or other action by or with any other person). This Agreement has been duly executed and delivered by Shareholder and constitutes a valid and binding obligation of Shareholder, enforceable against Shareholder in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (b) The execution and delivery of this Agreement by Shareholder does not, and the consummation by Shareholder of the transactions contemplated by this Agreement and compliance by Shareholder with the provisions of this Agreement will not, conflict with or result in any violation of, or default (with or without notice or lapse of time, or both) under, or result in the creation of any lien or encumbrance upon the Purchased Shares under, any provision of applicable law or regulation or of any agreement, judgment, injunction, order, decree, or other instrument binding on Shareholder. No consent, approval, order or authorization of, or registration, declaration or filing with or exemption by any Federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign, is required by or with respect to Shareholder in connection with -4- the execution and delivery of this Agreement by Shareholder or the consummation by Shareholder of the transactions contemplated by this Agreement, except for applicable requirements, if any, of (a) Sections 13 and 16 of the Exchange Act and the rules and regulations thereunder and (b) the HSR Act. SECTION 2.3 Total Shares. Schedule 2.3 sets forth (i) a true and ------------ accurate number of the number of Shares beneficially owned by Shareholder as of the date hereof, and (ii) a true and complete list of all options held by Shareholder as of the date hereof and the number, exercise price, vesting date and expiration date of each option. SECTION 2.4 Proxy. Shareholder represents that any proxy heretofore ----- given with respect to the Shareholder's Shares is not irrevocable. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER SECTION 3.1 Corporate Power and Authority; Enforceability. --------------------------------------------- Purchaser has the requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Purchaser and the consummation of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser and constitutes a valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. SECTION 3.2 Investment Intent; Financing. Purchaser is acquiring ---------------------------- the Purchased Shares for its own account for investment purposes only and not with a view to, or for sale or resale in connection with, any public distribution thereof or with any present intention of selling, distributing or otherwise disposing of the Purchased Shares. Purchaser is an "accredited investor" within the meaning of Regulation D of the Securities Act. Purchaser has and will have at the Closing the funds necessary to pay the Purchase Price. -5- ARTICLE IV COVENANTS OF SHAREHOLDER SECTION 4.1 Covenants of Shareholder. For so long as the Agreement ------------------------ is in effect, Shareholder agrees as follows: (a) Shareholder shall not, except as contemplated by the terms of this Agreement, knowingly take any action that would in any way restrict, limit or interfere with the performance of its obligations hereunder or the purchase of the Purchased Shares. (b) Shareholder will not, except as contemplated by the terms of this Agreement, (a) knowingly take, agree or commit to take any action that would make any representation or warranty of Shareholder hereunder inaccurate in any respect as of any time prior to the termination of this Agreement or (b) knowingly omit, or agree or commit to omit, to take any action necessary to prevent any such representation or warranty from being inaccurate in any respect at any such time. ARTICLE V MISCELLANEOUS SECTION 5.1 Expenses. All costs and expenses incurred by any party -------- in connection with this Agreement shall be paid by the party incurring such cost or expense (it being understood that Shareholder's costs and expenses incurred in connection with this Agreement may be paid for by the Company). SECTION 5.2 Specific Performance. Shareholder agrees that -------------------- irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that Purchaser shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the Federal courts of the United States of America located in the State of New Jersey, this being in addition to any other remedy to which they are entitled at law or in equity. SECTION 5.3 Notices. All notices, requests, claims, demands and ------- other communications hereunder shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) or by telecopy (with copies by overnight courier) to Purchaser at its -6- address set forth in the Tender Offer Agreement or Shareholder at the address for the Company set forth in the Tender Offer Agreement or to such other address as such party may have furnished to the other parties in writing in accordance herewith. SECTION 5.4 Amendments. This Agreement may not be modified, ---------- amended, altered or supplemented, except upon the execution and delivery of a written agreement executed by the parties hereto. SECTION 5.5 Successors and Assigns. Neither this Agreement nor any ---------------------- of the rights, interests or obligations hereunder shall be assigned by any of the parties without the prior written consent of the other parties, except that Purchaser may assign, in its sole discretion, any or all of its rights, interests and obligations hereunder to any direct or indirect wholly-owned subsidiary of Purchaser (it being understood that no such assignment shall relieve Purchaser of its obligations hereunder). Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by, the parties and their respective successors and assigns. Shareholder agrees that this Agreement and the obligations of Shareholder hereunder shall attach to Shareholder's Shares and shall be binding upon and inure to the benefit of any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including Shareholder's heirs, guardians, administrators or successors. SECTION 5.6 (a) Governing Law and Venue; Waiver of Jury Trial. --------------------------------------------- This Agreement shall be deemed to be made in and in all respects shall be interpreted, construed and governed by and in accordance with the law of the State of New Jersey applicable to contracts wholly made and performed in such state. The parties hereby irrevocably submit to the jurisdiction of the Federal courts of the United States of America located in the State of New Jersey solely in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that -7- all claims with respect to such action or proceeding shall be heard and determined in such a New Jersey Federal court. The parties hereby consent to and grant such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 5.3 or in such other manner as may be permitted by law shall be valid and sufficient service thereof. (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 5.6. SECTION 5.7 Counterparts; Effectiveness. This Agreement may be --------------------------- signed (including by facsimile) in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. SECTION 5.8 Stop Transfer Restriction. In furtherance of this ------------------------- Agreement, Shareholder hereby authorizes Purchaser's counsel to notify the Company's transfer agent that there is a stop transfer restriction with respect to all of Shareholder's Shares (and that this Agreement places limits on the voting and transfer of such shares). SECTION 5.9 Entire Agreement; No Third-Party Beneficiaries. This ---------------------------------------------- Agreement (i) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and (ii) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. -8- SECTION 5.10 Shareholder Capacity. By executing and delivering this -------------------- Agreement, Shareholder makes no agreement or understanding herein in his capacity as a director or officer of the Company or any subsidiary of the Company. Shareholder signs solely in his capacity as the beneficial owner of Shareholder's Shares and nothing herein shall limit or affect any actions taken by Shareholder in his capacity as an officer or director of the Company or any subsidiary of the Company. SECTION 5.11 Severability. If any term or other provision of this ------------ Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. SECTION 5.12 Survival. Sections 1.4 (Expiration), 5.1 (Expenses), -------- 5.2 (Specific Performance), 5.3 (Notices), 5.5 (Successors and Assigns), 5.6 (Governing Law), 5.9 (Entire Agreement; No Third-Party Beneficiaries), 5.11 (Severability) and this Section 5.12 shall survive expiration of this Agreement. All other representations, warranties, agreement and covenants in this Agreement shall not survive the termination of this Agreement. -9- The parties hereto have caused this Agreement to be duly executed as of the day and year first above written. KONINKLIJKE PHILIPS ELECTRONICS N.V. By: /s/ A. BAAN _____________________ Name: A. BAAN Title: Executive Vice President Royal Philips Electronics By: /s/ J.H.M. HOMMEN ______________________ Name: J.H.M. HOMMEN Title: Executive Vice President Royal Philips Electronics SHAREHOLDER By: /s/ DAVID COHEN ______________________ Name: DAVID COHEN Title: CEO -10- EX-99.(D)(1)(D) 12 0012.txt SHRHLDR AGREE./ROYAL PHILIPS & JOHN A. DONOHOE, JR. EXHIBIT (d)(1)(D) SHAREHOLDER AGREEMENT AGREEMENT, dated as of May 22, 2000 between Koninklijke Philips Electronics N.V., a corporation organized under the laws of The Netherlands ("Purchaser") and the beneficial owner ("Shareholder") of Shares of MedQuist --------- ----------- Inc., a New Jersey corporation (the "Company"). ------- WHEREAS, in order to induce Purchaser to enter into the Tender Offer Agreement, dated as of the date hereof, with the Company (the "Tender Offer ------------ Agreement"), Purchaser has requested Shareholder, and Shareholder has agreed, to - --------- enter into this Agreement and an employment agreement with the Company, dated of even date herewith, to become effective upon Purchaser's payment for Shares pursuant to the terms of the Offer (the "Employment Agreement"); -------------------- WHEREAS, to induce the Company to enter into the Tender Offer Agreement, the Company has requested, and Purchaser has agreed, to enter into a Governance Agreement and a License Agreement, each to become effective upon Purchaser's payment for Shares pursuant to the terms of the Offer; WHEREAS, Shareholder and Purchaser desire to make certain representations, warranties, covenants and agreements in connection with this Agreement; and WHEREAS, capitalized terms used herein but not defined herein shall have the respective meanings ascribed to such terms in the Tender Offer Agreement. NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein the parties hereto hereby agree as follows: ARTICLE I RESTRICTION ON TRANSFER; PURCHASE AND SALE OF SHAREHOLDER'S SHARES SECTION 1.1 Restrictions on Transfer. ------------------------ (a) Shareholder hereby agrees that, except as contemplated by Section 1.1(b) and Section 1.3 hereof (and provided that nothing herein shall prevent Shareholder from exercising any option for Shares held by Shareholder), during the period beginning on the date hereof and continuing to and including the date two years after the date hereof, the undersigned will not offer, sell, contract to sell, tender for sale, enter into a repurchase contract with respect to, lend, pledge, assign, hypothecate, encumber, dispose of, grant any right (including without limitation, any put or call option) to purchase, make any short sale or otherwise dispose of (i) any Shares, or any options or warrants to purchase any Shares, or any securities convertible into, exchangeable for or that represent the right to receive Shares, owned on the date hereof, (ii) any Shares issued upon the exercise of options or warrants to purchase any Shares referred to in the preceding clause (i), (iii) any options to purchase any Shares issued in accordance with the option grant contemplated by the Employment Agreement or (iv) any Shares issued upon the exercise of the options to purchase Shares referred to in the preceding clause (iii), in each case, owned directly by the undersigned or with respect to which the undersigned has beneficial ownership within the rules and regulations of the SEC (collectively the "Shareholder's Shares"). Without limiting the -------------------- generality of the foregoing, it is expressly agreed that Shareholder shall not engage in any derivative, hedging, swap or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of, or reduction of economic risk with respect to, the Shareholder's Shares even if such Shares would be disposed of by someone other than the Shareholder. (b) Notwithstanding the foregoing restrictions contained in subsection (a) above, Shareholder may (x) transfer any of Shareholder's Shares (i) as a bona fide gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the restrictions set forth herein, (ii) to any trust for the direct or indirect benefit of the Shareholder or the immediate family of the Shareholder, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value, or (iii) with the prior written consent of Purchaser or (y) take any of the actions that would otherwise be prohibited by subsection (a) above with respect to or in respect of zero Shares (which number of Shares includes, and is not in addition to, the Purchased Shares (as defined in Section 1.3)). For purposes of this Agreement, "immediate family" shall mean any relationship by blood, marriage or adoption, not more remote than first cousin. SECTION 1.2 Voting. ------ Shareholder hereby agrees that, during the time this Agreement is in effect, at any meeting of the shareholders of the Company, however called, or in any written consent in lieu -2- thereof, Shareholder shall, or shall cause the record holder(s) of Shareholder's Shares to (i) vote Shareholder's Shares against any action or agreement that would result in a breach in any material respect of any covenant, representation or warranty or any other obligation or agreement of the Company under the Tender Offer Agreement; and (ii) vote Shareholder's Shares against any action or agreement that would impede, interfere with, delay, postpone or attempt to discourage the Offer, including, but not limited to: (A) any acquisition agreement or other similar agreement related to an Acquisition Proposal, (B) any change in the Company's management or the Company Board, except as otherwise agreed to in writing by Purchaser or (C) any other material change in the Company's corporate structure or business. SECTION 1.3 Purchase and Sale of Shares by Purchaser. Subject to the ---------------------------------------- terms of this Agreement, promptly following expiration of the Offer (and in no event later than five (5) business days thereafter), and provided that Purchaser shall have accepted for payment and paid for Shares pursuant to the terms of the Offer, Shareholder shall sell to Purchaser, and Purchaser shall purchase from Shareholder, 124,224 Shares (the "Purchased Shares") at a price equal to the ---------------- price to be paid per Share in the Offer (the aggregate amount to be paid for the Shares being the "Purchase Price"). The closing of the transaction constituting -------------- the sale and purchase of the Shares shall take place at such location, time and date as Purchaser and Shareholder shall mutually agree (the "Closing"). At the ------- Closing, (i) Purchaser shall pay Shareholder the Purchase Price in immediately available funds by wire transfer to a bank account designated by Shareholder and (ii) Shareholder shall deliver to Purchaser (A) certificates representing the Purchased Shares, duly endorsed in blank for transfer or accompanied by duly executed blank stock powers together will all necessary stock transfer stamps affixed thereto, and such instruments as shall reasonably be required by Purchaser to transfer to Purchaser all right, title and interest in the Shares, free and clear of any liens or encumbrances and (B) such other documents and instruments as may be reasonably requested by Purchaser. SECTION 1.4 Expiration. Except as provided in Section 5.12, this ---------- Agreement and all of Shareholder's obligations hereunder shall terminate concurrent with the earlier of (a) the termination of the Tender Offer Agreement in accordance with its terms and (b) the occurrence of any of the conditions that result in a revocation of the Waiver (as such term is defined in Section 5(b) of the Employment Agreement). -3- ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER SECTION 2.1 Valid Title; Absence of Liens. Shareholder is the sole, ----------------------------- true, lawful and beneficial owner of Shareholder's Shares. Shareholder owns the Purchased Shares free and clear of any liens or encumbrances of any kind and there is no restriction on Shareholder's ability, power or right to transfer or dispose of the Purchased Shares. Upon delivery of the certificate or certificates for the Purchased Shares at the Closing, Purchaser will acquire valid title to the Purchased Shares free and clear of any encumbrances or liens of any kind other than restrictions imposed by applicable securities laws SECTION 2.2 Authority; Enforceability; Noncontravention. ------------------------------------------- (a) Shareholder has the requisite power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Shareholder and the consummation by Shareholder of the transactions contemplated by this Agreement have been duly authorized by all necessary action (including any consultation, approval or other action by or with any other person). This Agreement has been duly executed and delivered by Shareholder and constitutes a valid and binding obligation of Shareholder, enforceable against Shareholder in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (b) The execution and delivery of this Agreement by Shareholder does not, and the consummation by Shareholder of the transactions contemplated by this Agreement and compliance by Shareholder with the provisions of this Agreement will not, conflict with or result in any violation of, or default (with or without notice or lapse of time, or both) under, or result in the creation of any lien or encumbrance upon the Purchased Shares under, any provision of applicable law or regulation or of any agreement, judgment, injunction, order, decree, or other instrument binding on Shareholder. No consent, approval, order or authorization of, or registration, declaration or filing with or exemption by any Federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign, is required by or with respect to Shareholder in connection with -4- the execution and delivery of this Agreement by Shareholder or the consummation by Shareholder of the transactions contemplated by this Agreement, except for applicable requirements, if any, of (a) Sections 13 and 16 of the Exchange Act and the rules and regulations thereunder and (b) the HSR Act. SECTION 2.3 Total Shares. Schedule 2.3 sets forth (i) a true and ------------ accurate number of the number of Shares beneficially owned by Shareholder as of the date hereof, and (ii) a true and complete list of all options held by Shareholder as of the date hereof and the number, exercise price, vesting date and expiration date of each option. SECTION 2.4 Proxy. Shareholder represents that any proxy heretofore ----- given with respect to the Shareholder's Shares is not irrevocable. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER SECTION 3.1 Corporate Power and Authority; Enforceability. --------------------------------------------- Purchaser has the requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Purchaser and the consummation of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser and constitutes a valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. SECTION 3.2 Investment Intent; Financing. Purchaser is acquiring ---------------------------- the Purchased Shares for its own account for investment purposes only and not with a view to, or for sale or resale in connection with, any public distribution thereof or with any present intention of selling, distributing or otherwise disposing of the Purchased Shares. Purchaser is an "accredited investor" within the meaning of Regulation D of the Securities Act. Purchaser has and will have at the Closing the funds necessary to pay the Purchase Price. -5- ARTICLE IV COVENANTS OF SHAREHOLDER SECTION 4.1 Covenants of Shareholder. For so long as the Agreement ------------------------ is in effect, Shareholder agrees as follows: (a) Shareholder shall not, except as contemplated by the terms of this Agreement, knowingly take any action that would in any way restrict, limit or interfere with the performance of its obligations hereunder or the purchase of the Purchased Shares. (b) Shareholder will not, except as contemplated by the terms of this Agreement, (a) knowingly take, agree or commit to take any action that would make any representation or warranty of Shareholder hereunder inaccurate in any respect as of any time prior to the termination of this Agreement or (b) knowingly omit, or agree or commit to omit, to take any action necessary to prevent any such representation or warranty from being inaccurate in any respect at any such time. ARTICLE V MISCELLANEOUS SECTION 5.1 Expenses. All costs and expenses incurred by any party -------- in connection with this Agreement shall be paid by the party incurring such cost or expense (it being understood that Shareholder's costs and expenses incurred in connection with this Agreement may be paid for by the Company). SECTION 5.2 Specific Performance. Shareholder agrees that -------------------- irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that Purchaser shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the Federal courts of the United States of America located in the State of New Jersey, this being in addition to any other remedy to which they are entitled at law or in equity. SECTION 5.3 Notices. All notices, requests, claims, demands and ------- other communications hereunder shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) or by telecopy (with copies by overnight courier) to Purchaser at its -6- address set forth in the Tender Offer Agreement or Shareholder at the address for the Company set forth in the Tender Offer Agreement or to such other address as such party may have furnished to the other parties in writing in accordance herewith. SECTION 5.4 Amendments. This Agreement may not be modified, ---------- amended, altered or supplemented, except upon the execution and delivery of a written agreement executed by the parties hereto. SECTION 5.5 Successors and Assigns. Neither this Agreement nor any ---------------------- of the rights, interests or obligations hereunder shall be assigned by any of the parties without the prior written consent of the other parties, except that Purchaser may assign, in its sole discretion, any or all of its rights, interests and obligations hereunder to any direct or indirect wholly-owned subsidiary of Purchaser (it being understood that no such assignment shall relieve Purchaser of its obligations hereunder). Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by, the parties and their respective successors and assigns. Shareholder agrees that this Agreement and the obligations of Shareholder hereunder shall attach to Shareholder's Shares and shall be binding upon and inure to the benefit of any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including Shareholder's heirs, guardians, administrators or successors. SECTION 5.6 (a) Governing Law and Venue; Waiver of Jury Trial. --------------------------------------------- This Agreement shall be deemed to be made in and in all respects shall be interpreted, construed and governed by and in accordance with the law of the State of New Jersey applicable to contracts wholly made and performed in such state. The parties hereby irrevocably submit to the jurisdiction of the Federal courts of the United States of America located in the State of New Jersey solely in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that -7- all claims with respect to such action or proceeding shall be heard and determined in such a New Jersey Federal court. The parties hereby consent to and grant such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 5.3 or in such other manner as may be permitted by law shall be valid and sufficient service thereof. (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 5.6. SECTION 5.7 Counterparts; Effectiveness. This Agreement may be --------------------------- signed (including by facsimile) in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. SECTION 5.8 Stop Transfer Restriction. In furtherance of this ------------------------- Agreement, Shareholder hereby authorizes Purchaser's counsel to notify the Company's transfer agent that there is a stop transfer restriction with respect to all of Shareholder's Shares (and that this Agreement places limits on the voting and transfer of such shares). SECTION 5.9 Entire Agreement; No Third-Party Beneficiaries. This ---------------------------------------------- Agreement (i) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and (ii) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. -8- SECTION 5.10 Shareholder Capacity. By executing and delivering this -------------------- Agreement, Shareholder makes no agreement or understanding herein in his capacity as a director or officer of the Company or any subsidiary of the Company. Shareholder signs solely in his capacity as the beneficial owner of Shareholder's Shares and nothing herein shall limit or affect any actions taken by Shareholder in his capacity as an officer or director of the Company or any subsidiary of the Company. SECTION 5.11 Severability. If any term or other provision of this ------------ Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. SECTION 5.12 Survival. Sections 1.4 (Expiration), 5.1 (Expenses), -------- 5.2 (Specific Performance), 5.3 (Notices), 5.5 (Successors and Assigns), 5.6 (Governing Law), 5.9 (Entire Agreement; No Third-Party Beneficiaries), 5.11 (Severability) and this Section 5.12 shall survive expiration of this Agreement. All other representations, warranties, agreement and covenants in this Agreement shall not survive the termination of this Agreement. -9- The parties hereto have caused this Agreement to be duly executed as of the day and year first above written. KONINKLIJKE PHILIPS ELECTRONICS N.V. By: /s/ A. BAAN ________________________ Name: A. BAAN Title: Executive Vice President Royal Philips Electronics By: /s/ J.H.M. HOMMEN _________________________ Name: J.H.M. HOMMEN Title: Executive Vice President Royal Philips Electronics SHAREHOLDER By: /s/ JOHN A. DONAHOE, JR. _________________________ Name: JOHN A. DONAHOE, JR. Title: President -10- EX-99.(D)(1)(E) 13 0013.txt SHRHLDR AGREE./ROYAL PHILIPS & JOHN R. EMERY EXHIBIT (d)(1)(E) SHAREHOLDER AGREEMENT AGREEMENT, dated as of May 22, 2000 between Koninklijke Philips Electronics N.V., a corporation organized under the laws of The Netherlands ("Purchaser") and the beneficial owner ("Shareholder") of Shares of MedQuist --------- ----------- Inc., a New Jersey corporation (the "Company"). ------- WHEREAS, in order to induce Purchaser to enter into the Tender Offer Agreement, dated as of the date hereof, with the Company (the "Tender Offer ------------ Agreement"), Purchaser has requested Shareholder, and Shareholder has agreed, to - --------- enter into this Agreement and an employment agreement with the Company, dated of even date herewith, to become effective upon Purchaser's payment for Shares pursuant to the terms of the Offer (the "Employment Agreement"); -------------------- WHEREAS, to induce the Company to enter into the Tender Offer Agreement, the Company has requested, and Purchaser has agreed, to enter into a Governance Agreement and a License Agreement, each to become effective upon Purchaser's payment for Shares pursuant to the terms of the Offer; WHEREAS, Shareholder and Purchaser desire to make certain representations, warranties, covenants and agreements in connection with this Agreement; and WHEREAS, capitalized terms used herein but not defined herein shall have the respective meanings ascribed to such terms in the Tender Offer Agreement. NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein the parties hereto hereby agree as follows: ARTICLE I RESTRICTION ON TRANSFER; PURCHASE AND SALE OF SHAREHOLDER'S SHARES SECTION 1.1 Restrictions on Transfer. ------------------------ (a) Shareholder hereby agrees that, except as contemplated by Section 1.1(b) and Section 1.3 hereof (and provided that nothing herein shall prevent Shareholder from exercising any option for Shares held by Shareholder), during the period beginning on the date hereof and continuing to and including the date two years after the date hereof, the undersigned will not offer, sell, contract to sell, tender for sale, enter into a repurchase contract with respect to, lend, pledge, assign, hypothecate, encumber, dispose of, grant any right (including without limitation, any put or call option) to purchase, make any short sale or otherwise dispose of (i) any Shares, or any options or warrants to purchase any Shares, or any securities convertible into, exchangeable for or that represent the right to receive Shares, owned on the date hereof, (ii) any Shares issued upon the exercise of options or warrants to purchase any Shares referred to in the preceding clause (i), (iii) any options to purchase any Shares issued in accordance with the option grant contemplated by the Employment Agreement or (iv) any Shares issued upon the exercise of the options to purchase Shares referred to in the preceding clause (iii), in each case, owned directly by the undersigned or with respect to which the undersigned has beneficial ownership within the rules and regulations of the SEC (collectively the "Shareholder's Shares"). Without limiting the -------------------- generality of the foregoing, it is expressly agreed that Shareholder shall not engage in any derivative, hedging, swap or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of, or reduction of economic risk with respect to, the Shareholder's Shares even if such Shares would be disposed of by someone other than the Shareholder. (b) Notwithstanding the foregoing restrictions contained in subsection (a) above, Shareholder may (x) transfer any of Shareholder's Shares (i) as a bona fide gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the restrictions set forth herein, (ii) to any trust for the direct or indirect benefit of the Shareholder or the immediate family of the Shareholder, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value, or (iii) with the prior written consent of Purchaser or (y) take any of the actions that would otherwise be prohibited by subsection (a) above with respect to or in respect of zero Shares (which number of Shares includes, and is not in addition to, the Purchased Shares (as defined in Section 1.3)). For purposes of this Agreement, "immediate family" shall mean any relationship by blood, marriage or adoption, not more remote than first cousin. SECTION 1.2 Voting. ------ Shareholder hereby agrees that, during the time this Agreement is in effect, at any meeting of the shareholders of the Company, however called, or in any written consent in lieu -2- thereof, Shareholder shall, or shall cause the record holder(s) of Shareholder's Shares to (i) vote Shareholder's Shares against any action or agreement that would result in a breach in any material respect of any covenant, representation or warranty or any other obligation or agreement of the Company under the Tender Offer Agreement; and (ii) vote Shareholder's Shares against any action or agreement that would impede, interfere with, delay, postpone or attempt to discourage the Offer, including, but not limited to: (A) any acquisition agreement or other similar agreement related to an Acquisition Proposal, (B) any change in the Company's management or the Company Board, except as otherwise agreed to in writing by Purchaser or (C) any other material change in the Company's corporate structure or business. SECTION 1.3 Purchase and Sale of Shares by Purchaser. Subject to the ---------------------------------------- terms of this Agreement, promptly following expiration of the Offer (and in no event later than five (5) business days thereafter), and provided that Purchaser shall have accepted for payment and paid for Shares pursuant to the terms of the Offer, Shareholder shall sell to Purchaser, and Purchaser shall purchase from Shareholder, 46,057 Shares (the "Purchased Shares") at a price equal to the ---------------- price to be paid per Share in the Offer (the aggregate amount to be paid for the Shares being the "Purchase Price"). The closing of the transaction constituting -------------- the sale and purchase of the Shares shall take place at such location, time and date as Purchaser and Shareholder shall mutually agree (the "Closing"). At the ------- Closing, (i) Purchaser shall pay Shareholder the Purchase Price in immediately available funds by wire transfer to a bank account designated by Shareholder and (ii) Shareholder shall deliver to Purchaser (A) certificates representing the Purchased Shares, duly endorsed in blank for transfer or accompanied by duly executed blank stock powers together will all necessary stock transfer stamps affixed thereto, and such instruments as shall reasonably be required by Purchaser to transfer to Purchaser all right, title and interest in the Shares, free and clear of any liens or encumbrances and (B) such other documents and instruments as may be reasonably requested by Purchaser. SECTION 1.4 Expiration. Except as provided in Section 5.12, this ---------- Agreement and all of Shareholder's obligations hereunder shall terminate concurrent with the earlier of (a) the termination of the Tender Offer Agreement in accordance with its terms and (b) the occurrence of any of the conditions that result in a revocation of the Waiver (as such term is defined in Section 5(b) of the Employment Agreement). -3- ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER SECTION 2.1 Valid Title; Absence of Liens. Shareholder is the sole, ----------------------------- true, lawful and beneficial owner of Shareholder's Shares. Shareholder owns the Purchased Shares free and clear of any liens or encumbrances of any kind and there is no restriction on Shareholder's ability, power or right to transfer or dispose of the Purchased Shares. Upon delivery of the certificate or certificates for the Purchased Shares at the Closing, Purchaser will acquire valid title to the Purchased Shares free and clear of any encumbrances or liens of any kind other than restrictions imposed by applicable securities laws SECTION 2.2 Authority; Enforceability; Noncontravention. ------------------------------------------- (a) Shareholder has the requisite power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Shareholder and the consummation by Shareholder of the transactions contemplated by this Agreement have been duly authorized by all necessary action (including any consultation, approval or other action by or with any other person). This Agreement has been duly executed and delivered by Shareholder and constitutes a valid and binding obligation of Shareholder, enforceable against Shareholder in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (b) The execution and delivery of this Agreement by Shareholder does not, and the consummation by Shareholder of the transactions contemplated by this Agreement and compliance by Shareholder with the provisions of this Agreement will not, conflict with or result in any violation of, or default (with or without notice or lapse of time, or both) under, or result in the creation of any lien or encumbrance upon the Purchased Shares under, any provision of applicable law or regulation or of any agreement, judgment, injunction, order, decree, or other instrument binding on Shareholder. No consent, approval, order or authorization of, or registration, declaration or filing with or exemption by any Federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign, is required by or with respect to Shareholder in connection with -4- the execution and delivery of this Agreement by Shareholder or the consummation by Shareholder of the transactions contemplated by this Agreement, except for applicable requirements, if any, of (a) Sections 13 and 16 of the Exchange Act and the rules and regulations thereunder and (b) the HSR Act. SECTION 2.3 Total Shares. Schedule 2.3 sets forth (i) a true and ------------ accurate number of the number of Shares beneficially owned by Shareholder as of the date hereof, and (ii) a true and complete list of all options held by Shareholder as of the date hereof and the number, exercise price, vesting date and expiration date of each option. SECTION 2.4 Proxy. Shareholder represents that any proxy heretofore ----- given with respect to the Shareholder's Shares is not irrevocable. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER SECTION 3.1 Corporate Power and Authority; Enforceability. --------------------------------------------- Purchaser has the requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Purchaser and the consummation of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser and constitutes a valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. SECTION 3.2 Investment Intent; Financing. Purchaser is acquiring ---------------------------- the Purchased Shares for its own account for investment purposes only and not with a view to, or for sale or resale in connection with, any public distribution thereof or with any present intention of selling, distributing or otherwise disposing of the Purchased Shares. Purchaser is an "accredited investor" within the meaning of Regulation D of the Securities Act. Purchaser has and will have at the Closing the funds necessary to pay the Purchase Price. -5- ARTICLE IV COVENANTS OF SHAREHOLDER SECTION 4.1 Covenants of Shareholder. For so long as the Agreement ------------------------ is in effect, Shareholder agrees as follows: (a) Shareholder shall not, except as contemplated by the terms of this Agreement, knowingly take any action that would in any way restrict, limit or interfere with the performance of its obligations hereunder or the purchase of the Purchased Shares. (b) Shareholder will not, except as contemplated by the terms of this Agreement, (a) knowingly take, agree or commit to take any action that would make any representation or warranty of Shareholder hereunder inaccurate in any respect as of any time prior to the termination of this Agreement or (b) knowingly omit, or agree or commit to omit, to take any action necessary to prevent any such representation or warranty from being inaccurate in any respect at any such time. ARTICLE V MISCELLANEOUS SECTION 5.1 Expenses. All costs and expenses incurred by any party -------- in connection with this Agreement shall be paid by the party incurring such cost or expense (it being understood that Shareholder's costs and expenses incurred in connection with this Agreement may be paid for by the Company). SECTION 5.2 Specific Performance. Shareholder agrees that -------------------- irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that Purchaser shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the Federal courts of the United States of America located in the State of New Jersey, this being in addition to any other remedy to which they are entitled at law or in equity. SECTION 5.3 Notices. All notices, requests, claims, demands and ------- other communications hereunder shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) or by telecopy (with copies by overnight courier) to Purchaser at its -6- address set forth in the Tender Offer Agreement or Shareholder at the address for the Company set forth in the Tender Offer Agreement or to such other address as such party may have furnished to the other parties in writing in accordance herewith. SECTION 5.4 Amendments. This Agreement may not be modified, ---------- amended, altered or supplemented, except upon the execution and delivery of a written agreement executed by the parties hereto. SECTION 5.5 Successors and Assigns. Neither this Agreement nor any ---------------------- of the rights, interests or obligations hereunder shall be assigned by any of the parties without the prior written consent of the other parties, except that Purchaser may assign, in its sole discretion, any or all of its rights, interests and obligations hereunder to any direct or indirect wholly-owned subsidiary of Purchaser (it being understood that no such assignment shall relieve Purchaser of its obligations hereunder). Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by, the parties and their respective successors and assigns. Shareholder agrees that this Agreement and the obligations of Shareholder hereunder shall attach to Shareholder's Shares and shall be binding upon and inure to the benefit of any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including Shareholder's heirs, guardians, administrators or successors. SECTION 5.6 (a) Governing Law and Venue; Waiver of Jury Trial. --------------------------------------------- This Agreement shall be deemed to be made in and in all respects shall be interpreted, construed and governed by and in accordance with the law of the State of New Jersey applicable to contracts wholly made and performed in such state. The parties hereby irrevocably submit to the jurisdiction of the Federal courts of the United States of America located in the State of New Jersey solely in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that -7- all claims with respect to such action or proceeding shall be heard and determined in such a New Jersey Federal court. The parties hereby consent to and grant such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 5.3 or in such other manner as may be permitted by law shall be valid and sufficient service thereof. (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 5.6. SECTION 5.7 Counterparts; Effectiveness. This Agreement may be --------------------------- signed (including by facsimile) in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. SECTION 5.8 Stop Transfer Restriction. In furtherance of this ------------------------- Agreement, Shareholder hereby authorizes Purchaser's counsel to notify the Company's transfer agent that there is a stop transfer restriction with respect to all of Shareholder's Shares (and that this Agreement places limits on the voting and transfer of such shares). SECTION 5.9 Entire Agreement; No Third-Party Beneficiaries. This ---------------------------------------------- Agreement (i) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and (ii) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. -8- SECTION 5.10 Shareholder Capacity. By executing and delivering this -------------------- Agreement, Shareholder makes no agreement or understanding herein in his capacity as a director or officer of the Company or any subsidiary of the Company. Shareholder signs solely in his capacity as the beneficial owner of Shareholder's Shares and nothing herein shall limit or affect any actions taken by Shareholder in his capacity as an officer or director of the Company or any subsidiary of the Company. SECTION 5.11 Severability. If any term or other provision of this ------------ Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. SECTION 5.12 Survival. Sections 1.4 (Expiration), 5.1 (Expenses), -------- 5.2 (Specific Performance), 5.3 (Notices), 5.5 (Successors and Assigns), 5.6 (Governing Law), 5.9 (Entire Agreement; No Third-Party Beneficiaries), 5.11 (Severability) and this Section 5.12 shall survive expiration of this Agreement. All other representations, warranties, agreement and covenants in this Agreement shall not survive the termination of this Agreement. -9- The parties hereto have caused this Agreement to be duly executed as of the day and year first above written. KONINKLIJKE PHILIPS ELECTRONICS N.V. By: /s/ A. BAAN _____________________ Name: A. BAAN Title: Executive Vice President Royal Philips Electronics By: /s/ J.H.M. HOMMEN ______________________ Name: J.H.M. HOMMEN Title: Executive Vice President Royal Philips Electronics SHAREHOLDER By: /s/ JOHN EMERY ______________________ Name: JOHN EMERY Title: CFO -10- EX-99.(D)(1)(F) 14 0014.txt SHRHLDR AGREE./ROYAL PHILIPS & ETHAN COHEN EXHIBIT (d)(1)(F) SHAREHOLDER AGREEMENT AGREEMENT, dated as of May 22, 2000 between Koninklijke Philips Electronics N.V., a corporation organized under the laws of The Netherlands ("Purchaser") and the beneficial owner ("Shareholder") of Shares of MedQuist --------- ----------- Inc., a New Jersey corporation (the "Company"). ------- WHEREAS, in order to induce Purchaser to enter into the Tender Offer Agreement, dated as of the date hereof, with the Company (the "Tender Offer ------------ Agreement"), Purchaser has requested Shareholder, and Shareholder has agreed, to - --------- enter into this Agreement and an employment agreement with the Company, dated of even date herewith, to become effective upon Purchaser's payment for Shares pursuant to the terms of the Offer (the "Employment Agreement"); -------------------- WHEREAS, to induce the Company to enter into the Tender Offer Agreement, the Company has requested, and Purchaser has agreed, to enter into a Governance Agreement and a License Agreement, each to become effective upon Purchaser's payment for Shares pursuant to the terms of the Offer; WHEREAS, Shareholder and Purchaser desire to make certain representations, warranties, covenants and agreements in connection with this Agreement; and WHEREAS, capitalized terms used herein but not defined herein shall have the respective meanings ascribed to such terms in the Tender Offer Agreement. NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein the parties hereto hereby agree as follows: ARTICLE I RESTRICTION ON TRANSFER; PURCHASE AND SALE OF SHAREHOLDER'S SHARES SECTION 1.1 Restrictions on Transfer. ------------------------ (a) Shareholder hereby agrees that, except as contemplated by Section 1.1(b) and Section 1.3 hereof (and provided that nothing herein shall prevent Shareholder from exercising any option for Shares held by Shareholder), during the period beginning on the date hereof and continuing to and including the date two years after the date hereof, the undersigned will not offer, sell, contract to sell, tender for sale, enter into a repurchase contract with respect to, lend, pledge, assign, hypothecate, encumber, dispose of, grant any right (including without limitation, any put or call option) to purchase, make any short sale or otherwise dispose of (i) any Shares, or any options or warrants to purchase any Shares, or any securities convertible into, exchangeable for or that represent the right to receive Shares, owned on the date hereof, (ii) any Shares issued upon the exercise of options or warrants to purchase any Shares referred to in the preceding clause (i), (iii) any options to purchase any Shares issued in accordance with the option grant contemplated by the Employment Agreement or (iv) any Shares issued upon the exercise of the options to purchase Shares referred to in the preceding clause (iii), in each case, owned directly by the undersigned or with respect to which the undersigned has beneficial ownership within the rules and regulations of the SEC (collectively the "Shareholder's Shares"). Without limiting the -------------------- generality of the foregoing, it is expressly agreed that Shareholder shall not engage in any derivative, hedging, swap or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of, or reduction of economic risk with respect to, the Shareholder's Shares even if such Shares would be disposed of by someone other than the Shareholder. (b) Notwithstanding the foregoing restrictions contained in subsection (a) above, Shareholder may (x) transfer any of Shareholder's Shares (i) as a bona fide gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the restrictions set forth herein, (ii) to any trust for the direct or indirect benefit of the Shareholder or the immediate family of the Shareholder, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value, or (iii) with the prior written consent of Purchaser or (y) take any of the actions that would otherwise be prohibited by subsection (a) above with respect to or in respect of zero Shares (which number of Shares includes, and is not in addition to, the Purchased Shares (as defined in Section 1.3)). For purposes of this Agreement, "immediate family" shall mean any relationship by blood, marriage or adoption, not more remote than first cousin. SECTION 1.2 Voting. ------ Shareholder hereby agrees that, during the time this Agreement is in effect, at any meeting of the shareholders of the Company, however called, or in any written consent in lieu -2- thereof, Shareholder shall, or shall cause the record holder(s) of Shareholder's Shares to (i) vote Shareholder's Shares against any action or agreement that would result in a breach in any material respect of any covenant, representation or warranty or any other obligation or agreement of the Company under the Tender Offer Agreement; and (ii) vote Shareholder's Shares against any action or agreement that would impede, interfere with, delay, postpone or attempt to discourage the Offer, including, but not limited to: (A) any acquisition agreement or other similar agreement related to an Acquisition Proposal, (B) any change in the Company's management or the Company Board, except as otherwise agreed to in writing by Purchaser or (C) any other material change in the Company's corporate structure or business. SECTION 1.3 Purchase and Sale of Shares by Purchaser. Subject to the ---------------------------------------- terms of this Agreement, promptly following expiration of the Offer (and in no event later than five (5) business days thereafter), and provided that Purchaser shall have accepted for payment and paid for Shares pursuant to the terms of the Offer, Shareholder shall sell to Purchaser, and Purchaser shall purchase from Shareholder, 39,489 Shares (the "Purchased Shares") at a price equal to the ---------------- price to be paid per Share in the Offer (the aggregate amount to be paid for the Shares being the "Purchase Price"). The closing of the transaction constituting -------------- the sale and purchase of the Shares shall take place at such location, time and date as Purchaser and Shareholder shall mutually agree (the "Closing"). At the ------- Closing, (i) Purchaser shall pay Shareholder the Purchase Price in immediately available funds by wire transfer to a bank account designated by Shareholder and (ii) Shareholder shall deliver to Purchaser (A) certificates representing the Purchased Shares, duly endorsed in blank for transfer or accompanied by duly executed blank stock powers together will all necessary stock transfer stamps affixed thereto, and such instruments as shall reasonably be required by Purchaser to transfer to Purchaser all right, title and interest in the Shares, free and clear of any liens or encumbrances and (B) such other documents and instruments as may be reasonably requested by Purchaser. SECTION 1.4 Expiration. Except as provided in Section 5.12, this ---------- Agreement and all of Shareholder's obligations hereunder shall terminate concurrent with the earlier of (a) the termination of the Tender Offer Agreement in accordance with its terms and (b) the occurrence of any of the conditions that result in a revocation of the Waiver (as such term is defined in Section 5(b) of the Employment Agreement). -3- ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER SECTION 2.1 Valid Title; Absence of Liens. Shareholder is the sole, ----------------------------- true, lawful and beneficial owner of Shareholder's Shares. Shareholder owns the Purchased Shares free and clear of any liens or encumbrances of any kind and there is no restriction on Shareholder's ability, power or right to transfer or dispose of the Purchased Shares. Upon delivery of the certificate or certificates for the Purchased Shares at the Closing, Purchaser will acquire valid title to the Purchased Shares free and clear of any encumbrances or liens of any kind other than restrictions imposed by applicable securities laws SECTION 2.2 Authority; Enforceability; Noncontravention. ------------------------------------------- (a) Shareholder has the requisite power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Shareholder and the consummation by Shareholder of the transactions contemplated by this Agreement have been duly authorized by all necessary action (including any consultation, approval or other action by or with any other person). This Agreement has been duly executed and delivered by Shareholder and constitutes a valid and binding obligation of Shareholder, enforceable against Shareholder in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (b) The execution and delivery of this Agreement by Shareholder does not, and the consummation by Shareholder of the transactions contemplated by this Agreement and compliance by Shareholder with the provisions of this Agreement will not, conflict with or result in any violation of, or default (with or without notice or lapse of time, or both) under, or result in the creation of any lien or encumbrance upon the Purchased Shares under, any provision of applicable law or regulation or of any agreement, judgment, injunction, order, decree, or other instrument binding on Shareholder. No consent, approval, order or authorization of, or registration, declaration or filing with or exemption by any Federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign, is required by or with respect to Shareholder in connection with -4- the execution and delivery of this Agreement by Shareholder or the consummation by Shareholder of the transactions contemplated by this Agreement, except for applicable requirements, if any, of (a) Sections 13 and 16 of the Exchange Act and the rules and regulations thereunder and (b) the HSR Act. SECTION 2.3 Total Shares. Schedule 2.3 sets forth (i) a true and ------------ accurate number of the number of Shares beneficially owned by Shareholder as of the date hereof, and (ii) a true and complete list of all options held by Shareholder as of the date hereof and the number, exercise price, vesting date and expiration date of each option. SECTION 2.4 Proxy. Shareholder represents that any proxy heretofore ----- given with respect to the Shareholder's Shares is not irrevocable. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER SECTION 3.1 Corporate Power and Authority; Enforceability. --------------------------------------------- Purchaser has the requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Purchaser and the consummation of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser and constitutes a valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. SECTION 3.2 Investment Intent; Financing. Purchaser is acquiring ---------------------------- the Purchased Shares for its own account for investment purposes only and not with a view to, or for sale or resale in connection with, any public distribution thereof or with any present intention of selling, distributing or otherwise disposing of the Purchased Shares. Purchaser is an "accredited investor" within the meaning of Regulation D of the Securities Act. Purchaser has and will have at the Closing the funds necessary to pay the Purchase Price. -5- ARTICLE IV COVENANTS OF SHAREHOLDER SECTION 4.1 Covenants of Shareholder. For so long as the Agreement ------------------------ is in effect, Shareholder agrees as follows: (a) Shareholder shall not, except as contemplated by the terms of this Agreement, knowingly take any action that would in any way restrict, limit or interfere with the performance of its obligations hereunder or the purchase of the Purchased Shares. (b) Shareholder will not, except as contemplated by the terms of this Agreement, (a) knowingly take, agree or commit to take any action that would make any representation or warranty of Shareholder hereunder inaccurate in any respect as of any time prior to the termination of this Agreement or (b) knowingly omit, or agree or commit to omit, to take any action necessary to prevent any such representation or warranty from being inaccurate in any respect at any such time. ARTICLE V MISCELLANEOUS SECTION 5.1 Expenses. All costs and expenses incurred by any party -------- in connection with this Agreement shall be paid by the party incurring such cost or expense (it being understood that Shareholder's costs and expenses incurred in connection with this Agreement may be paid for by the Company). SECTION 5.2 Specific Performance. Shareholder agrees that -------------------- irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that Purchaser shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the Federal courts of the United States of America located in the State of New Jersey, this being in addition to any other remedy to which they are entitled at law or in equity. SECTION 5.3 Notices. All notices, requests, claims, demands and ------- other communications hereunder shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) or by telecopy (with copies by overnight courier) to Purchaser at its -6- address set forth in the Tender Offer Agreement or Shareholder at the address for the Company set forth in the Tender Offer Agreement or to such other address as such party may have furnished to the other parties in writing in accordance herewith. SECTION 5.4 Amendments. This Agreement may not be modified, ---------- amended, altered or supplemented, except upon the execution and delivery of a written agreement executed by the parties hereto. SECTION 5.5 Successors and Assigns. Neither this Agreement nor any ---------------------- of the rights, interests or obligations hereunder shall be assigned by any of the parties without the prior written consent of the other parties, except that Purchaser may assign, in its sole discretion, any or all of its rights, interests and obligations hereunder to any direct or indirect wholly-owned subsidiary of Purchaser (it being understood that no such assignment shall relieve Purchaser of its obligations hereunder). Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by, the parties and their respective successors and assigns. Shareholder agrees that this Agreement and the obligations of Shareholder hereunder shall attach to Shareholder's Shares and shall be binding upon and inure to the benefit of any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including Shareholder's heirs, guardians, administrators or successors. SECTION 5.6 (a) Governing Law and Venue; Waiver of Jury Trial. --------------------------------------------- This Agreement shall be deemed to be made in and in all respects shall be interpreted, construed and governed by and in accordance with the law of the State of New Jersey applicable to contracts wholly made and performed in such state. The parties hereby irrevocably submit to the jurisdiction of the Federal courts of the United States of America located in the State of New Jersey solely in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that -7- all claims with respect to such action or proceeding shall be heard and determined in such a New Jersey Federal court. The parties hereby consent to and grant such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 5.3 or in such other manner as may be permitted by law shall be valid and sufficient service thereof. (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 5.6. SECTION 5.7 Counterparts; Effectiveness. This Agreement may be --------------------------- signed (including by facsimile) in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. SECTION 5.8 Stop Transfer Restriction. In furtherance of this ------------------------- Agreement, Shareholder hereby authorizes Purchaser's counsel to notify the Company's transfer agent that there is a stop transfer restriction with respect to all of Shareholder's Shares (and that this Agreement places limits on the voting and transfer of such shares). SECTION 5.9 Entire Agreement; No Third-Party Beneficiaries. This ---------------------------------------------- Agreement (i) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and (ii) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. -8- SECTION 5.10 Shareholder Capacity. By executing and delivering this -------------------- Agreement, Shareholder makes no agreement or understanding herein in his capacity as a director or officer of the Company or any subsidiary of the Company. Shareholder signs solely in his capacity as the beneficial owner of Shareholder's Shares and nothing herein shall limit or affect any actions taken by Shareholder in his capacity as an officer or director of the Company or any subsidiary of the Company. SECTION 5.11 Severability. If any term or other provision of this ------------ Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. SECTION 5.12 Survival. Sections 1.4 (Expiration), 5.1 (Expenses), -------- 5.2 (Specific Performance), 5.3 (Notices), 5.5 (Successors and Assigns), 5.6 (Governing Law), 5.9 (Entire Agreement; No Third-Party Beneficiaries), 5.11 (Severability) and this Section 5.12 shall survive expiration of this Agreement. All other representations, warranties, agreement and covenants in this Agreement shall not survive the termination of this Agreement. -9- The parties hereto have caused this Agreement to be duly executed as of the day and year first above written. KONINKLIJKE PHILIPS ELECTRONICS N.V. By: /s/ A. BAAN _____________________ Name: A. BAAN Title: Executive Vice President Royal Philips Electronics By: /s/ J.H.M. HOMMEN ______________________ Name: J.H.M. HOMMEN Title: Executive Vice President Royal Philips Electronics SHAREHOLDER By: /s/ ETHAN COHEN ______________________ Name: ETHAN COHEN Title: SVP -10- EX-99.(D)(1)(G) 15 0015.txt SHRHLDR AGREE./ROYAL PHILIPS & RONALD A. SCARPONE EXHIBIT (d)(1)(G) SHAREHOLDER AGREEMENT AGREEMENT, dated as of May 22, 2000 between Koninklijke Philips Electronics N.V., a corporation organized under the laws of The Netherlands ("Purchaser") and the beneficial owner ("Shareholder") of Shares of MedQuist --------- ----------- Inc., a New Jersey corporation (the "Company"). ------- WHEREAS, in order to induce Purchaser to enter into the Tender Offer Agreement, dated as of the date hereof, with the Company (the "Tender Offer ------------ Agreement"), Purchaser has requested Shareholder, and Shareholder has agreed, to - --------- enter into this Agreement and an employment agreement with the Company, dated of even date herewith, to become effective upon Purchaser's payment for Shares pursuant to the terms of the Offer (the "Employment Agreement"); -------------------- WHEREAS, to induce the Company to enter into the Tender Offer Agreement, the Company has requested, and Purchaser has agreed, to enter into a Governance Agreement and a License Agreement, each to become effective upon Purchaser's payment for Shares pursuant to the terms of the Offer; WHEREAS, Shareholder and Purchaser desire to make certain representations, warranties, covenants and agreements in connection with this Agreement; and WHEREAS, capitalized terms used herein but not defined herein shall have the respective meanings ascribed to such terms in the Tender Offer Agreement. NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein the parties hereto hereby agree as follows: ARTICLE I RESTRICTION ON TRANSFER; PURCHASE AND SALE OF SHAREHOLDER'S SHARES SECTION 1.1 Restrictions on Transfer. ------------------------ (a) Shareholder hereby agrees that, except as contemplated by Section 1.1(b) and Section 1.3 hereof (and provided that nothing herein shall prevent Shareholder from exercising any option for Shares held by Shareholder), during the period beginning on the date hereof and continuing to and including the date two years after the date hereof, the undersigned will not offer, sell, contract to sell, tender for sale, enter into a repurchase contract with respect to, lend, pledge, assign, hypothecate, encumber, dispose of, grant any right (including without limitation, any put or call option) to purchase, make any short sale or otherwise dispose of (i) any Shares, or any options or warrants to purchase any Shares, or any securities convertible into, exchangeable for or that represent the right to receive Shares, owned on the date hereof, (ii) any Shares issued upon the exercise of options or warrants to purchase any Shares referred to in the preceding clause (i), (iii) any options to purchase any Shares issued in accordance with the option grant contemplated by the Employment Agreement or (iv) any Shares issued upon the exercise of the options to purchase Shares referred to in the preceding clause (iii), in each case, owned directly by the undersigned or with respect to which the undersigned has beneficial ownership within the rules and regulations of the SEC (collectively the "Shareholder's Shares"). Without limiting the -------------------- generality of the foregoing, it is expressly agreed that Shareholder shall not engage in any derivative, hedging, swap or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of, or reduction of economic risk with respect to, the Shareholder's Shares even if such Shares would be disposed of by someone other than the Shareholder. (b) Notwithstanding the foregoing restrictions contained in subsection (a) above, Shareholder may (x) transfer any of Shareholder's Shares (i) as a bona fide gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the restrictions set forth herein, (ii) to any trust for the direct or indirect benefit of the Shareholder or the immediate family of the Shareholder, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value, or (iii) with the prior written consent of Purchaser or (y) take any of the actions that would otherwise be prohibited by subsection (a) above with respect to or in respect of zero Shares (which number of Shares includes, and is not in addition to, the Purchased Shares (as defined in Section 1.3)). For purposes of this Agreement, "immediate family" shall mean any relationship by blood, marriage or adoption, not more remote than first cousin. SECTION 1.2 Voting. ------ Shareholder hereby agrees that, during the time this Agreement is in effect, at any meeting of the shareholders of the Company, however called, or in any written consent in lieu -2- thereof, Shareholder shall, or shall cause the record holder(s) of Shareholder's Shares to (i) vote Shareholder's Shares against any action or agreement that would result in a breach in any material respect of any covenant, representation or warranty or any other obligation or agreement of the Company under the Tender Offer Agreement; and (ii) vote Shareholder's Shares against any action or agreement that would impede, interfere with, delay, postpone or attempt to discourage the Offer, including, but not limited to: (A) any acquisition agreement or other similar agreement related to an Acquisition Proposal, (B) any change in the Company's management or the Company Board, except as otherwise agreed to in writing by Purchaser or (C) any other material change in the Company's corporate structure or business. SECTION 1.3 Purchase and Sale of Shares by Purchaser. Subject to the ---------------------------------------- terms of this Agreement, promptly following expiration of the Offer (and in no event later than five (5) business days thereafter), and provided that Purchaser shall have accepted for payment and paid for Shares pursuant to the terms of the Offer, Shareholder shall sell to Purchaser, and Purchaser shall purchase from Shareholder, 74,570 Shares (the "Purchased Shares") at a price equal to the ---------------- price to be paid per Share in the Offer (the aggregate amount to be paid for the Shares being the "Purchase Price"). The closing of the transaction constituting -------------- the sale and purchase of the Shares shall take place at such location, time and date as Purchaser and Shareholder shall mutually agree (the "Closing"). At the ------- Closing, (i) Purchaser shall pay Shareholder the Purchase Price in immediately available funds by wire transfer to a bank account designated by Shareholder and (ii) Shareholder shall deliver to Purchaser (A) certificates representing the Purchased Shares, duly endorsed in blank for transfer or accompanied by duly executed blank stock powers together will all necessary stock transfer stamps affixed thereto, and such instruments as shall reasonably be required by Purchaser to transfer to Purchaser all right, title and interest in the Shares, free and clear of any liens or encumbrances and (B) such other documents and instruments as may be reasonably requested by Purchaser. SECTION 1.4 Expiration. Except as provided in Section 5.12, this ---------- Agreement and all of Shareholder's obligations hereunder shall terminate concurrent with the earlier of (a) the termination of the Tender Offer Agreement in accordance with its terms and (b) the occurrence of any of the conditions that result in a revocation of the Waiver (as such term is defined in Section 5(b) of the Employment Agreement). -3- ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER SECTION 2.1 Valid Title; Absence of Liens. Shareholder is the sole, ----------------------------- true, lawful and beneficial owner of Shareholder's Shares. Shareholder owns the Purchased Shares free and clear of any liens or encumbrances of any kind and there is no restriction on Shareholder's ability, power or right to transfer or dispose of the Purchased Shares. Upon delivery of the certificate or certificates for the Purchased Shares at the Closing, Purchaser will acquire valid title to the Purchased Shares free and clear of any encumbrances or liens of any kind other than restrictions imposed by applicable securities laws SECTION 2.2 Authority; Enforceability; Noncontravention. ------------------------------------------- (a) Shareholder has the requisite power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Shareholder and the consummation by Shareholder of the transactions contemplated by this Agreement have been duly authorized by all necessary action (including any consultation, approval or other action by or with any other person). This Agreement has been duly executed and delivered by Shareholder and constitutes a valid and binding obligation of Shareholder, enforceable against Shareholder in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (b) The execution and delivery of this Agreement by Shareholder does not, and the consummation by Shareholder of the transactions contemplated by this Agreement and compliance by Shareholder with the provisions of this Agreement will not, conflict with or result in any violation of, or default (with or without notice or lapse of time, or both) under, or result in the creation of any lien or encumbrance upon the Purchased Shares under, any provision of applicable law or regulation or of any agreement, judgment, injunction, order, decree, or other instrument binding on Shareholder. No consent, approval, order or authorization of, or registration, declaration or filing with or exemption by any Federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign, is required by or with respect to Shareholder in connection with -4- the execution and delivery of this Agreement by Shareholder or the consummation by Shareholder of the transactions contemplated by this Agreement, except for applicable requirements, if any, of (a) Sections 13 and 16 of the Exchange Act and the rules and regulations thereunder and (b) the HSR Act. SECTION 2.3 Total Shares. Schedule 2.3 sets forth (i) a true and ------------ accurate number of the number of Shares beneficially owned by Shareholder as of the date hereof, and (ii) a true and complete list of all options held by Shareholder as of the date hereof and the number, exercise price, vesting date and expiration date of each option. SECTION 2.4 Proxy. Shareholder represents that any proxy heretofore ----- given with respect to the Shareholder's Shares is not irrevocable. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER SECTION 3.1 Corporate Power and Authority; Enforceability. --------------------------------------------- Purchaser has the requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Purchaser and the consummation of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser and constitutes a valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. SECTION 3.2 Investment Intent; Financing. Purchaser is acquiring ---------------------------- the Purchased Shares for its own account for investment purposes only and not with a view to, or for sale or resale in connection with, any public distribution thereof or with any present intention of selling, distributing or otherwise disposing of the Purchased Shares. Purchaser is an "accredited investor" within the meaning of Regulation D of the Securities Act. Purchaser has and will have at the Closing the funds necessary to pay the Purchase Price. -5- ARTICLE IV COVENANTS OF SHAREHOLDER SECTION 4.1 Covenants of Shareholder. For so long as the Agreement ------------------------ is in effect, Shareholder agrees as follows: (a) Shareholder shall not, except as contemplated by the terms of this Agreement, knowingly take any action that would in any way restrict, limit or interfere with the performance of its obligations hereunder or the purchase of the Purchased Shares. (b) Shareholder will not, except as contemplated by the terms of this Agreement, (a) knowingly take, agree or commit to take any action that would make any representation or warranty of Shareholder hereunder inaccurate in any respect as of any time prior to the termination of this Agreement or (b) knowingly omit, or agree or commit to omit, to take any action necessary to prevent any such representation or warranty from being inaccurate in any respect at any such time. ARTICLE V MISCELLANEOUS SECTION 5.1 Expenses. All costs and expenses incurred by any party -------- in connection with this Agreement shall be paid by the party incurring such cost or expense (it being understood that Shareholder's costs and expenses incurred in connection with this Agreement may be paid for by the Company). SECTION 5.2 Specific Performance. Shareholder agrees that -------------------- irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that Purchaser shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the Federal courts of the United States of America located in the State of New Jersey, this being in addition to any other remedy to which they are entitled at law or in equity. SECTION 5.3 Notices. All notices, requests, claims, demands and ------- other communications hereunder shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) or by telecopy (with copies by overnight courier) to Purchaser at its -6- address set forth in the Tender Offer Agreement or Shareholder at the address for the Company set forth in the Tender Offer Agreement or to such other address as such party may have furnished to the other parties in writing in accordance herewith. SECTION 5.4 Amendments. This Agreement may not be modified, ---------- amended, altered or supplemented, except upon the execution and delivery of a written agreement executed by the parties hereto. SECTION 5.5 Successors and Assigns. Neither this Agreement nor any ---------------------- of the rights, interests or obligations hereunder shall be assigned by any of the parties without the prior written consent of the other parties, except that Purchaser may assign, in its sole discretion, any or all of its rights, interests and obligations hereunder to any direct or indirect wholly-owned subsidiary of Purchaser (it being understood that no such assignment shall relieve Purchaser of its obligations hereunder). Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by, the parties and their respective successors and assigns. Shareholder agrees that this Agreement and the obligations of Shareholder hereunder shall attach to Shareholder's Shares and shall be binding upon and inure to the benefit of any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including Shareholder's heirs, guardians, administrators or successors. SECTION 5.6 (a) Governing Law and Venue; Waiver of Jury Trial. --------------------------------------------- This Agreement shall be deemed to be made in and in all respects shall be interpreted, construed and governed by and in accordance with the law of the State of New Jersey applicable to contracts wholly made and performed in such state. The parties hereby irrevocably submit to the jurisdiction of the Federal courts of the United States of America located in the State of New Jersey solely in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that -7- all claims with respect to such action or proceeding shall be heard and determined in such a New Jersey Federal court. The parties hereby consent to and grant such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 5.3 or in such other manner as may be permitted by law shall be valid and sufficient service thereof. (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 5.6. SECTION 5.7 Counterparts; Effectiveness. This Agreement may be --------------------------- signed (including by facsimile) in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. SECTION 5.8 Stop Transfer Restriction. In furtherance of this ------------------------- Agreement, Shareholder hereby authorizes Purchaser's counsel to notify the Company's transfer agent that there is a stop transfer restriction with respect to all of Shareholder's Shares (and that this Agreement places limits on the voting and transfer of such shares). SECTION 5.9 Entire Agreement; No Third-Party Beneficiaries. This ---------------------------------------------- Agreement (i) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and (ii) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. -8- SECTION 5.10 Shareholder Capacity. By executing and delivering this -------------------- Agreement, Shareholder makes no agreement or understanding herein in his capacity as a director or officer of the Company or any subsidiary of the Company. Shareholder signs solely in his capacity as the beneficial owner of Shareholder's Shares and nothing herein shall limit or affect any actions taken by Shareholder in his capacity as an officer or director of the Company or any subsidiary of the Company. SECTION 5.11 Severability. If any term or other provision of this ------------ Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. SECTION 5.12 Survival. Sections 1.4 (Expiration), 5.1 (Expenses), -------- 5.2 (Specific Performance), 5.3 (Notices), 5.5 (Successors and Assigns), 5.6 (Governing Law), 5.9 (Entire Agreement; No Third-Party Beneficiaries), 5.11 (Severability) and this Section 5.12 shall survive expiration of this Agreement. All other representations, warranties, agreement and covenants in this Agreement shall not survive the termination of this Agreement. -9- The parties hereto have caused this Agreement to be duly executed as of the day and year first above written. KONINKLIJKE PHILIPS ELECTRONICS N.V. By: /s/ A. BAAN _____________________ Name: A. BAAN Title: Executive Vice President Royal Philips Electronics By: /s/ J.H.M. HOMMEN ______________________ Name: J.H.M. HOMMEN Title: Executive Vice President Royal Philips Electronics SHAREHOLDER By: /s/ RONALD SCARPONE ______________________ Name: RONALD SCARPONE Title: SVP -10- EX-99.(D)(1)(H) 16 0016.txt SHRHLDR AGREE./ROYAL PHILIPS & JOHN W. QUAINTANCE EXHIBIT (d)(1)(H) SHAREHOLDER AGREEMENT AGREEMENT, dated as of May 22, 2000 between Koninklijke Philips Electronics N.V., a corporation organized under the laws of The Netherlands ("Purchaser") and the beneficial owner ("Shareholder") of Shares of MedQuist --------- ----------- Inc., a New Jersey corporation (the "Company"). ------- WHEREAS, in order to induce Purchaser to enter into the Tender Offer Agreement, dated as of the date hereof, with the Company (the "Tender Offer ------------ Agreement"), Purchaser has requested Shareholder, and Shareholder has agreed, to - --------- enter into this Agreement and an employment agreement with the Company, dated of even date herewith, to become effective upon Purchaser's payment for Shares pursuant to the terms of the Offer (the "Employment Agreement"); -------------------- WHEREAS, to induce the Company to enter into the Tender Offer Agreement, the Company has requested, and Purchaser has agreed, to enter into a Governance Agreement and a License Agreement, each to become effective upon Purchaser's payment for Shares pursuant to the terms of the Offer; WHEREAS, Shareholder and Purchaser desire to make certain representations, warranties, covenants and agreements in connection with this Agreement; and WHEREAS, capitalized terms used herein but not defined herein shall have the respective meanings ascribed to such terms in the Tender Offer Agreement. NOW, THEREFORE, in consideration of the premises, and of the representations, warranties, covenants and agreements contained herein the parties hereto hereby agree as follows: ARTICLE I RESTRICTION ON TRANSFER; PURCHASE AND SALE OF SHAREHOLDER'S SHARES SECTION 1.1 Restrictions on Transfer. ------------------------ (a) Shareholder hereby agrees that, except as contemplated by Section 1.1(b) and Section 1.3 hereof (and provided that nothing herein shall prevent Shareholder from exercising any option for Shares held by Shareholder), during the period beginning on the date hereof and continuing to and including the date two years after the date hereof, the undersigned will not offer, sell, contract to sell, tender for sale, enter into a repurchase contract with respect to, lend, pledge, assign, hypothecate, encumber, dispose of, grant any right (including without limitation, any put or call option) to purchase, make any short sale or otherwise dispose of (i) any Shares, or any options or warrants to purchase any Shares, or any securities convertible into, exchangeable for or that represent the right to receive Shares, owned on the date hereof, (ii) any Shares issued upon the exercise of options or warrants to purchase any Shares referred to in the preceding clause (i), (iii) any options to purchase any Shares issued in accordance with the option grant contemplated by the Employment Agreement or (iv) any Shares issued upon the exercise of the options to purchase Shares referred to in the preceding clause (iii), in each case, owned directly by the undersigned or with respect to which the undersigned has beneficial ownership within the rules and regulations of the SEC (collectively the "Shareholder's Shares"). Without limiting the -------------------- generality of the foregoing, it is expressly agreed that Shareholder shall not engage in any derivative, hedging, swap or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of, or reduction of economic risk with respect to, the Shareholder's Shares even if such Shares would be disposed of by someone other than the Shareholder. (b) Notwithstanding the foregoing restrictions contained in subsection (a) above, Shareholder may (x) transfer any of Shareholder's Shares (i) as a bona fide gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the restrictions set forth herein, (ii) to any trust for the direct or indirect benefit of the Shareholder or the immediate family of the Shareholder, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value, or (iii) with the prior written consent of Purchaser or (y) take any of the actions that would otherwise be prohibited by subsection (a) above with respect to or in respect of zero Shares (which number of Shares includes, and is not in addition to, the Purchased Shares (as defined in Section 1.3)). For purposes of this Agreement, "immediate family" shall mean any relationship by blood, marriage or adoption, not more remote than first cousin. SECTION 1.2 Voting. ------ Shareholder hereby agrees that, during the time this Agreement is in effect, at any meeting of the shareholders of the Company, however called, or in any written consent in lieu -2- thereof, Shareholder shall, or shall cause the record holder(s) of Shareholder's Shares to (i) vote Shareholder's Shares against any action or agreement that would result in a breach in any material respect of any covenant, representation or warranty or any other obligation or agreement of the Company under the Tender Offer Agreement; and (ii) vote Shareholder's Shares against any action or agreement that would impede, interfere with, delay, postpone or attempt to discourage the Offer, including, but not limited to: (A) any acquisition agreement or other similar agreement related to an Acquisition Proposal, (B) any change in the Company's management or the Company Board, except as otherwise agreed to in writing by Purchaser or (C) any other material change in the Company's corporate structure or business. SECTION 1.3 Purchase and Sale of Shares by Purchaser. Subject to the ---------------------------------------- terms of this Agreement, promptly following expiration of the Offer (and in no event later than five (5) business days thereafter), and provided that Purchaser shall have accepted for payment and paid for Shares pursuant to the terms of the Offer, Shareholder shall sell to Purchaser, and Purchaser shall purchase from Shareholder, 29,600 Shares (the "Purchased Shares") at a price equal to the ---------------- price to be paid per Share in the Offer (the aggregate amount to be paid for the Shares being the "Purchase Price"). The closing of the transaction constituting -------------- the sale and purchase of the Shares shall take place at such location, time and date as Purchaser and Shareholder shall mutually agree (the "Closing"). At the ------- Closing, (i) Purchaser shall pay Shareholder the Purchase Price in immediately available funds by wire transfer to a bank account designated by Shareholder and (ii) Shareholder shall deliver to Purchaser (A) certificates representing the Purchased Shares, duly endorsed in blank for transfer or accompanied by duly executed blank stock powers together will all necessary stock transfer stamps affixed thereto, and such instruments as shall reasonably be required by Purchaser to transfer to Purchaser all right, title and interest in the Shares, free and clear of any liens or encumbrances and (B) such other documents and instruments as may be reasonably requested by Purchaser. SECTION 1.4 Expiration. Except as provided in Section 5.12, this ---------- Agreement and all of Shareholder's obligations hereunder shall terminate concurrent with the earlier of (a) the termination of the Tender Offer Agreement in accordance with its terms and (b) the occurrence of any of the conditions that result in a revocation of the Waiver (as such term is defined in Section 5(b) of the Employment Agreement). -3- ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER SECTION 2.1 Valid Title; Absence of Liens. Shareholder is the sole, ----------------------------- true, lawful and beneficial owner of Shareholder's Shares. Shareholder owns the Purchased Shares free and clear of any liens or encumbrances of any kind and there is no restriction on Shareholder's ability, power or right to transfer or dispose of the Purchased Shares. Upon delivery of the certificate or certificates for the Purchased Shares at the Closing, Purchaser will acquire valid title to the Purchased Shares free and clear of any encumbrances or liens of any kind other than restrictions imposed by applicable securities laws SECTION 2.2 Authority; Enforceability; Noncontravention. ------------------------------------------- (a) Shareholder has the requisite power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Shareholder and the consummation by Shareholder of the transactions contemplated by this Agreement have been duly authorized by all necessary action (including any consultation, approval or other action by or with any other person). This Agreement has been duly executed and delivered by Shareholder and constitutes a valid and binding obligation of Shareholder, enforceable against Shareholder in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (b) The execution and delivery of this Agreement by Shareholder does not, and the consummation by Shareholder of the transactions contemplated by this Agreement and compliance by Shareholder with the provisions of this Agreement will not, conflict with or result in any violation of, or default (with or without notice or lapse of time, or both) under, or result in the creation of any lien or encumbrance upon the Purchased Shares under, any provision of applicable law or regulation or of any agreement, judgment, injunction, order, decree, or other instrument binding on Shareholder. No consent, approval, order or authorization of, or registration, declaration or filing with or exemption by any Federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign, is required by or with respect to Shareholder in connection with -4- the execution and delivery of this Agreement by Shareholder or the consummation by Shareholder of the transactions contemplated by this Agreement, except for applicable requirements, if any, of (a) Sections 13 and 16 of the Exchange Act and the rules and regulations thereunder and (b) the HSR Act. SECTION 2.3 Total Shares. Schedule 2.3 sets forth (i) a true and ------------ accurate number of the number of Shares beneficially owned by Shareholder as of the date hereof, and (ii) a true and complete list of all options held by Shareholder as of the date hereof and the number, exercise price, vesting date and expiration date of each option. SECTION 2.4 Proxy. Shareholder represents that any proxy heretofore ----- given with respect to the Shareholder's Shares is not irrevocable. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER SECTION 3.1 Corporate Power and Authority; Enforceability. --------------------------------------------- Purchaser has the requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by Purchaser and the consummation of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser and constitutes a valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. SECTION 3.2 Investment Intent; Financing. Purchaser is acquiring ---------------------------- the Purchased Shares for its own account for investment purposes only and not with a view to, or for sale or resale in connection with, any public distribution thereof or with any present intention of selling, distributing or otherwise disposing of the Purchased Shares. Purchaser is an "accredited investor" within the meaning of Regulation D of the Securities Act. Purchaser has and will have at the Closing the funds necessary to pay the Purchase Price. -5- ARTICLE IV COVENANTS OF SHAREHOLDER SECTION 4.1 Covenants of Shareholder. For so long as the Agreement ------------------------ is in effect, Shareholder agrees as follows: (a) Shareholder shall not, except as contemplated by the terms of this Agreement, knowingly take any action that would in any way restrict, limit or interfere with the performance of its obligations hereunder or the purchase of the Purchased Shares. (b) Shareholder will not, except as contemplated by the terms of this Agreement, (a) knowingly take, agree or commit to take any action that would make any representation or warranty of Shareholder hereunder inaccurate in any respect as of any time prior to the termination of this Agreement or (b) knowingly omit, or agree or commit to omit, to take any action necessary to prevent any such representation or warranty from being inaccurate in any respect at any such time. ARTICLE V MISCELLANEOUS SECTION 5.1 Expenses. All costs and expenses incurred by any party -------- in connection with this Agreement shall be paid by the party incurring such cost or expense (it being understood that Shareholder's costs and expenses incurred in connection with this Agreement may be paid for by the Company). SECTION 5.2 Specific Performance. Shareholder agrees that -------------------- irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that Purchaser shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in the Federal courts of the United States of America located in the State of New Jersey, this being in addition to any other remedy to which they are entitled at law or in equity. SECTION 5.3 Notices. All notices, requests, claims, demands and ------- other communications hereunder shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) or by telecopy (with copies by overnight courier) to Purchaser at its -6- address set forth in the Tender Offer Agreement or Shareholder at the address for the Company set forth in the Tender Offer Agreement or to such other address as such party may have furnished to the other parties in writing in accordance herewith. SECTION 5.4 Amendments. This Agreement may not be modified, ---------- amended, altered or supplemented, except upon the execution and delivery of a written agreement executed by the parties hereto. SECTION 5.5 Successors and Assigns. Neither this Agreement nor any ---------------------- of the rights, interests or obligations hereunder shall be assigned by any of the parties without the prior written consent of the other parties, except that Purchaser may assign, in its sole discretion, any or all of its rights, interests and obligations hereunder to any direct or indirect wholly-owned subsidiary of Purchaser (it being understood that no such assignment shall relieve Purchaser of its obligations hereunder). Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by, the parties and their respective successors and assigns. Shareholder agrees that this Agreement and the obligations of Shareholder hereunder shall attach to Shareholder's Shares and shall be binding upon and inure to the benefit of any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including Shareholder's heirs, guardians, administrators or successors. SECTION 5.6 (a) Governing Law and Venue; Waiver of Jury Trial. --------------------------------------------- This Agreement shall be deemed to be made in and in all respects shall be interpreted, construed and governed by and in accordance with the law of the State of New Jersey applicable to contracts wholly made and performed in such state. The parties hereby irrevocably submit to the jurisdiction of the Federal courts of the United States of America located in the State of New Jersey solely in respect of the interpretation and enforcement of the provisions of this Agreement and of the documents referred to in this Agreement and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that -7- all claims with respect to such action or proceeding shall be heard and determined in such a New Jersey Federal court. The parties hereby consent to and grant such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 5.3 or in such other manner as may be permitted by law shall be valid and sufficient service thereof. (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 5.6. SECTION 5.7 Counterparts; Effectiveness. This Agreement may be --------------------------- signed (including by facsimile) in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. SECTION 5.8 Stop Transfer Restriction. In furtherance of this ------------------------- Agreement, Shareholder hereby authorizes Purchaser's counsel to notify the Company's transfer agent that there is a stop transfer restriction with respect to all of Shareholder's Shares (and that this Agreement places limits on the voting and transfer of such shares). SECTION 5.9 Entire Agreement; No Third-Party Beneficiaries. This ---------------------------------------------- Agreement (i) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and (ii) is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. -8- SECTION 5.10 Shareholder Capacity. By executing and delivering this -------------------- Agreement, Shareholder makes no agreement or understanding herein in his capacity as a director or officer of the Company or any subsidiary of the Company. Shareholder signs solely in his capacity as the beneficial owner of Shareholder's Shares and nothing herein shall limit or affect any actions taken by Shareholder in his capacity as an officer or director of the Company or any subsidiary of the Company. SECTION 5.11 Severability. If any term or other provision of this ------------ Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. SECTION 5.12 Survival. Sections 1.4 (Expiration), 5.1 (Expenses), -------- 5.2 (Specific Performance), 5.3 (Notices), 5.5 (Successors and Assigns), 5.6 (Governing Law), 5.9 (Entire Agreement; No Third-Party Beneficiaries), 5.11 (Severability) and this Section 5.12 shall survive expiration of this Agreement. All other representations, warranties, agreement and covenants in this Agreement shall not survive the termination of this Agreement. -9- The parties hereto have caused this Agreement to be duly executed as of the day and year first above written. KONINKLIJKE PHILIPS ELECTRONICS N.V. By: /s/ A. BAAN _____________________ Name: A. BAAN Title: Executive Vice President Royal Philips Electronics By: /s/ J.H.M. HOMMEN ______________________ Name: J.H.M. HOMMEN Title: Executive Vice President Royal Philips Electronics SHAREHOLDER By: /s/ JOHN W. QUAINTANCE _______________________ Name: JOHN W. QUAINTANCE Title: SVP -10- EX-99.(D)(1)(I) 17 0017.txt EMPLOY. AGREE. BET. MEDQUIST & JOHN M. SUENDER EXHIBIT (d)(1)(I) EXECUTION COPY -------------- EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 22nd day of May, 2000, by and between MedQuist Inc., a New Jersey corporation (the "Company"), and John M. Suender, a resident of Cherry Hill, New Jersey ("Employee"). BACKGROUND ---------- The Company desires to provide for Employee's continued employment with the Company. Employee desires to accept such employment on the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto, intending legally to be bound, hereby agree as follows: 1. Effective Date. This Agreement shall become effective at the time -------------- Koninklijke Philips Electronics N.V. ("Purchaser") pays for Shares (as defined in Section 1.1(a) of the Tender Offer Agreement, dated as of the date hereof, between Purchaser and the Company (the "Tender Offer Agreement")), pursuant to the terms of the Offer (as defined in Section 1.1(a) of the Tender Offer Agreement), provided that Employee is employed by the Company at such time. This Agreement cancels and supersedes any and all prior oral or written agreements and understandings (the "Prior Agreements") between or among any or all of the parties hereto with respect to the employment by or obligations of Employee to any thereof, with the exception of the Employee's obligations under any restrictive covenants or confidentiality provisions contained in any Prior Agreement, which covenants and provisions shall survive with respect to the time period prior to the Effective Date of this Agreement. This Agreement constitutes the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. 2. Employment. The Company hereby employs Employee as Senior Vice ---------- President and General Counsel of the Company and Employee hereby accepts such employment, upon the terms and conditions set forth in this Agreement. 3. Term. The Company shall employ Employee hereunder for a three (3) ---- year term commencing on the Effective Date hereof (the "Term"), which Term will be automatically extended for additional one (1) year periods beginning on the third anniversary of the Effective Date and upon each subsequent anniversary thereof unless either party provides the other party with at least ninety (90) days' prior written notice of its intention not to renew this Agreement. 4. Office and Duties. ----------------- a. Duties. During the Term, Employee shall render such services ------ as are appropriate for a person holding Employee's position and such additional or alternative duties as may from time to time be assigned to Employee by the Board of Directors of the Company ("Duties"). 5. Full Time Emp1oyment. During the Term, -------------------- Employee shall use Employee's best efforts to carry out the Duties and other obligations hereunder and devote Employee's entire working time to the business and affairs of the Company, and shall not, in any advisory or other capacity, work for any other individual, firm or corporation without the prior written consent of the Company. a. No Conflicting Agreements. Employee ------------------------- represents and warrants to the Company that he is not subject or a party to any Agreement, non-competition covenant, non-disclosure agreement or other agreement, covenant, understanding or restriction which would prohibit Employee from executing this Agreement or performing fully the Duties and other obligations hereunder, or which would in any manner, directly or indirectly, limit or affect the Duties or other obligations hereunder. b. Base Salary; Short Term Bonus; Options. -------------------------------------- As compensation for the services that Employee shall render hereunder, Employee shall be entitled to a total base salary of $185,000 per year ("Base Salary"), payable at such times as is consistent with the Company's pay periods -2- for other executives of the Company. In addition, Employee shall be eligible for participation in the Company's short term targeted bonus plan in an amount equal to up to 30% of Base Salary. Subject to approval of the Board of Directors, on or promptly following the Effective Date, the Company shall grant to Employee an option to purchase shares of the common stock of the Company under the Company's Incentive Stock Option Plan for Officers and Key Employees adopted by the Board of Directors on January 17, 1992 in accordance with the terms outlined on Schedule A annexed hereto. Employee agrees that the consummation of the transactions contemplated by the Tender Offer Agreement shall not constitute a "change in control" for purposes of all of the total of 75,000 outstanding unvested Company options he holds as of the Effective Date (the "Deferred Vesting Options") and hereby waives all rights to the accelerated vesting of the Deferred Vesting Options that would have occurred upon the consummation of the transactions authorized by the Tender Offer Agreement (the "Waiver"). Notwithstanding the foregoing, such Waiver shall be deemed revoked, and all Deferred Vesting Options will immediately vest in the event of (i) the Employee's death, (ii) the Employee's Disability, (iii) a termination by the Company of the Employee's employment without cause, (iv) the receipt by the Employee of notice from the Company of nonrenewal of the Agreement, (v) a voluntary resignation by the Employee following a required relocation of the Employee's principal place of business by more than fifty miles, or (vi) a failure by the Company to pay the compensation authorized by this Agreement, provided that Employee has given the Company notice of such breach and the Company has not cured such breach within thirty days of receipt of such notice (a "Material Breach"). 6. Other Benefits. During the Term, Employee will be eligible to -------------- receive the following benefits (collectively, "Benefits"): a. Savings and Retirement Plan. --------------------------- Participation in all savings, pension and retirement plans and programs of the Company generally available to other executives of the Company as in effect from time to time; b. Welfare Plans. Participation in any ------------- welfare benefit plans and programs of the Company as in effect from time to time; -3- c. Life Insurance. Life insurance -------------- maintained by the Company on the life of Employee (naming the beneficiary of Employee's choice) in an amount consistent with policy of the Company as in effect from time to time; d. Vacation. Paid vacation (taken -------- consecutively or in segments) in accordance with the Company's policies generally applicable to other executives of the Company from time to time, taken at such times as is reasonably consistent with proper performance by Employee of Employee's duties and responsibilities hereunder; and e. Car Allowance. The Company shall ------------- continue to provide a car allowance or use of an automobile to Employee, including all reasonable expenses of operation, consistent with the car allowance that is presently provided to Employee. 7. Reimbursement for Expenses. During the Term, -------------------------- the Company shall reimburse Employee in full for all reasonable and necessary business and travel expenses incurred by him in connection with the performance of the Duties (collectively, "Expenses"). Notwithstanding any provision herein to the contrary, the Company shall reimburse Employee only (i) upon presentation by Employee of written vouchers or expense statements satisfactorily evidencing such expenses as may be reasonably required by the Company and (ii) if such expenses are in accordance with the Company's policies generally applicable to executives of the Company. 8. Termination. ----------- a. Death or Disability. Subject to Section ------------------- 8.d. below, this Agreement shall terminate immediately upon Employee's death. Subject to Section 8.d. below, the Company may terminate Employee's employment hereunder in the event of physical or mental incapacity or disability which renders Employee unable to perform the Duties for a period of one hundred twenty (120) days or more during any period of twelve (12) consecutive months ("Disability"). b. Termination for Cause. Subject to Section 8.d. below, the Company may terminate this Agreement at any time with cause upon written notice to -4- Employee. Termination for "cause" shall mean discharge of the Employee by the Company on any of the following grounds: (i) Employee's indictment or conviction in a court of law of any crime or offense that makes Employee unfit for continuing employment, prevents Employee from performing the Duties or other obligations hereunder or adversely affects the reputation or business activities of the Company; (ii) Employee's dishonesty, substance abuse or misappropriation of funds; or (iii) Employee's failure or refusal to perform the Duties or other obligations hereunder. c. Resignation. Subject to Section 8.d. ----------- below, Employee may resign from his employment hereunder by giving the Company six (6) months' prior written notice. d. Obligations of the Company Upon ------------------------------- Termination. - ----------- (1) Termination for Cause; Resignation; ---------------------------------- Death or Disability. If the Company terminates Employee's employment hereunder - ------------------- for cause, or if Employee resigns, or if Employee dies or suffers a Disability, the Company shall have no further obligations to Employee hereunder other than for the payment of (i) accrued but unpaid salary prorated through the date of termination or effective date of resignation ("Accrued Salary"), (ii) any Benefits vested as of such date ("Vested Benefits") and (iii) unreimbursed Expenses incurred prior to such date. (2) Termination Without Cause, Upon ------------------------------- Required Relocation or Material Breach. If (i) the Company terminates - -------------------------------------- Employee's employment hereunder without cause or (ii) if the Employee voluntarily terminates his employment following a required relocation of his principal place of business by more than 50 miles or following a Material Breach, the Company shall have no further obligation to Employee hereunder other than for the payment of (i) Accrued Salary, (ii) a lump sum payment equal to (x) 1.5 multiplied by (y) the sum of all cash compensation awarded to Employee in the fiscal year immediately prior to -5- termination, or if Employee's compensation was higher or would be higher on an annualized basis, in the fiscal year in which such termination takes place, (iii) any Vested Benefits and (iv) unreimbursed Expenses incurred prior to the date of termination. 9. Restrictive Covenants and Confidentiality; ----------------------------------------- Injunctive Relief. - ----------------- a. As a condition to the performance by the Company of its obligations hereunder so long as Employee remains an employee of the Company, and for a period of two (2) years thereafter, Employee shall not, without the prior written approval of the Board of Directors of the Company, directly or indirectly through any other person, firm or corporation, whether individually or in conjunction with any other person, or as an employee, agent, representative, partner or holder of any interest in any other person, firm, corporation or other association: (i) solicit, entice or induce any person, firm or corporation who or which presently is, within eighteen (18) months prior hereto was, or at any time during the Term shall be, a client or customer of the Company or any of its subsidiaries to become a client or customer of any other person, firm or corporation, and Employee shall not approach any such person, firm or corporation for such purpose or authorize or knowingly approve the taking of such actions by any other person; or (ii) solicit, entice, induce or hire any person who presently is, within eighteen (18) months prior hereto was, or at any time during the term hereof shall be an employee of the Company or any of its subsidiaries to become employed by any other person, firm or corporation, and Employee shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other person; or (iii) compete with, or encourage or assist others to compete with, or solicit orders or otherwise participate in business transactions in the electronic transcription services and health information management solutions services businesses anywhere within the United States (each, a "Competing Business"); or -6- (iv) lend any credit or money for the purposes of establishing or operating or assisting any Person to establish or operate a Competing Business, or otherwise give aid or advice to any other person or entity engaging in any Competing Business; or (v) lend or allow his professional skill, knowledge or experience to be so used by any person or entity which is engaged in a Competing Business. Nothing in the foregoing shall prohibit Employee from engaging in any business that is not a Competing Business after termination of Employee's employment with the Company, or investing in the securities of any corporation (including a Competing Business) having securities listed on a national security exchange, provided that such investment does not exceed 5% of any class of securities of any corporation engaged in business in competition with the Company, and provided that such ownership represents a passive investment and that neither Employee nor any group of persons including Employee, in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes any part in its business, other than exercising Employee's rights as a shareholder, or seeks to do any of the foregoing. b. Employee acknowledges that during the Term, Employee will have access to confidential information of the Company, including plans for future developments, and information about costs, customers, potential customers, profits, markets, sales, products, key personnel, pricing policies, operational methods, technical processes and other business affairs and methods and other information not available to the public or in the public domain (hereinafter referred to as "Confidential Information"). In recognition of the foregoing, Employee covenants and agrees that, except as required by Employee's duties to the Company, Employee will keep secret all Confidential Information and will not, directly or indirectly, either during the Term or at any time thereafter, disclose or disseminate to anyone or make use of, for any purpose whatsoever, any Confidential Information, and upon termination of Employee's employment, Employee will promptly deliver to the Company all tangible materials containing Confidential Information (including -7- all copies thereof, whether prepared by Employee or others) which Employee may possess or have under Employee's control. c. Employee represents (i) that Employee's experience and capabilities are such that the restrictions contained herein will not prevent Employee from obtaining employment or otherwise earning a living at the same general economic benefit as reasonably required by Employee and (ii) that Employee has, prior to the execution of this Agreement, reviewed this Agreement thoroughly with Employee's legal counsel. d. Employee acknowledges that the services to be rendered by Employee are special, unique and extraordinary, that the restrictions contained in this Section 9 are reasonable and necessary to protect the legitimate business interests of the Company and that the Company and Parent would not have entered into the Tender Offer Agreement in the absence of such restrictions. By reason of the foregoing, Employee consents and agrees that if Employee violates any of the provisions of this Section 9, the Company would sustain irreparable harm and, therefore, irrevocably and unconditionally agrees that in addition to any other remedies which the Company may have under this Agreement or otherwise, all of which remedies shall be cumulative, the Company shall be entitled to apply to any court of competent jurisdiction for preliminary and permanent injunctive relief and other equitable relief. In the event that any of the provisions of this Section 9 hereof should ever be adjudicated to exceed the time, geographic, service, or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, service, or other limitations permitted by applicable law. e. Employee agrees that the Company may provide a copy of this Agreement to any business or enterprise (i) which the Employee may directly or indirectly own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing, or control of, or (ii) with which Employee may be connected with as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise, or in connection with which Employee may use or -8- permit Employee's name to be used. Employee will provide the names and addresses of any of such persons or entities as the Company may from time to time reasonably request. f. In the event of any breach or violation of the restriction contained in Section 9.a. above, the period therein specified shall abate during the time of any violation thereof and that portion remaining at the time of commencement of any violation shall not begin to run until such violation has been fully and finally cured. g. Employee acknowledges that the Company shall be the sole owner of all the results and proceeds of Employee's services hereunder, including but not limited to, all inventions, developments, enhancements, discoveries and other improvements relating to equipment, methods or processes connected with or useful to the Company's and its subsidiaries' businesses, (collectively, the "Developments"), which Developments Employee, by himself or in conjunction with any other person or entity, may conceive, make, acquire, acquire knowledge of, develop or create in connection with and during the term of or prior, to Employee's employment hereunder, free and clear of any claims by Employee (or any successor or assignee of Employee) of any kind or character whatsoever other than Employee's right to compensation hereunder. Employee hereby assigns and transfers his right, title and interest in and to all such Developments, and agrees that he shall, at the request of the Company, execute such assignments, certificates or other instruments, and do any and all other acts, as the Company from time to time reasonably deems necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend the Company's right, title and interest in or to any such Developments. Employee acknowledges that any Development which may be copyrightable shall be deemed to be "work for hire." 10. Survival. The provisions of Section 9 shall survive the -------- termination of this Agreement for any reason whatsoever. 11. Certain Additional Payments by the Company ------------------------------------------ a. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution -9- (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) to or for the benefit of Employee (whether pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 11) (the "Payments") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Company shall pay to Employee an additional payment (a "Gross-Up Payment") in an amount such that after payment by Employee of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the Payments and (y) the product of any deductions disallowed because of the inclusion of the Gross-Up Payment in Employee's adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, the Employee shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-Up Payment is to be made, (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and (iii) have otherwise allowable deductions for federal income tax purposes at least equal to those which could be disallowed because of the inclusion of the Gross- Up Payment in the Employee's adjusted gross income. Notwithstanding the foregoing provisions of this Section 11(a), if it shall be determined that Employee is entitled to a Gross-Up Payment, but that the Payments would not be subject to the Excise Tax if the Payments were reduced by an amount that is less than 10% of the portion of the Payments that would be treated as "parachute payments" under Section 280G of the Code, then the amounts payable to Employee under this Agreement shall be reduced (but not below zero) to the maximum amount that could be paid to Employee without -10- giving rise to the Excise Tax (the "Safe Harbor Cap"), and no Gross-Up Payment shall be made to Employee. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing first the payments under Section 8(d)(ii), unless an alternative method of reduction is elected by Employee. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amounts payable hereunder would not result in a reduction of the Payments to the Safe Harbor Cap, no amounts payable under this Agreement shall be reduced pursuant to this provision. Notwithstanding the foregoing, this Section 11 shall not apply to any stock option grant if the result of the application of such Section 11 would be to alter the basis on which compensation expense is measured for purposes of APB Opinion Number 25. b. Subject to the provisions of Section 11(a), all determinations required to be made under this Section 11, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment, the reduction of the Payments to the Safe Harbor Cap and the assumptions to be utilized in arriving at such determinations, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Employee within fifteen (15) business days of the receipt of notice from the Company or the Employee that there has been a Payment, or such earlier time as is requested by the Company (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, Employee may appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and the Company shall enter into any agreement requested by the Accounting Firm in connection with the performance of the services hereunder. The Gross-Up Payment under this Section 11 with respect to any Payments shall be made no later than thirty (30) days following such Payment. If the Accounting Firm determines that no Excise Tax is payable by Employee, it -11- shall furnish Employee with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on Employee's applicable federal income tax return will not result in the imposition of a negligence or similar penalty. In the event the Accounting Firm determines that the Payments shall be reduced to the Safe Harbor Cap, it shall furnish Employee with a written opinion to such effect. The Determination by the Accounting Firm shall be binding upon the Company and Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment") or Gross-Up Payments are made by the Company which should not have been made ("Overpayment"), consistent with the calculations required to be made hereunder. In the event that the Employee thereafter is required to make payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the benefit of Employee. In the event the amount of the Gross-Up Payment exceeds the amount necessary to reimburse the Employee for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid by Employee (to the extent he has received a refund if the applicable Excise Tax has been paid to the Internal Revenue Service) to or for the benefit of the Company. Employee shall cooperate, to the extent his expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. 12. Miscellaneous. ------------- a. Any notice authorized or required to be given or made by or pursuant to this Agreement shall be made in writing and either personally delivered or mailed by overnight express mail to the respective address of the party to receive such notice, which address is the one designated below the signature of such party hereto, or to such other address as a party may specify by notice to the -12- other parties hereto. In the event that the Company desires to terminate Employee for cause pursuant to Section 8.b. of this Agreement, the Company shall provide Employee with prompt written notice of such termination and, if requested by Employee, afford Employee a reasonable opportunity to cure such default within sixty (60) days after receipt of such notice. b. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Employee hereunder are of a personal nature and shall not be assignable or delegatable in whole or in part by Employee. c. If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. d. No remedy conferred upon any party by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by any party in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by the party possessing the same from time to time and as often as may be deemed expedient or necessary by such party in its sole discretion. e. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in marking proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. -13- f. In the event of a lawsuit by either party to enforce any provisions of this Agreement, the prevailing party shall be entitled to recover reasonable costs, expenses and attorney's fees from the other party. 13. Controlling Law. The validity, --------------- interpretation, construction, performance and enforcement of this Agreement shall be governed by the laws of the State of New Jersey, without reference to principles of conflicts of laws. Venue, for purposes of all causes of action, mediation, arbitration or other disputes shall be in Camden County, New Jersey. 14. Gender; Number. In this Agreement, words of -------------- gender may be read as masculine, feminine, or neuter, as required by context. Words of number may be read as singular or plural, as required by context. -14- IN WITNESS WHEREOF, Employee has hereunto set Employee's hand and the Company has caused this instrument to be duly executed as of the day and year first above written. EMPLOYEE /s/ John M. Suender ---------------------------------- John M. Suender MEDQUIST INC. /s/ David A. Cohen ---------------------------------- Title: Chairman and Chief Executive Officer MedQuist Inc. Five Greentree Centre Suite 311 Marlton, New Jersey 08053 -15- EX-99.(D)(1)(J) 18 0018.txt EMPLOY. AGREE. BET. MEDQUIST & DAVID A. COHEN EXHIBIT (d)(1)(J) EXECUTION COPY -------------- EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 22nd day of May, 2000, by and between MedQuist Inc., a New Jersey corporation (the "Company"), and David A. Cohen, a resident of Philadelphia, Pennsylvania ("Employee"). BACKGROUND ---------- The Company desires to provide for Employee's continued employment with the Company. Employee desires to accept such employment on the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto, intending legally to be bound, hereby agree as follows: 1. Effective Date. This Agreement shall become effective at the time -------------- Koninklijke Philips Electronics N.V. ("Purchaser") pays for Shares (as defined in Section 1.1(a) of the Tender Offer Agreement, dated as of the date hereof, between Purchaser and the Company (the "Tender Offer Agreement")), pursuant to the terms of the Offer (as defined in Section 1.1(a) of the Tender Offer Agreement), provided that Employee is employed by the Company at such time. This Agreement cancels and supersedes any and all prior oral or written agreements and understandings (the "Prior Agreements") between or among any or all of the parties hereto with respect to the employment by or obligations of Employee to any thereof, with the exception of the Employee's obligations under any restrictive covenants or confidentiality provisions contained in any Prior Agreement, which covenants and provisions shall survive with respect to the time period prior to the Effective Date of this Agreement. This Agreement constitutes the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. 2. Employment. The Company hereby employs Employee as Chairman and ---------- Chief Executive Officer of the Company and Employee hereby accepts such employment, upon the terms and conditions set forth in this Agreement. 3. Term. The Company shall employ Employee hereunder for a three (3) ---- year term commencing on the Effective Date hereof (the "Term"), which Term will be automatically extended for additional one (1) year periods beginning on the third anniversary of the Effective Date and upon each subsequent anniversary thereof unless either party provides the other party with at least ninety (90) days' prior written notice of its intention not to renew this Agreement. 4. Office and Duties. ----------------- a. Duties. During the Term, Employee shall ------ render such services as are appropriate for a person holding Employee's position and such additional or alternative duties as may from time to time be assigned to Employee by the Board of Directors of the Company ("Duties"). 5. Full Time Emp1oyment. During the Term, -------------------- Employee shall use Employee's best efforts to carry out the Duties and other obligations hereunder and devote Employee's entire working time to the business and affairs of the Company, and shall not, in any advisory or other capacity, work for any other individual, firm or corporation without the prior written consent of the Company. a. No Conflicting Agreements. Employee ------------------------- represents and warrants to the Company that he is not subject or a party to any Agreement, non-competition covenant, non-disclosure agreement or other agreement, covenant, understanding or restriction which would prohibit Employee from executing this Agreement or performing fully the Duties and other obligations hereunder, or which would in any manner, directly or indirectly, limit or affect the Duties or other obligations hereunder. b. Base Salary; Short Term Bonus; Options. -------------------------------------- As compensation for the services that Employee shall render hereunder, Employee shall be entitled to a total base salary of $460,000 per year ("Base Salary"), payable at such times as is consistent with the Company's pay periods -2- for other executives of the Company. In addition, Employee shall be eligible for participation in the Company's short term targeted bonus plan in an amount equal to up to 75% of Base Salary. Subject to approval of the Board of Directors, on or promptly following the Effective Date, the Company shall grant to Employee an option to purchase shares of the common stock of the Company under the Company's Incentive Stock Option Plan for Officers and Key Employees adopted by the Board of Directors on January 17, 1992 in accordance with the terms outlined on Schedule A annexed hereto. Employee agrees that the consummation of the transactions contemplated by the Tender Offer Agreement shall not constitute a "change in control" for purposes of all of the total of 365,998 outstanding unvested Company options he will hold as of the Effective Date (the "Deferred Vesting Options") and hereby waives all rights to the accelerated vesting of the Deferred Vesting Options that would have occurred upon the consummation of the transactions authorized by the Tender Offer Agreement (the "Waiver"). Notwithstanding the foregoing, such Waiver shall be deemed revoked, and all Deferred Vesting Options will immediately vest in the event of (i) the Employee's death, (ii) the Employee's Disability, (iii) a termination by the Company of the Employee's employment without cause, (iv) the receipt by the Employee of notice from the Company of nonrenewal of the Agreement, (v) a voluntary resignation by the Employee following a required relocation of the Employee's principal place of business by more than fifty miles, or (vi) a failure by the Company to pay the compensation authorized by this Agreement, provided that Employee has given the Company notice of such breach and the Company has not cured such breach within thirty days of receipt of such notice (a "Material Breach"). 6. Other Benefits. During the Term, Employee -------------- will be eligible to receive the following benefits (collectively, "Benefits"): a. Savings and Retirement Plans. ---------------------------- Participation in all savings, pension and retirement plans and programs of the Company generally available to other executives of the Company as in effect from time to time; b. Welfare Plans. Participation in any welfare benefit plans and ------------- programs of the Company as in effect from time to time; -3- c. Life Insurance. Life insurance -------------- maintained by the Company on the life of Employee (naming the beneficiary of Employee's choice) in an amount consistent with policy of the Company as in effect from time to time; d. Vacation. Paid vacation (taken -------- consecutively or in segments) in accordance with the Company's policies generally applicable to other executives of the Company from time to time, taken at such times as is reasonably consistent with proper performance by Employee of Employee's duties and responsibilities hereunder; and e. Car Allowance. The Company shall ------------- continue to provide a car allowance or use of an automobile to Employee, including all reasonable expenses of operation, consistent with the car allowance that is presently provided to Employee. 7. Reimbursement for Expenses. During the Term, -------------------------- the Company shall reimburse Employee in full for all reasonable and necessary business and travel expenses incurred by him in connection with the performance of the Duties (collectively, "Expenses"). Notwithstanding any provision herein to the contrary, the Company shall reimburse Employee only (i) upon presentation by Employee of written vouchers or expense statements satisfactorily evidencing such expenses as may be reasonably required by the Company and (ii) if such expenses are in accordance with the Company's policies generally applicable to executives of the Company. 8. Termination. ----------- a. Death or Disability. Subject to Section ------------------- 8.d. below, this Agreement shall terminate immediately upon Employee's death. Subject to Section 8.d. below, the Company may terminate Employee's employment hereunder in the event of physical or mental incapacity or disability which renders Employee unable to perform the Duties for a period of one hundred twenty (120) days or more during any period of twelve (12) consecutive months ("Disability"). b. Termination for Cause. Subject to --------------------- Section 8.d. below, the Company may terminate this Agreement at any time with cause upon written notice to -4- Employee. Termination for "cause" shall mean discharge of the Employee by the Company on any of the following grounds: (i) Employee's indictment or conviction in a court of law of any crime or offense that makes Employee unfit for continuing employment, prevents Employee from performing the Duties or other obligations hereunder or adversely affects the reputation or business activities of the Company; (ii) Employee's dishonesty, substance abuse or misappropriation of funds; or (iii) Employee's failure or refusal to perform the Duties or other obligations hereunder. c. Resignation. Subject to Section 8.d. ----------- below, Employee may resign from his employment hereunder by giving the Company six (6) months' prior written notice. d. Obligations of the Company Upon ------------------------------- Termination. - ----------- (1) Termination for Cause; Resignation; ---------------------------------- Death or Disability. If the Company terminates Employee's employment hereunder - ------------------- for cause, or if Employee resigns, or if Employee dies or suffers a Disability, the Company shall have no further obligations to Employee hereunder other than for the payment of (i) accrued but unpaid salary prorated through the date of termination or effective date of resignation ("Accrued Salary"), (ii) any Benefits vested as of such date ("Vested Benefits") and (iii) unreimbursed Expenses incurred prior to such date. (2) Termination Without Cause, Upon ------------------------------- Required Relocation or Material Breach. If (i) the Company terminates - -------------------------------------- Employee's employment hereunder without cause or (ii) if the Employee voluntarily terminates his employment following a required relocation of his principal place of business by more than 50 miles or following a Material Breach, the Company shall have no further obligation to Employee hereunder other than for the payment of (i) Accrued Salary, (ii) a lump sum payment equal to (x) 2 multiplied by (y) the sum of all cash compensation awarded to Employee in the fiscal year immediately prior to -5- termination, or if Employee's compensation was higher or would be higher on an annualized basis, in the fiscal year in which such termination takes place, (iii) any Vested Benefits and (iv) unreimbursed Expenses incurred prior to the date of termination. 9. Restrictive Covenants and Confidentiality; ----------------------------------------- Injunctive Relief. - ----------------- a. As a condition to the performance by the Company of its obligations hereunder so long as Employee remains an employee of the Company, and for a period of two (2) years thereafter, Employee shall not, without the prior written approval of the Board of Directors of the Company, directly or indirectly through any other person, firm or corporation, whether individually or in conjunction with any other person, or as an employee, agent, representative, partner or holder of any interest in any other person, firm, corporation or other association: (i) solicit, entice or induce any person, firm or corporation who or which presently is, within eighteen (18) months prior hereto was, or at any time during the Term shall be, a client or customer of the Company or any of its subsidiaries to become a client or customer of any other person, firm or corporation, and Employee shall not approach any such person, firm or corporation for such purpose or authorize or knowingly approve the taking of such actions by any other person; or (ii) solicit, entice, induce or hire any person who presently is, within eighteen (18) months prior hereto was, or at any time during the term hereof shall be an employee of the Company or any of its subsidiaries to become employed by any other person, firm or corporation, and Employee shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other person; or (iii) compete with, or encourage or assist others to compete with, or solicit orders or otherwise participate in business transactions in the electronic transcription services and health information management solutions services businesses anywhere within the United States (each, a "Competing Business"); or -6- (iv) lend any credit or money for the purposes of establishing or operating or assisting any Person to establish or operate a Competing Business, or otherwise give aid or advice to any other person or entity engaging in any Competing Business; or (v) lend or allow his professional skill, knowledge or experience to be so used by any person or entity which is engaged in a Competing Business. Nothing in the foregoing shall prohibit Employee from engaging in any business that is not a Competing Business after termination of Employee's employment with the Company, or investing in the securities of any corporation (including a Competing Business) having securities listed on a national security exchange, provided that such investment does not exceed 5% of any class of securities of any corporation engaged in business in competition with the Company, and provided that such ownership represents a passive investment and that neither Employee nor any group of persons including Employee, in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes any part in its business, other than exercising Employee's rights as a shareholder, or seeks to do any of the foregoing. b. Employee acknowledges that during the Term, Employee will have access to confidential information of the Company, including plans for future developments, and information about costs, customers, potential customers, profits, markets, sales, products, key personnel, pricing policies, operational methods, technical processes and other business affairs and methods and other information not available to the public or in the public domain (hereinafter referred to as "Confidential Information"). In recognition of the foregoing, Employee covenants and agrees that, except as required by Employee's duties to the Company, Employee will keep secret all Confidential Information and will not, directly or indirectly, either during the Term or at any time thereafter, disclose or disseminate to anyone or make use of, for any purpose whatsoever, any Confidential Information, and upon termination of Employee's employment, Employee will promptly deliver to the Company all tangible materials containing Confidential Information (including -7- all copies thereof, whether prepared by Employee or others) which Employee may possess or have under Employee's control. c. Employee represents (i) that Employee's experience and capabilities are such that the restrictions contained herein will not prevent Employee from obtaining employment or otherwise earning a living at the same general economic benefit as reasonably required by Employee and (ii) that Employee has, prior to the execution of this Agreement, reviewed this Agreement thoroughly with Employee's legal counsel. d. Employee acknowledges that the services to be rendered by Employee are special, unique and extraordinary, that the restrictions contained in this Section 9 are reasonable and necessary to protect the legitimate business interests of the Company and that the Company and Parent would not have entered into the Tender Offer Agreement in the absence of such restrictions. By reason of the foregoing, Employee consents and agrees that if Employee violates any of the provisions of this Section 9, the Company would sustain irreparable harm and, therefore, irrevocably and unconditionally agrees that in addition to any other remedies which the Company may have under this Agreement or otherwise, all of which remedies shall be cumulative, the Company shall be entitled to apply to any court of competent jurisdiction for preliminary and permanent injunctive relief and other equitable relief. In the event that any of the provisions of this Section 9 hereof should ever be adjudicated to exceed the time, geographic, service, or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, service, or other limitations permitted by applicable law. e. Employee agrees that the Company may provide a copy of this Agreement to any business or enterprise (i) which the Employee may directly or indirectly own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing, or control of, or (ii) with which Employee may be connected with as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise, or in connection with which Employee may use or -8- permit Employee's name to be used. Employee will provide the names and addresses of any of such persons or entities as the Company may from time to time reasonably request. f. In the event of any breach or violation of the restriction contained in Section 9.a. above, the period therein specified shall abate during the time of any violation thereof and that portion remaining at the time of commencement of any violation shall not begin to run until such violation has been fully and finally cured. g. Employee acknowledges that the Company shall be the sole owner of all the results and proceeds of Employee's services hereunder, including but not limited to, all inventions, developments, enhancements, discoveries and other improvements relating to equipment, methods or processes connected with or useful to the Company's and its subsidiaries' businesses, (collectively, the "Developments"), which Developments Employee, by himself or in conjunction with any other person or entity, may conceive, make, acquire, acquire knowledge of, develop or create in connection with and during the term of or prior, to Employee's employment hereunder, free and clear of any claims by Employee (or any successor or assignee of Employee) of any kind or character whatsoever other than Employee's right to compensation hereunder. Employee hereby assigns and transfers his right, title and interest in and to all such Developments, and agrees that he shall, at the request of the Company, execute such assignments, certificates or other instruments, and do any and all other acts, as the Company from time to time reasonably deems necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend the Company's right, title and interest in or to any such Developments. Employee acknowledges that any Development which may be copyrightable shall be deemed to be "work for hire." 10. Survival. The provisions of Section 9 shall -------- survive the termination of this Agreement for any reason whatsoever. 11. Certain Additional Payments by the Company ------------------------------------------ a. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution -9- (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) to or for the benefit of Employee (whether pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 11) (the "Payments") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Company shall pay to Employee an additional payment (a "Gross-Up Payment") in an amount such that after payment by Employee of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the Payments and (y) the product of any deductions disallowed because of the inclusion of the Gross-Up Payment in Employee's adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, the Employee shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-Up Payment is to be made, (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and (iii) have otherwise allowable deductions for federal income tax purposes at least equal to those which could be disallowed because of the inclusion of the Gross- Up Payment in the Employee's adjusted gross income. Notwithstanding the foregoing provisions of this Section 11(a), if it shall be determined that Employee is entitled to a Gross-Up Payment, but that the Payments would not be subject to the Excise Tax if the Payments were reduced by an amount that is less than 10% of the portion of the Payments that would be treated as "parachute payments" under Section 280G of the Code, then the amounts payable to Employee under this Agreement shall be reduced (but not below zero) to the maximum amount that could be paid to Employee without -10- giving rise to the Excise Tax (the "Safe Harbor Cap"), and no Gross-Up Payment shall be made to Employee. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing first the payments under Section 8(d)(ii), unless an alternative method of reduction is elected by Employee. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amounts payable hereunder would not result in a reduction of the Payments to the Safe Harbor Cap, no amounts payable under this Agreement shall be reduced pursuant to this provision. Notwithstanding the foregoing, this Section 11 shall not apply to any stock option grant if the result of the application of such Section 11 would be to alter the basis on which compensation expense is measured for purposes of APB Opinion Number 25. b. Subject to the provisions of Section 11(a), all determinations required to be made under this Section 11, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment, the reduction of the Payments to the Safe Harbor Cap and the assumptions to be utilized in arriving at such determinations, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Employee within fifteen (15) business days of the receipt of notice from the Company or the Employee that there has been a Payment, or such earlier time as is requested by the Company (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, Employee may appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and the Company shall enter into any agreement requested by the Accounting Firm in connection with the performance of the services hereunder. The Gross-Up Payment under this Section 11 with respect to any Payments shall be made no later than thirty (30) days following such Payment. If the Accounting Firm determines that no Excise Tax is payable by Employee, it -11- shall furnish Employee with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on Employee's applicable federal income tax return will not result in the imposition of a negligence or similar penalty. In the event the Accounting Firm determines that the Payments shall be reduced to the Safe Harbor Cap, it shall furnish Employee with a written opinion to such effect. The Determination by the Accounting Firm shall be binding upon the Company and Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment") or Gross-Up Payments are made by the Company which should not have been made ("Overpayment"), consistent with the calculations required to be made hereunder. In the event that the Employee thereafter is required to make payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the benefit of Employee. In the event the amount of the Gross-Up Payment exceeds the amount necessary to reimburse the Employee for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid by Employee (to the extent he has received a refund if the applicable Excise Tax has been paid to the Internal Revenue Service) to or for the benefit of the Company. Employee shall cooperate, to the extent his expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. 12. Miscellaneous. ------------- a. Any notice authorized or required to be given or made by or pursuant to this Agreement shall be made in writing and either personally delivered or mailed by overnight express mail to the respective address of the party to receive such notice, which address is the one designated below the signature of such party hereto, or to such other address as a party may specify by notice to the -12- other parties hereto. In the event that the Company desires to terminate Employee for cause pursuant to Section 8.b. of this Agreement, the Company shall provide Employee with prompt written notice of such termination and, if requested by Employee, afford Employee a reasonable opportunity to cure such default within sixty (60) days after receipt of such notice. b. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Employee hereunder are of a personal nature and shall not be assignable or delegatable in whole or in part by Employee. c. If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. d. No remedy conferred upon any party by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by any party in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by the party possessing the same from time to time and as often as may be deemed expedient or necessary by such party in its sole discretion. e. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in marking proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. -13- f. In the event of a lawsuit by either party to enforce any provisions of this Agreement, the prevailing party shall be entitled to recover reasonable costs, expenses and attorney's fees from the other party. 13. Controlling Law. The validity, --------------- interpretation, construction, performance and enforcement of this Agreement shall be governed by the laws of the State of New Jersey, without reference to principles of conflicts of laws. Venue, for purposes of all causes of action, mediation, arbitration or other disputes shall be in Camden County, New Jersey. 14. Gender; Number. In this Agreement, words of -------------- gender may be read as masculine, feminine, or neuter, as required by context. Words of number may be read as singular or plural, as required by context. -14- IN WITNESS WHEREOF, Employee has hereunto set Employee's hand and the Company has caused this instrument to be duly executed as of the day and year first above written. EMPLOYEE /s/ David A. Cohen ---------------------------------- David A. Cohen MEDQUIST INC. /s/ John M. Suender ---------------------------------- Title: Senior Vice President MedQuist Inc. Five Greentree Centre Suite 311 Marlton, New Jersey 08053 -15- EX-99.(D)(1)(K) 19 0019.txt EMPLOY. AGREE. BET. MEDQUIST & JOHN A. DONOHOE Exhibit (d)(1)(K) EXECUTION COPY -------------- EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 22nd day of May, 2000, by and between MedQuist Inc., a New Jersey corporation (the "Company"), and John A. Donohoe, Jr. a resident of Holland, Pennsylvania ("Employee"). BACKGROUND ---------- The Company desires to provide for Employee's continued employment with the Company. Employee desires to accept such employment on the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto, intending legally to be bound, hereby agree as follows: 1. Effective Date. This Agreement shall become effective at the time -------------- Koninklijke Philips Electronics N.V. ("Purchaser") pays for Shares (as defined in Section 1.1(a) of the Tender Offer Agreement, dated as of the date hereof, between Purchaser and the Company (the "Tender Offer Agreement")), pursuant to the terms of the Offer (as defined in Section 1.1(a) of the Tender Offer Agreement), provided that Employee is employed by the Company at such time. This Agreement cancels and supersedes any and all prior oral or written agreements and understandings (the "Prior Agreements") between or among any or all of the parties hereto with respect to the employment by or obligations of Employee to any thereof, with the exception of the Employee's obligations under any restrictive covenants or confidentiality provisions contained in any Prior Agreement, which covenants and provisions shall survive with respect to the time period prior to the Effective Date of this Agreement. This Agreement constitutes the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. 2. Employment. The Company hereby employs Employee as President and Chief ---------- Operating Officer of the Company and Employee hereby accepts such employment, upon the terms and conditions set forth in this Agreement. 3. Term. The Company shall employ Employee hereunder for a three (3) year term ---- commencing on the Effective Date hereof (the "Term"), which Term will be automatically extended for additional one (1) year periods beginning on the third anniversary of the Effective Date and upon each subsequent anniversary thereof unless either party provides the other party with at least ninety (90) days' prior written notice of its intention not to renew this Agreement. 4. Office and Duties. ----------------- a. Duties. During the Term, Employee shall render such services as are ------ appropriate for a person holding Employee's position and such additional or alternative duties as may from time to time be assigned to Employee by the Board of Directors of the Company ("Duties"). 5. Full Time Emp1oyment. During the Term, Employee shall use Employee's best -------------------- efforts to carry out the Duties and other obligations hereunder and devote Employee's entire working time to the business and affairs of the Company, and shall not, in any advisory or other capacity, work for any other individual, firm or corporation without the prior written consent of the Company. a. No Conflicting Agreements. Employee represents and warrants to the ------------------------- Company that he is not subject or a party to any Agreement, non-competition covenant, non-disclosure agreement or other agreement, covenant, understanding or restriction which would prohibit Employee from executing this Agreement or performing fully the Duties and other obligations hereunder, or which would in any manner, directly or indirectly, limit or affect the Duties or other obligations hereunder. b. Base Salary; Short Term Bonus; Options. As compensation for the services -------------------------------------- that Employee shall render hereunder, Employee shall be entitled to a total base salary of $300,000 per year ("Base Salary"), payable at such times as is consistent with the Company's pay periods -2- for other executives of the Company. In addition, Employee shall be eligible for participation in the Company's short term targeted bonus plan in an amount equal to up to 45% of Base Salary. Subject to approval of the Board of Directors, on or promptly following the Effective Date, the Company shall grant to Employee an option to purchase shares of the common stock of the Company under the Company's Incentive Stock Option Plan for Officers and Key Employees adopted by the Board of Directors on January 17, 1992 in accordance with the terms outlined on Schedule A annexed hereto. Employee agrees that the consummation of the transactions contemplated by the Tender Offer Agreement shall not constitute a "change in control" for purposes of all of the total of 159,000 outstanding unvested Company options he will hold as of the Effective Date (the "Deferred Vesting Options") and hereby waives all rights to the accelerated vesting of the Deferred Vesting Options that would have occurred upon the consummation of the transactions authorized by the Tender Offer Agreement (the "Waiver"). Notwithstanding the foregoing, such Waiver shall be deemed revoked, and all Deferred Vesting Options will immediately vest in the event of (i) the Employee's death, (ii) the Employee's Disability, (iii) a termination by the Company of the Employee's employment without cause, (iv) the receipt by the Employee of notice from the Company of nonrenewal of the Agreement, (v) a voluntary resignation by the Employee following a required relocation of the Employee's principal place of business by more than fifty miles, or (vi) a failure by the Company to pay the compensation authorized by this Agreement, provided that Employee has given the Company notice of such breach and the Company has not cured such breach within thirty days of receipt of such notice (a "Material Breach"). 6. Other Benefits. During the Term, Employee will be eligible to receive -------------- the following benefits (collectively, "Benefits"): a. Savings and Retirement Plans. Participation in all savings, pension ---------------------------- and retirement plans and programs of the Company generally available to other executives of the Company as in effect from time to time; b. Welfare Plans. Participation in any welfare benefit plans and ------------- programs of the Company as in effect from time to time; -3- c. Life Insurance. Life insurance maintained by the Company on the life -------------- of Employee (naming the beneficiary of Employee's choice) in an amount consistent with policy of the Company as in effect from time to time; d. Vacation. Paid vacation (taken consecutively or in segments) in -------- accordance with the Company's policies generally applicable to other executives of the Company from time to time, taken at such times as is reasonably consistent with proper performance by Employee of Employee's duties and responsibilities hereunder; and e. Car Allowance. The Company shall continue to provide a car allowance ------------- or use of an automobile to Employee, including all reasonable expenses of operation, consistent with the car allowance that is presently provided to Employee. 7. Reimbursement for Expenses. During the Term, the Company shall reimburse -------------------------- Employee in full for all reasonable and necessary business and travel expenses incurred by him in connection with the performance of the Duties (collectively, "Expenses"). Notwithstanding any provision herein to the contrary, the Company shall reimburse Employee only (i) upon presentation by Employee of written vouchers or expense statements satisfactorily evidencing such expenses as may be reasonably required by the Company and (ii) if such expenses are in accordance with the Company's policies generally applicable to executives of the Company. 8. Termination. ----------- a. Death or Disability. Subject to Section 8.d. below, this Agreement ------------------- shall terminate immediately upon Employee's death. Subject to Section 8.d. below, the Company may terminate Employee's employment hereunder in the event of physical or mental incapacity or disability which renders Employee unable to perform the Duties for a period of one hundred twenty (120) days or more during any period of twelve (12) consecutive months ("Disability"). b. Termination for Cause. Subject to Section 8.d. below, the Company may --------------------- terminate this Agreement at any time with cause upon written notice to -4- Employee. Termination for "cause" shall mean discharge of the Employee by the Company on any of the following grounds: (i) Employee's indictment or conviction in a court of law of any crime or offense that makes Employee unfit for continuing employment, prevents Employee from performing the Duties or other obligations hereunder or adversely affects the reputation or business activities of the Company; (ii) Employee's dishonesty, substance abuse or misappropriation of funds; or (iii) Employee's failure or refusal to perform the Duties or other obligations hereunder. c. Resignation. Subject to Section 8.d. below, Employee may resign ----------- from his employment hereunder by giving the Company six (6) months' prior written notice. d. Obligations of the Company Upon Termination. ------------------------------------------- (1) Termination for Cause; Resignation; Death or Disability. ------------------------------------------------------- If the Company terminates Employee's employment hereunder for cause, or if Employee resigns, or if Employee dies or suffers a Disability, the Company shall have no further obligations to Employee hereunder other than for the payment of (i) accrued but unpaid salary prorated through the date of termination or effective date of resignation ("Accrued Salary"), (ii) any Benefits vested as of such date ("Vested Benefits") and (iii) unreimbursed Expenses incurred prior to such date. (2) Termination Without Cause, Upon Required Relocation or ------------------------------------------------------ Material Breach. If (i) the Company terminates Employee's employment hereunder - --------------- without cause or (ii) if the Employee voluntarily terminates his employment following a required relocation of his principal place of business by more than 50 miles or following a Material Breach, the Company shall have no further obligation to Employee hereunder other than for the payment of (i) Accrued Salary, (ii) a lump sum payment equal to (x) 2 multiplied by (y) the sum of all cash compensation awarded to Employee in the fiscal year immediately prior to -5- termination, or if Employee's compensation was higher or would be higher on an annualized basis, in the fiscal year in which such termination takes place, (iii) any Vested Benefits and (iv) unreimbursed Expenses incurred prior to the date of termination. 9. Restrictive Covenants and Confidentiality; Injunctive Relief. ------------------------------------------------------------ a. As a condition to the performance by the Company of its obligations hereunder so long as Employee remains an employee of the Company, and for a period of two (2) years thereafter, Employee shall not, without the prior written approval of the Board of Directors of the Company, directly or indirectly through any other person, firm or corporation, whether individually or in conjunction with any other person, or as an employee, agent, representative, partner or holder of any interest in any other person, firm, corporation or other association: (i) solicit, entice or induce any person, firm or corporation who or which presently is, within eighteen (18) months prior hereto was, or at any time during the Term shall be, a client or customer of the Company or any of its subsidiaries to become a client or customer of any other person, firm or corporation, and Employee shall not approach any such person, firm or corporation for such purpose or authorize or knowingly approve the taking of such actions by any other person; or (ii) solicit, entice, induce or hire any person who presently is, within eighteen (18) months prior hereto was, or at any time during the term hereof shall be an employee of the Company or any of its subsidiaries to become employed by any other person, firm or corporation, and Employee shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other person; or (iii) compete with, or encourage or assist others to compete with, or solicit orders or otherwise participate in business transactions in the electronic transcription services and health information management solutions services businesses anywhere within the United States (each, a "Competing Business"); or -6- (iv) lend any credit or money for the purposes of establishing or operating or assisting any Person to establish or operate a Competing Business, or otherwise give aid or advice to any other person or entity engaging in any Competing Business; or (v) lend or allow his professional skill, knowledge or experience to be so used by any person or entity which is engaged in a Competing Business. Nothing in the foregoing shall prohibit Employee from engaging in any business that is not a Competing Business after termination of Employee's employment with the Company, or investing in the securities of any corporation (including a Competing Business) having securities listed on a national security exchange, provided that such investment does not exceed 5% of any class of securities of any corporation engaged in business in competition with the Company, and provided that such ownership represents a passive investment and that neither Employee nor any group of persons including Employee, in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes any part in its business, other than exercising Employee's rights as a shareholder, or seeks to do any of the foregoing. b. Employee acknowledges that during the Term, Employee will have access to confidential information of the Company, including plans for future developments, and information about costs, customers, potential customers, profits, markets, sales, products, key personnel, pricing policies, operational methods, technical processes and other business affairs and methods and other information not available to the public or in the public domain (hereinafter referred to as "Confidential Information"). In recognition of the foregoing, Employee covenants and agrees that, except as required by Employee's duties to the Company, Employee will keep secret all Confidential Information and will not, directly or indirectly, either during the Term or at any time thereafter, disclose or disseminate to anyone or make use of, for any purpose whatsoever, any Confidential Information, and upon termination of Employee's employment, Employee will promptly deliver to the Company all tangible materials containing Confidential Information (including -7- all copies thereof, whether prepared by Employee or others) which Employee may possess or have under Employee's control. c. Employee represents (i) that Employee's experience and capabilities are such that the restrictions contained herein will not prevent Employee from obtaining employment or otherwise earning a living at the same general economic benefit as reasonably required by Employee and (ii) that Employee has, prior to the execution of this Agreement, reviewed this Agreement thoroughly with Employee's legal counsel. d. Employee acknowledges that the services to be rendered by Employee are special, unique and extraordinary, that the restrictions contained in this Section 9 are reasonable and necessary to protect the legitimate business interests of the Company and that the Company and Parent would not have entered into the Tender Offer Agreement in the absence of such restrictions. By reason of the foregoing, Employee consents and agrees that if Employee violates any of the provisions of this Section 9, the Company would sustain irreparable harm and, therefore, irrevocably and unconditionally agrees that in addition to any other remedies which the Company may have under this Agreement or otherwise, all of which remedies shall be cumulative, the Company shall be entitled to apply to any court of competent jurisdiction for preliminary and permanent injunctive relief and other equitable relief. In the event that any of the provisions of this Section 9 hereof should ever be adjudicated to exceed the time, geographic, service, or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, service, or other limitations permitted by applicable law. e. Employee agrees that the Company may provide a copy of this Agreement to any business or enterprise (i) which the Employee may directly or indirectly own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing, or control of, or (ii) with which Employee may be connected with as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise, or in connection with which Employee may use or -8- permit Employee's name to be used. Employee will provide the names and addresses of any of such persons or entities as the Company may from time to time reasonably request. f. In the event of any breach or violation of the restriction contained in Section 9.a. above, the period therein specified shall abate during the time of any violation thereof and that portion remaining at the time of commencement of any violation shall not begin to run until such violation has been fully and finally cured. g. Employee acknowledges that the Company shall be the sole owner of all the results and proceeds of Employee's services hereunder, including but not limited to, all inventions, developments, enhancements, discoveries and other improvements relating to equipment, methods or processes connected with or useful to the Company's and its subsidiaries' businesses, (collectively, the "Developments"), which Developments Employee, by himself or in conjunction with any other person or entity, may conceive, make, acquire, acquire knowledge of, develop or create in connection with and during the term of or prior, to Employee's employment hereunder, free and clear of any claims by Employee (or any successor or assignee of Employee) of any kind or character whatsoever other than Employee's right to compensation hereunder. Employee hereby assigns and transfers his right, title and interest in and to all such Developments, and agrees that he shall, at the request of the Company, execute such assignments, certificates or other instruments, and do any and all other acts, as the Company from time to time reasonably deems necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend the Company's right, title and interest in or to any such Developments. Employee acknowledges that any Development which may be copyrightable shall be deemed to be "work for hire." 10. Survival. The provisions of Section 9 shall survive the termination of -------- this Agreement for any reason whatsoever. 11. Certain Additional Payments by the Company ------------------------------------------ a. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution -9- (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) to or for the benefit of Employee (whether pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 11) (the "Payments") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Company shall pay to Employee an additional payment (a "Gross-Up Payment") in an amount such that after payment by Employee of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the Payments and (y) the product of any deductions disallowed because of the inclusion of the Gross-Up Payment in Employee's adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, the Employee shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-Up Payment is to be made, (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and (iii) have otherwise allowable deductions for federal income tax purposes at least equal to those which could be disallowed because of the inclusion of the Gross- Up Payment in the Employee's adjusted gross income. Notwithstanding the foregoing provisions of this Section 11(a), if it shall be determined that Employee is entitled to a Gross-Up Payment, but that the Payments would not be subject to the Excise Tax if the Payments were reduced by an amount that is less than 10% of the portion of the Payments that would be treated as "parachute payments" under Section 280G of the Code, then the amounts payable to Employee under this Agreement shall be reduced (but not below zero) to the maximum amount that could be paid to Employee without -10- giving rise to the Excise Tax (the "Safe Harbor Cap"), and no Gross-Up Payment shall be made to Employee. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing first the payments under Section 8(d)(ii), unless an alternative method of reduction is elected by Employee. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amounts payable hereunder would not result in a reduction of the Payments to the Safe Harbor Cap, no amounts payable under this Agreement shall be reduced pursuant to this provision. Notwithstanding the foregoing, this Section 11 shall not apply to any stock option grant if the result of the application of such Section 11 would be to alter the basis on which compensation expense is measured for purposes of APB Opinion Number 25. b. Subject to the provisions of Section 11(a), all determinations required to be made under this Section 11, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment, the reduction of the Payments to the Safe Harbor Cap and the assumptions to be utilized in arriving at such determinations, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Employee within fifteen (15) business days of the receipt of notice from the Company or the Employee that there has been a Payment, or such earlier time as is requested by the Company (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, Employee may appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and the Company shall enter into any agreement requested by the Accounting Firm in connection with the performance of the services hereunder. The Gross-Up Payment under this Section 11 with respect to any Payments shall be made no later than thirty (30) days following such Payment. If the Accounting Firm determines that no Excise Tax is payable by Employee, it -11- shall furnish Employee with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on Employee's applicable federal income tax return will not result in the imposition of a negligence or similar penalty. In the event the Accounting Firm determines that the Payments shall be reduced to the Safe Harbor Cap, it shall furnish Employee with a written opinion to such effect. The Determination by the Accounting Firm shall be binding upon the Company and Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment") or Gross-Up Payments are made by the Company which should not have been made ("Overpayment"), consistent with the calculations required to be made hereunder. In the event that the Employee thereafter is required to make payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the benefit of Employee. In the event the amount of the Gross-Up Payment exceeds the amount necessary to reimburse the Employee for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid by Employee (to the extent he has received a refund if the applicable Excise Tax has been paid to the Internal Revenue Service) to or for the benefit of the Company. Employee shall cooperate, to the extent his expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. 12. Miscellaneous. ------------- a. Any notice authorized or required to be given or made by or pursuant to this Agreement shall be made in writing and either personally delivered or mailed by overnight express mail to the respective address of the party to receive such notice, which address is the one designated below the signature of such party hereto, or to such other address as a party may specify by notice to the -12- other parties hereto. In the event that the Company desires to terminate Employee for cause pursuant to Section 8.b. of this Agreement, the Company shall provide Employee with prompt written notice of such termination and, if requested by Employee, afford Employee a reasonable opportunity to cure such default within sixty (60) days after receipt of such notice. b. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Employee hereunder are of a personal nature and shall not be assignable or delegatable in whole or in part by Employee. c. If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. d. No remedy conferred upon any party by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by any party in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by the party possessing the same from time to time and as often as may be deemed expedient or necessary by such party in its sole discretion. e. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in marking proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. -13- f. In the event of a lawsuit by either party to enforce any provisions of this Agreement, the prevailing party shall be entitled to recover reasonable costs, expenses and attorney's fees from the other party. 13. Controlling Law. The validity, interpretation, construction, performance --------------- and enforcement of this Agreement shall be governed by the laws of the State of New Jersey, without reference to principles of conflicts of laws. Venue, for purposes of all causes of action, mediation, arbitration or other disputes shall be in Camden County, New Jersey. 14. Gender; Number. In this Agreement, words of gender may be read as -------------- masculine, feminine, or neuter, as required by context. Words of number may be read as singular or plural, as required by context. -14- IN WITNESS WHEREOF, Employee has hereunto set Employee's hand and the Company has caused this instrument to be duly executed as of the day and year first above written. EMPLOYEE /s/ John A. Donohoe, Jr. ---------------------------------- John A. Donohoe, Jr. MEDQUIST INC. /s/ David A. Cohen ---------------------------------- Title: Chairman and Chief Executive Officer MedQuist Inc. Five Greentree Centre Suite 311 Marlton, New Jersey 08053 -15- EX-99.(D)(1)(L) 20 0020.txt EMPLOY. AGREE. BET. MEDQUIST & JOHN R. EMERY EXHIBIT (d)(1)(L) EXECUTION COPY -------------- EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 22nd day of May, 2000, by and between MedQuist Inc., a New Jersey corporation (the "Company"), and John R. Emery, a resident of New Hope, Pennsylvania ("Employee"). BACKGROUND ---------- The Company desires to provide for Employee's continued employment with the Company. Employee desires to accept such employment on the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto, intending legally to be bound, hereby agree as follows: 1. Effective Date. This Agreement shall become effective at the time -------------- Koninklijke Philips Electronics N.V. ("Purchaser") pays for Shares (as defined in Section 1.1(a) of the Tender Offer Agreement, dated as of the date hereof, between Purchaser and the Company (the "Tender Offer Agreement")), pursuant to the terms of the Offer (as defined in Section 1.1(a) of the Tender Offer Agreement), provided that Employee is employed by the Company at such time. This Agreement cancels and supersedes any and all prior oral or written agreements and understandings (the "Prior Agreements") between or among any or all of the parties hereto with respect to the employment by or obligations of Employee to any thereof, with the exception of the Employee's obligations under any restrictive covenants or confidentiality provisions contained in any Prior Agreement, which covenants and provisions shall survive with respect to the time period prior to the Effective Date of this Agreement. This Agreement constitutes the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. 2. Employment. The Company hereby employs Employee as Senior Vice President and ---------- Chief Financial Officer of the Company and Employee hereby accepts such employment, upon the terms and conditions set forth in this Agreement. 3. Term. The Company shall employ Employee hereunder for a three (3) year term ---- commencing on the Effective Date hereof (the "Term"), which Term will be automatically extended for additional one (1) year periods beginning on the third anniversary of the Effective Date and upon each subsequent anniversary thereof unless either party provides the other party with at least ninety (90) days' prior written notice of its intention not to renew this Agreement. 4. Office and Duties. ----------------- a. Duties. During the Term, Employee shall render such services as are ------ appropriate for a person holding Employee's position and such additional or alternative duties as may from time to time be assigned to Employee by the Board of Directors of the Company ("Duties"). 5. Full Time Emp1oyment. During the Term, Employee shall use Employee's best -------------------- efforts to carry out the Duties and other obligations hereunder and devote Employee's entire working time to the business and affairs of the Company, and shall not, in any advisory or other capacity, work for any other individual, firm or corporation without the prior written consent of the Company. a. No Conflicting Agreements. Employee represents and warrants to the Company ------------------------- that he is not subject or a party to any Agreement, non-competition covenant, non-disclosure agreement or other agreement, covenant, understanding or restriction which would prohibit Employee from executing this Agreement or performing fully the Duties and other obligations hereunder, or which would in any manner, directly or indirectly, limit or affect the Duties or other obligations hereunder. b. Base Salary; Short Term Bonus; Options. As compensation for the services -------------------------------------- that Employee shall render hereunder, Employee shall be entitled to a total base salary of $190,000 per year ("Base Salary"), payable at such times as is consistent with the Company's pay periods -2- for other executives of the Company. In addition, Employee shall be eligible for participation in the Company's short term targeted bonus plan in an amount equal to up to 30% of Base Salary. Subject to approval of the Board of Directors, on or promptly following the Effective Date, the Company shall grant to Employee an option to purchase shares of the common stock of the Company under the Company's Incentive Stock Option Plan for Officers and Key Employees adopted by the Board of Directors on January 17, 1992 in accordance with the terms outlined on Schedule A annexed hereto. Employee agrees that the consummation of the transactions contemplated by the Tender Offer Agreement shall not constitute a "change in control" for purposes of 68,943 of the total of 78,000 outstanding unvested Company options he holds as of the Effective Date (the "Deferred Vesting Options") and hereby waives all rights to the accelerated vesting of the Deferred Vesting Options that would have occurred upon the consummation of the transactions authorized by the Tender Offer Agreement (the "Waiver"). Notwithstanding the foregoing, such Waiver shall be deemed revoked, and all Deferred Vesting Options will immediately vest in the event of (i) the Employee's death, (ii) the Employee's Disability, (iii) a termination by the Company of the Employee's employment without cause, (iv) the receipt by the Employee of notice from the Company of nonrenewal of the Agreement, (v) a voluntary resignation by the Employee following a required relocation of the Employee's principal place of business by more than fifty miles, or (vi) a failure by the Company to pay the compensation authorized by this Agreement, provided that Employee has given the Company notice of such breach and the Company has not cured such breach within thirty days of receipt of such notice (a "Material Breach"). 6. Other Benefits. During the Term, Employee will be eligible to receive the -------------- following benefits (collectively, "Benefits"): a. Savings and Retirement Plans. Participation in all savings, pension and ---------------------------- retirement plans and programs of the Company generally available to other executives of the Company as in effect from time to time; b. Welfare Plans. Participation in any welfare benefit plans and programs of ------------- the Company as in effect from time to time; -3- c. Life Insurance. Life insurance maintained by the Company on the life of -------------- Employee (naming the beneficiary of Employee's choice) in an amount consistent with policy of the Company as in effect from time to time; d. Vacation. Paid vacation (taken consecutively or in segments) in accordance -------- with the Company's policies generally applicable to other executives of the Company from time to time, taken at such times as is reasonably consistent with proper performance by Employee of Employee's duties and responsibilities hereunder; and e. Car Allowance. The Company shall continue to provide a car allowance or use ------------- of an automobile to Employee, including all reasonable expenses of operation, consistent with the car allowance that is presently provided to Employee. 7. Reimbursement for Expenses. During the Term, the Company shall reimburse -------------------------- Employee in full for all reasonable and necessary business and travel expenses incurred by him in connection with the performance of the Duties (collectively, "Expenses"). Notwithstanding any provision herein to the contrary, the Company shall reimburse Employee only (i) upon presentation by Employee of written vouchers or expense statements satisfactorily evidencing such expenses as may be reasonably required by the Company and (ii) if such expenses are in accordance with the Company's policies generally applicable to executives of the Company. 8. Termination. ----------- a. Death or Disability. Subject to Section 8.d. below, this Agreement shall ------------------- terminate immediately upon Employee's death. Subject to Section 8.d. below, the Company may terminate Employee's employment hereunder in the event of physical or mental incapacity or disability which renders Employee unable to perform the Duties for a period of one hundred twenty (120) days or more during any period of twelve (12) consecutive months ("Disability"). b. Termination for Cause. Subject to Section 8.d. below, the Company may --------------------- terminate this Agreement at any time with cause upon written notice to -4- Employee. Termination for "cause" shall mean discharge of the Employee by the Company on any of the following grounds: (i) Employee's indictment or conviction in a court of law of any crime or offense that makes Employee unfit for continuing employment, prevents Employee from performing the Duties or other obligations hereunder or adversely affects the reputation or business activities of the Company; (ii) Employee's dishonesty, substance abuse or misappropriation of funds; or (iii) Employee's failure or refusal to perform the Duties or other obligations hereunder. c. Resignation. Subject to Section 8.d. below, Employee may resign from his ----------- employment hereunder by giving the Company six (6) months' prior written notice. d. Obligations of the Company Upon Termination. ------------------------------------------- (1) Termination for Cause; Resignation; Death or Disability. If the Company ------------------------------------------------------- terminates Employee's employment hereunder for cause, or if Employee resigns, or if Employee dies or suffers a Disability, the Company shall have no further obligations to Employee hereunder other than for the payment of (i) accrued but unpaid salary prorated through the date of termination or effective date of resignation ("Accrued Salary"), (ii) any Benefits vested as of such date ("Vested Benefits") and (iii) unreimbursed Expenses incurred prior to such date. (2) Termination Without Cause, Upon Required Relocation or Material Breach. If ---------------------------------------------------------------------- (i) the Company terminates Employee's employment hereunder without cause or (ii) if the Employee voluntarily terminates his employment following a required relocation of his principal place of business by more than 50 miles or following a Material Breach, the Company shall have no further obligation to Employee hereunder other than for the payment of (i) Accrued Salary, (ii) a lump sum payment equal to (x) 1.5 multiplied by (y) the sum of all cash compensation awarded to Employee in the fiscal year immediately prior to -5- termination, or if Employee's compensation was higher or would be higher on an annualized basis, in the fiscal year in which such termination takes place, (iii) any Vested Benefits and (iv) unreimbursed Expenses incurred prior to the date of termination. 9. Restrictive Covenants and Confidentiality; Injunctive Relief. ------------------------------------------------------------ a. As a condition to the performance by the Company of its obligations hereunder so long as Employee remains an employee of the Company, and for a period of two (2) years thereafter, Employee shall not, without the prior written approval of the Board of Directors of the Company, directly or indirectly through any other person, firm or corporation, whether individually or in conjunction with any other person, or as an employee, agent, representative, partner or holder of any interest in any other person, firm, corporation or other association: (i) solicit, entice or induce any person, firm or corporation who or which presently is, within eighteen (18) months prior hereto was, or at any time during the Term shall be, a client or customer of the Company or any of its subsidiaries to become a client or customer of any other person, firm or corporation, and Employee shall not approach any such person, firm or corporation for such purpose or authorize or knowingly approve the taking of such actions by any other person; or (ii) solicit, entice, induce or hire any person who presently is, within eighteen (18) months prior hereto was, or at any time during the term hereof shall be an employee of the Company or any of its subsidiaries to become employed by any other person, firm or corporation, and Employee shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other person; or (iii) compete with, or encourage or assist others to compete with, or solicit orders or otherwise participate in business transactions in the electronic transcription services and health information management solutions services businesses anywhere within the United States (each, a "Competing Business"); or -6- (iv) lend any credit or money for the purposes of establishing or operating or assisting any Person to establish or operate a Competing Business, or otherwise give aid or advice to any other person or entity engaging in any Competing Business; or (v) lend or allow his professional skill, knowledge or experience to be so used by any person or entity which is engaged in a Competing Business. Nothing in the foregoing shall prohibit Employee from engaging in any business that is not a Competing Business after termination of Employee's employment with the Company, or investing in the securities of any corporation (including a Competing Business) having securities listed on a national security exchange, provided that such investment does not exceed 5% of any class of securities of any corporation engaged in business in competition with the Company, and provided that such ownership represents a passive investment and that neither Employee nor any group of persons including Employee, in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes any part in its business, other than exercising Employee's rights as a shareholder, or seeks to do any of the foregoing. b. Employee acknowledges that during the Term, Employee will have access to confidential information of the Company, including plans for future developments, and information about costs, customers, potential customers, profits, markets, sales, products, key personnel, pricing policies, operational methods, technical processes and other business affairs and methods and other information not available to the public or in the public domain (hereinafter referred to as "Confidential Information"). In recognition of the foregoing, Employee covenants and agrees that, except as required by Employee's duties to the Company, Employee will keep secret all Confidential Information and will not, directly or indirectly, either during the Term or at any time thereafter, disclose or disseminate to anyone or make use of, for any purpose whatsoever, any Confidential Information, and upon termination of Employee's employment, Employee will promptly deliver to the Company all tangible materials containing Confidential Information (including -7- all copies thereof, whether prepared by Employee or others) which Employee may possess or have under Employee's control. c. Employee represents (i) that Employee's experience and capabilities are such that the restrictions contained herein will not prevent Employee from obtaining employment or otherwise earning a living at the same general economic benefit as reasonably required by Employee and (ii) that Employee has, prior to the execution of this Agreement, reviewed this Agreement thoroughly with Employee's legal counsel. d. Employee acknowledges that the services to be rendered by Employee are special, unique and extraordinary, that the restrictions contained in this Section 9 are reasonable and necessary to protect the legitimate business interests of the Company and that the Company and Parent would not have entered into the Tender Offer Agreement in the absence of such restrictions. By reason of the foregoing, Employee consents and agrees that if Employee violates any of the provisions of this Section 9, the Company would sustain irreparable harm and, therefore, irrevocably and unconditionally agrees that in addition to any other remedies which the Company may have under this Agreement or otherwise, all of which remedies shall be cumulative, the Company shall be entitled to apply to any court of competent jurisdiction for preliminary and permanent injunctive relief and other equitable relief. In the event that any of the provisions of this Section 9 hereof should ever be adjudicated to exceed the time, geographic, service, or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, service, or other limitations permitted by applicable law. e. Employee agrees that the Company may provide a copy of this Agreement to any business or enterprise (i) which the Employee may directly or indirectly own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing, or control of, or (ii) with which Employee may be connected with as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise, or in connection with which Employee may use or -8- permit Employee's name to be used. Employee will provide the names and addresses of any of such persons or entities as the Company may from time to time reasonably request. f. In the event of any breach or violation of the restriction contained in Section 9.a. above, the period therein specified shall abate during the time of any violation thereof and that portion remaining at the time of commencement of any violation shall not begin to run until such violation has been fully and finally cured. g. Employee acknowledges that the Company shall be the sole owner of all the results and proceeds of Employee's services hereunder, including but not limited to, all inventions, developments, enhancements, discoveries and other improvements relating to equipment, methods or processes connected with or useful to the Company's and its subsidiaries' businesses, (collectively, the "Developments"), which Developments Employee, by himself or in conjunction with any other person or entity, may conceive, make, acquire, acquire knowledge of, develop or create in connection with and during the term of or prior, to Employee's employment hereunder, free and clear of any claims by Employee (or any successor or assignee of Employee) of any kind or character whatsoever other than Employee's right to compensation hereunder. Employee hereby assigns and transfers his right, title and interest in and to all such Developments, and agrees that he shall, at the request of the Company, execute such assignments, certificates or other instruments, and do any and all other acts, as the Company from time to time reasonably deems necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend the Company's right, title and interest in or to any such Developments. Employee acknowledges that any Development which may be copyrightable shall be deemed to be "work for hire." 10. Survival. The provisions of Section 9 shall survive the termination of -------- this Agreement for any reason whatsoever. 11. Certain Additional Payments by the Company ------------------------------------------ a. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution -9- (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) to or for the benefit of Employee (whether pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 11) (the "Payments") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Company shall pay to Employee an additional payment (a "Gross-Up Payment") in an amount such that after payment by Employee of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the Payments and (y) the product of any deductions disallowed because of the inclusion of the Gross-Up Payment in Employee's adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, the Employee shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-Up Payment is to be made, (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and (iii) have otherwise allowable deductions for federal income tax purposes at least equal to those which could be disallowed because of the inclusion of the Gross- Up Payment in the Employee's adjusted gross income. Notwithstanding the foregoing provisions of this Section 11(a), if it shall be determined that Employee is entitled to a Gross-Up Payment, but that the Payments would not be subject to the Excise Tax if the Payments were reduced by an amount that is less than 10% of the portion of the Payments that would be treated as "parachute payments" under Section 280G of the Code, then the amounts payable to Employee under this Agreement shall be reduced (but not below zero) to the maximum amount that could be paid to Employee without -10- giving rise to the Excise Tax (the "Safe Harbor Cap"), and no Gross-Up Payment shall be made to Employee. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing first the payments under Section 8(d)(ii), unless an alternative method of reduction is elected by Employee. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amounts payable hereunder would not result in a reduction of the Payments to the Safe Harbor Cap, no amounts payable under this Agreement shall be reduced pursuant to this provision. Notwithstanding the foregoing, this Section 11 shall not apply to any stock option grant if the result of the application of such Section 11 would be to alter the basis on which compensation expense is measured for purposes of APB Opinion Number 25. b. Subject to the provisions of Section 11(a), all determinations required to be made under this Section 11, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment, the reduction of the Payments to the Safe Harbor Cap and the assumptions to be utilized in arriving at such determinations, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Employee within fifteen (15) business days of the receipt of notice from the Company or the Employee that there has been a Payment, or such earlier time as is requested by the Company (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, Employee may appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and the Company shall enter into any agreement requested by the Accounting Firm in connection with the performance of the services hereunder. The Gross-Up Payment under this Section 11 with respect to any Payments shall be made no later than thirty (30) days following such Payment. If the Accounting Firm determines that no Excise Tax is payable by Employee, it -11- shall furnish Employee with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on Employee's applicable federal income tax return will not result in the imposition of a negligence or similar penalty. In the event the Accounting Firm determines that the Payments shall be reduced to the Safe Harbor Cap, it shall furnish Employee with a written opinion to such effect. The Determination by the Accounting Firm shall be binding upon the Company and Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment") or Gross-Up Payments are made by the Company which should not have been made ("Overpayment"), consistent with the calculations required to be made hereunder. In the event that the Employee thereafter is required to make payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the benefit of Employee. In the event the amount of the Gross-Up Payment exceeds the amount necessary to reimburse the Employee for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid by Employee (to the extent he has received a refund if the applicable Excise Tax has been paid to the Internal Revenue Service) to or for the benefit of the Company. Employee shall cooperate, to the extent his expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. 12. Miscellaneous. ------------- a. Any notice authorized or required to be given or made by or pursuant to this Agreement shall be made in writing and either personally delivered or mailed by overnight express mail to the respective address of the party to receive such notice, which address is the one designated below the signature of such party hereto, or to such other address as a party may specify by notice to the -12- other parties hereto. In the event that the Company desires to terminate Employee for cause pursuant to Section 8.b. of this Agreement, the Company shall provide Employee with prompt written notice of such termination and, if requested by Employee, afford Employee a reasonable opportunity to cure such default within sixty (60) days after receipt of such notice. b. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Employee hereunder are of a personal nature and shall not be assignable or delegatable in whole or in part by Employee. c. If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. d. No remedy conferred upon any party by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by any party in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by the party possessing the same from time to time and as often as may be deemed expedient or necessary by such party in its sole discretion. e. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in marking proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. -13- f. In the event of a lawsuit by either party to enforce any provisions of this Agreement, the prevailing party shall be entitled to recover reasonable costs, expenses and attorney's fees from the other party. 13. Controlling Law. The validity, interpretation, construction, performance --------------- and enforcement of this Agreement shall be governed by the laws of the State of New Jersey, without reference to principles of conflicts of laws. Venue, for purposes of all causes of action, mediation, arbitration or other disputes shall be in Camden County, New Jersey. 14. Gender; Number. In this Agreement, words of gender may be read as -------------- masculine, feminine, or neuter, as required by context. Words of number may be read as singular or plural, as required by context. -14- IN WITNESS WHEREOF, Employee has hereunto set Employee's hand and the Company has caused this instrument to be duly executed as of the day and year first above written. EMPLOYEE /s/ John R. Emery ---------------------------------- John R. Emery MEDQUIST INC. /s/ David A. Cohen ---------------------------------- Title: Chairman and Chief Executive Officer MedQuist Inc. Five Greentree Centre Suite 311 Marlton, New Jersey 08053 -15- EX-99.(D)(1)(M) 21 0021.txt EMPLOY. AGREE. BET. MEDQUIST & ETHAN COHEN EXHIBIT (d)(1)(M) EXECUTION COPY -------------- EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 22nd day of May, 2000, by and between MedQuist Inc., a New Jersey corporation (the "Company"), and Ethan Cohen, a resident of Shaker Heights, Ohio ("Employee"). BACKGROUND ---------- The Company desires to provide for Employee's continued employment with the Company. Employee desires to accept such employment on the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto, intending legally to be bound, hereby agree as follows: 1. Effective Date. This Agreement shall become effective at the time -------------- Koninklijke Philips Electronics N.V. ("Purchaser") pays for Shares (as defined in Section 1.1(a) of the Tender Offer Agreement, dated as of the date hereof, between Purchaser and the Company (the "Tender Offer Agreement")), pursuant to the terms of the Offer (as defined in Section 1.1(a) of the Tender Offer Agreement), provided that Employee is employed by the Company at such time. This Agreement cancels and supersedes any and all prior oral or written agreements and understandings (the "Prior Agreements") between or among any or all of the parties hereto with respect to the employment by or obligations of Employee to any thereof, with the exception of the Employee's obligations under any restrictive covenants or confidentiality provisions contained in any Prior Agreement, which covenants and provisions shall survive with respect to the time period prior to the Effective Date of this Agreement. This Agreement constitutes the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. 2. Employment. The Company hereby employs Employee as Senior Vice ---------- President and Chief Technology Officer of the Company and Employee hereby accepts such employment, upon the terms and conditions set forth in this Agreement. 3. Term. The Company shall employ Employee hereunder for a three (3) year ---- term commencing on the Effective Date hereof (the "Term"), which Term will be automatically extended for additional one (1) year periods beginning on the third anniversary of the Effective Date and upon each subsequent anniversary thereof unless either party provides the other party with at least ninety (90) days' prior written notice of its intention not to renew this Agreement. 4. Office and Duties. ----------------- a. Duties. During the Term, Employee shall render such services as are ------ appropriate for a person holding Employee's position and such additional or alternative duties as may from time to time be assigned to Employee by the Board of Directors of the Company ("Duties"). 5. Full Time Emp1oyment. During the Term, Employee shall use Employee's -------------------- best efforts to carry out the Duties and other obligations hereunder and devote Employee's entire working time to the business and affairs of the Company, and shall not, in any advisory or other capacity, work for any other individual, firm or corporation without the prior written consent of the Company. a. No Conflicting Agreements. Employee represents and warrants to the ------------------------- Company that he is not subject or a party to any Agreement, non-competition covenant, non-disclosure agreement or other agreement, covenant, understanding or restriction which would prohibit Employee from executing this Agreement or performing fully the Duties and other obligations hereunder, or which would in any manner, directly or indirectly, limit or affect the Duties or other obligations hereunder. b. Base Salary; Short Term Bonus; Options. As compensation for the -------------------------------------- services that Employee shall render hereunder, Employee shall be entitled to a total base salary of $170,000 per year ("Base Salary"), payable at such times as is consistent with the Company's pay periods -2- for other executives of the Company. In addition, Employee shall be eligible for participation in the Company's short term targeted bonus plan in an amount equal to up to 30% of Base Salary. Subject to approval of the Board of Directors, on or promptly following the Effective Date, the Company shall grant to Employee an option to purchase shares of the common stock of the Company under the Company's Incentive Stock Option Plan for Officers and Key Employees adopted by the Board of Directors on January 17, 1992 in accordance with the terms outlined on Schedule A annexed hereto. Employee agrees that the consummation of the transactions contemplated by the Tender Offer Agreement shall not constitute a "change in control" for purposes of 59,234 of the total of 68,071 outstanding unvested Company options he holds as of the Effective Date (the "Deferred Vesting Options") and hereby waives all rights to the accelerated vesting of the Deferred Vesting Options that would have occurred upon the consummation of the transactions authorized by the Tender Offer Agreement (the "Waiver"). Notwithstanding the foregoing, such Waiver shall be deemed revoked, and all Deferred Vesting Options will immediately vest in the event of (i) the Employee's death, (ii) the Employee's Disability, (iii) a termination by the Company of the Employee's employment without cause, (iv) the receipt by the Employee of notice from the Company of nonrenewal of the Agreement, (v) a voluntary resignation by the Employee following a required relocation of the Employee's principal place of business by more than fifty miles, or (vi) a failure by the Company to pay the compensation authorized by this Agreement, provided that Employee has given the Company notice of such breach and the Company has not cured such breach within thirty days of receipt of such notice (a "Material Breach"). c. Stay Bonus. Employee shall receive a payment of $20,000 (the "Stay ---------- Bonus") payable on December 10, 2000, provided he is still employed by the Company on such date. Notwithstanding the foregoing, such Stay Bonus shall be earlier payable in the event (i) the Company terminates Employee's employment hereunder without cause or (ii) if the Employee voluntarily terminates his employment following a required relocation of his principal place of business by more than 50 miles or following a Material Breach. -3- 6. Other Benefits. During the Term, Employee will be eligible to receive -------------- the following benefits (collectively, "Benefits"): a. Savings and Retirement Plans. Participation in all savings, pension ---------------------------- and retirement plans and programs of the Company generally available to other executives of the Company as in effect from time to time; b. Welfare Plans. Participation in any welfare benefit plans and ------------- programs of the Company as in effect from time to time; c. Life Insurance. Life insurance maintained by the Company on the -------------- life of Employee (naming the beneficiary of Employee's choice) in an amount consistent with policy of the Company as in effect from time to time; d. Vacation. Paid vacation (taken consecutively or in segments) in -------- accordance with the Company's policies generally applicable to other executives of the Company from time to time, taken at such times as is reasonably consistent with proper performance by Employee of Employee's duties and responsibilities hereunder; and e. Car Allowance. The Company shall continue to provide a car ------------- allowance or use of an automobile to Employee, including all reasonable expenses of operation, consistent with the car allowance that is presently provided to Employee. -4- 7. Reimbursement for Expenses. During the Term, the Company shall -------------------------- reimburse Employee in full for all reasonable and necessary business and travel expenses incurred by him in connection with the performance of the Duties (collectively, "Expenses"). Notwithstanding any provision herein to the contrary, the Company shall reimburse Employee only (i) upon presentation by Employee of written vouchers or expense statements satisfactorily evidencing such expenses as may be reasonably required by the Company and (ii) if such expenses are in accordance with the Company's policies generally applicable to executives of the Company. 8. Termination. ----------- a. Death or Disability. Subject to Section 8.d. below, this Agreement ------------------- shall terminate immediately upon Employee's death. Subject to Section 8.d. below, the Company may terminate Employee's employment hereunder in the event of physical or mental incapacity or disability which renders Employee unable to perform the Duties for a period of one hundred twenty (120) days or more during any period of twelve (12) consecutive months ("Disability"). b. Termination for Cause. Subject to Section 8.d. below, the Company --------------------- may terminate this Agreement at any time with cause upon written notice to Employee. Termination for "cause" shall mean discharge of the Employee by the Company on any of the following grounds: (i) Employee's indictment or conviction in a court of law of any crime or offense that makes Employee unfit for continuing employment, prevents Employee from performing the Duties or other obligations hereunder or adversely affects the reputation or business activities of the Company; (ii) Employee's dishonesty, substance abuse or misappropriation of funds; or (iii) Employee's failure or refusal to perform the Duties or other obligations hereunder. -5- c. Resignation. Subject to Section 8.d. below, Employee may resign ----------- from his employment hereunder by giving the Company six (6) months' prior written notice. d. Obligations of the Company Upon Termination. ------------------------------------------- (1) Termination for Cause; Resignation; Death or Disability. If the ------------------------------------------------------- Company terminates Employee's employment hereunder for cause, or if Employee resigns, or if Employee dies or suffers a Disability, the Company shall have no further obligations to Employee hereunder other than for the payment of (i) accrued but unpaid salary prorated through the date of termination or effective date of resignation ("Accrued Salary"), (ii) any Benefits vested as of such date ("Vested Benefits") and (iii) unreimbursed Expenses incurred prior to such date. (2) Termination Without Cause, Upon Required Relocation or Material --------------------------------------------------------------- Breach. If (i) the Company terminates Employee's employment hereunder without - ------- cause or (ii) if the Employee voluntarily terminates his employment following a required relocation of his principal place of business by more than 50 miles or following a Material Breach, the Company shall have no further obligation to Employee hereunder other than for the payment of (i) Accrued Salary, (ii) a lump sum payment equal to (x) 1.5 multiplied by (y) the sum of all cash compensation awarded to Employee in the fiscal year immediately prior to termination, or if Employee's compensation was higher or would be higher on an annualized basis, in the fiscal year in which such termination takes place, (iii) any Vested Benefits and (iv) unreimbursed Expenses incurred prior to the date of termination. 9. Restrictive Covenants and Confidentiality; Injunctive Relief. ------------------------------------------------------------ a. As a condition to the performance by the Company of its obligations hereunder so long as Employee remains an employee of the Company, and for a period of two (2) years thereafter, Employee shall not, without the prior written approval of the Board of Directors of the Company, directly or indirectly through any other person, firm or corporation, whether individually or in conjunction with any other person, or as an employee, -6- agent, representative, partner or holder of any interest in any other person, firm, corporation or other association: (i) solicit, entice or induce any person, firm or corporation who or which presently is, within eighteen (18) months prior hereto was, or at any time during the Term shall be, a client or customer of the Company or any of its subsidiaries to become a client or customer of any other person, firm or corporation, and Employee shall not approach any such person, firm or corporation for such purpose or authorize or knowingly approve the taking of such actions by any other person; or (ii) solicit, entice, induce or hire any person who presently is, within eighteen (18) months prior hereto was, or at any time during the term hereof shall be an employee of the Company or any of its subsidiaries to become employed by any other person, firm or corporation, and Employee shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other person; or (iii) compete with, or encourage or assist others to compete with, or solicit orders or otherwise participate in business transactions in the electronic transcription services and health information management solutions services businesses anywhere within the United States (each, a "Competing Business"); or (iv) lend any credit or money for the purposes of establishing or operating or assisting any Person to establish or operate a Competing Business, or otherwise give aid or advice to any other person or entity engaging in any Competing Business; or (v) lend or allow his professional skill, knowledge or experience to be so used by any person or entity which is engaged in a Competing Business. Nothing in the foregoing shall prohibit Employee from engaging in any business that is not a Competing Business after termination of Employee's employment with the Company, or investing in the securities of any corporation (including a Competing Business) having securities listed on a national security exchange, provided that such investment does not exceed 5% of any class of -7- securities of any corporation engaged in business in competition with the Company, and provided that such ownership represents a passive investment and that neither Employee nor any group of persons including Employee, in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes any part in its business, other than exercising Employee's rights as a shareholder, or seeks to do any of the foregoing. b. Employee acknowledges that during the Term, Employee will have access to confidential information of the Company, including plans for future developments, and information about costs, customers, potential customers, profits, markets, sales, products, key personnel, pricing policies, operational methods, technical processes and other business affairs and methods and other information not available to the public or in the public domain (hereinafter referred to as "Confidential Information"). In recognition of the foregoing, Employee covenants and agrees that, except as required by Employee's duties to the Company, Employee will keep secret all Confidential Information and will not, directly or indirectly, either during the Term or at any time thereafter, disclose or disseminate to anyone or make use of, for any purpose whatsoever, any Confidential Information, and upon termination of Employee's employment, Employee will promptly deliver to the Company all tangible materials containing Confidential Information (including all copies thereof, whether prepared by Employee or others) which Employee may possess or have under Employee's control. c. Employee represents (i) that Employee's experience and capabilities are such that the restrictions contained herein will not prevent Employee from obtaining employment or otherwise earning a living at the same general economic benefit as reasonably required by Employee and (ii) that Employee has, prior to the execution of this Agreement, reviewed this Agreement thoroughly with Employee's legal counsel. d. Employee acknowledges that the services to be rendered by Employee are special, unique and extraordinary, that the restrictions contained in this Section 9 are reasonable and necessary to protect the -8- legitimate business interests of the Company and that the Company and Parent would not have entered into the Tender Offer Agreement in the absence of such restrictions. By reason of the foregoing, Employee consents and agrees that if Employee violates any of the provisions of this Section 9, the Company would sustain irreparable harm and, therefore, irrevocably and unconditionally agrees that in addition to any other remedies which the Company may have under this Agreement or otherwise, all of which remedies shall be cumulative, the Company shall be entitled to apply to any court of competent jurisdiction for preliminary and permanent injunctive relief and other equitable relief. In the event that any of the provisions of this Section 9 hereof should ever be adjudicated to exceed the time, geographic, service, or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, service, or other limitations permitted by applicable law. e. Employee agrees that the Company may provide a copy of this Agreement to any business or enterprise (i) which the Employee may directly or indirectly own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing, or control of, or (ii) with which Employee may be connected with as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise, or in connection with which Employee may use or permit Employee's name to be used. Employee will provide the names and addresses of any of such persons or entities as the Company may from time to time reasonably request. f. In the event of any breach or violation of the restriction contained in Section 9.a. above, the period therein specified shall abate during the time of any violation thereof and that portion remaining at the time of commencement of any violation shall not begin to run until such violation has been fully and finally cured. g. Employee acknowledges that the Company shall be the sole owner of all the results and proceeds of Employee's services hereunder, including but not limited to, all inventions, developments, enhancements, discoveries and other improvements relating to equipment, methods or processes connected with or useful to the Company's and its -9- subsidiaries' businesses, (collectively, the "Developments"), which Developments Employee, by himself or in conjunction with any other person or entity, may conceive, make, acquire, acquire knowledge of, develop or create in connection with and during the term of or prior, to Employee's employment hereunder, free and clear of any claims by Employee (or any successor or assignee of Employee) of any kind or character whatsoever other than Employee's right to compensation hereunder. Employee hereby assigns and transfers his right, title and interest in and to all such Developments, and agrees that he shall, at the request of the Company, execute such assignments, certificates or other instruments, and do any and all other acts, as the Company from time to time reasonably deems necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend the Company's right, title and interest in or to any such Developments. Employee acknowledges that any Development which may be copyrightable shall be deemed to be "work for hire." 10. Survival. The provisions of Section 9 shall survive the termination -------- of this Agreement for any reason whatsoever. 11. Certain Additional Payments by the Company ------------------------------------------ a. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) to or for the benefit of Employee (whether pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 11) (the "Payments") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Company shall pay to Employee an additional payment (a "Gross-Up Payment") in an amount such that after payment by Employee of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax -10- imposed upon the Payments and (y) the product of any deductions disallowed because of the inclusion of the Gross-Up Payment in Employee's adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, the Employee shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-Up Payment is to be made, (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and (iii) have otherwise allowable deductions for federal income tax purposes at least equal to those which could be disallowed because of the inclusion of the Gross- Up Payment in the Employee's adjusted gross income. Notwithstanding the foregoing provisions of this Section 11(a), if it shall be determined that Employee is entitled to a Gross-Up Payment, but that the Payments would not be subject to the Excise Tax if the Payments were reduced by an amount that is less than 10% of the portion of the Payments that would be treated as "parachute payments" under Section 280G of the Code, then the amounts payable to Employee under this Agreement shall be reduced (but not below zero) to the maximum amount that could be paid to Employee without giving rise to the Excise Tax (the "Safe Harbor Cap"), and no Gross-Up Payment shall be made to Employee. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing first the payments under Section 8(d)(ii), unless an alternative method of reduction is elected by Employee. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amounts payable hereunder would not result in a reduction of the Payments to the Safe Harbor Cap, no amounts payable under this Agreement shall be reduced pursuant to this provision. Notwithstanding the foregoing, this Section 11 shall not apply to any stock option grant if the result of the application of such Section 11 would be to alter the basis on which compensation expense is measured for purposes of APB Opinion Number 25. -11- b. Subject to the provisions of Section 11(a), all determinations required to be made under this Section 11, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment, the reduction of the Payments to the Safe Harbor Cap and the assumptions to be utilized in arriving at such determinations, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Employee within fifteen (15) business days of the receipt of notice from the Company or the Employee that there has been a Payment, or such earlier time as is requested by the Company (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, Employee may appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and the Company shall enter into any agreement requested by the Accounting Firm in connection with the performance of the services hereunder. The Gross-Up Payment under this Section 11 with respect to any Payments shall be made no later than thirty (30) days following such Payment. If the Accounting Firm determines that no Excise Tax is payable by Employee, it shall furnish Employee with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on Employee's applicable federal income tax return will not result in the imposition of a negligence or similar penalty. In the event the Accounting Firm determines that the Payments shall be reduced to the Safe Harbor Cap, it shall furnish Employee with a written opinion to such effect. The Determination by the Accounting Firm shall be binding upon the Company and Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment") or Gross-Up Payments are made by the Company which should not have been made ("Overpayment"), consistent with the calculations required to be made hereunder. In the event that the Employee thereafter is -12- required to make payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the benefit of Employee. In the event the amount of the Gross-Up Payment exceeds the amount necessary to reimburse the Employee for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid by Employee (to the extent he has received a refund if the applicable Excise Tax has been paid to the Internal Revenue Service) to or for the benefit of the Company. Employee shall cooperate, to the extent his expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. 12. Miscellaneous. ------------- a. Any notice authorized or required to be given or made by or pursuant to this Agreement shall be made in writing and either personally delivered or mailed by overnight express mail to the respective address of the party to receive such notice, which address is the one designated below the signature of such party hereto, or to such other address as a party may specify by notice to the other parties hereto. In the event that the Company desires to terminate Employee for cause pursuant to Section 8.b. of this Agreement, the Company shall provide Employee with prompt written notice of such termination and, if requested by Employee, afford Employee a reasonable opportunity to cure such default within sixty (60) days after receipt of such notice. b. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Employee hereunder are of a personal nature and shall not be assignable or delegatable in whole or in part by Employee. -13- c. If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. d. No remedy conferred upon any party by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by any party in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by the party possessing the same from time to time and as often as may be deemed expedient or necessary by such party in its sole discretion. e. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in marking proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. f. In the event of a lawsuit by either party to enforce any provisions of this Agreement, the prevailing party shall be entitled to recover reasonable costs, expenses and attorney's fees from the other party. 13. Controlling Law. The validity, interpretation, construction, --------------- performance and enforcement of this Agreement shall be governed by the laws of the State of New Jersey, without reference to principles of conflicts of laws. Venue, for purposes of all causes of action, mediation, arbitration or other disputes shall be in Camden County, New Jersey. 14. Gender; Number. In this Agreement, words of gender may be read as -------------- masculine, feminine, or neuter, as required by context. Words of number may be read as singular or plural, as required by context -14- IN WITNESS WHEREOF, Employee has hereunto set Employee's hand and the Company has caused this instrument to be duly executed as of the day and year first above written. EMPLOYEE /s/ Ethan Cohen ---------------------------------- Ethan Cohen MEDQUIST INC. /s/ David A. Cohen ---------------------------------- Title: Chairman and Chief Executive Officer MedQuist Inc. Five Greentree Centre Suite 311 Marlton, New Jersey 08053 -15- EX-99.(D)(1)(N) 22 0022.txt EMPLOY. AGREE. BET. MEDQUIST & RONALD A. SCARPONE EXHIBIT (d)(1)(N) EXECUTION COPY -------------- EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 22nd day of May, 2000, by and between MedQuist Inc., a New Jersey corporation (the "Company"), and Ronald A. Scarpone, a resident of Voorhees, New Jersey ("Employee"). BACKGROUND ---------- The Company desires to provide for Employee's continued employment with the Company. Employee desires to accept such employment on the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto, intending legally to be bound, hereby agree as follows: 1. Effective Date. This Agreement shall become effective at the time -------------- Koninklijke Philips Electronics N.V. ("Purchaser") pays for Shares (as defined in Section 1.1(a) of the Tender Offer Agreement, dated as of the date hereof, between Purchaser and the Company (the "Tender Offer Agreement")), pursuant to the terms of the Offer (as defined in Section 1.1(a) of the Tender Offer Agreement), provided that Employee is employed by the Company at such time. This Agreement cancels and supersedes any and all prior oral or written agreements and understandings (the "Prior Agreements") between or among any or all of the parties hereto with respect to the employment by or obligations of Employee to any thereof, with the exception of the Employee's obligations under any restrictive covenants or confidentiality provisions contained in any Prior Agreement, which covenants and provisions shall survive with respect to the time period prior to the Effective Date of this Agreement. This Agreement constitutes the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. 2. Employment. The Company hereby employs Employee as Senior Vice ---------- President, New Business Development of the Company and Employee hereby accepts such employment, upon the terms and conditions set forth in this Agreement. 3. Term. The Company shall employ Employee hereunder for a three (3) year ---- term commencing on the Effective Date hereof (the "Term"), which Term will be automatically extended for additional one (1) year periods beginning on the third anniversary of the Effective Date and upon each subsequent anniversary thereof unless either party provides the other party with at least ninety (90) days' prior written notice of its intention not to renew this Agreement. 4. Office and Duties. ----------------- a. Duties. During the Term, Employee shall render such services as ------ are appropriate for a person holding Employee's position and such additional or alternative duties as may from time to time be assigned to Employee by the Board of Directors of the Company ("Duties"). 5. Full Time Emp1oyment. During the Term, Employee shall use Employee's -------------------- best efforts to carry out the Duties and other obligations hereunder and devote Employee's entire working time to the business and affairs of the Company, and shall not, in any advisory or other capacity, work for any other individual, firm or corporation without the prior written consent of the Company. a. No Conflicting Agreements. Employee represents and warrants to the ------------------------- Company that he is not subject or a party to any Agreement, non-competition covenant, non-disclosure agreement or other agreement, covenant, understanding or restriction which would prohibit Employee from executing this Agreement or performing fully the Duties and other obligations hereunder, or which would in any manner, directly or indirectly, limit or affect the Duties or other obligations hereunder. b. Base Salary; Short Term Bonus; Options. As compensation for the -------------------------------------- services that Employee shall render hereunder, Employee shall be entitled to a total base salary of $170,000 per year ("Base Salary"), payable at such times as is consistent with the Company's pay periods -2- for other executives of the Company. In addition, Employee shall be eligible for participation in the Company's short term targeted bonus plan in an amount equal to up to 30% of Base Salary. Subject to approval of the Board of Directors, on or promptly following the Effective Date, the Company shall grant to Employee an option to purchase shares of the common stock of the Company under the Company's Incentive Stock Option Plan for Officers and Key Employees adopted by the Board of Directors on January 17, 1992 in accordance with the terms outlined on Schedule A annexed hereto. Employee agrees that the consummation of the transactions contemplated by the Tender Offer Agreement shall not constitute a "change in control" for purposes of all of the total of 81,000 outstanding unvested Company options he will hold as of the Effective Date (the "Deferred Vesting Options") and hereby waives all rights to the accelerated vesting of the Deferred Vesting Options that would have occurred upon the consummation of the transactions authorized by the Tender Offer Agreement (the "Waiver"). Notwithstanding the foregoing, such Waiver shall be deemed revoked, and all Deferred Vesting Options will immediately vest in the event of (i) the Employee's death, (ii) the Employee's Disability, (iii) a termination by the Company of the Employee's employment without cause, (iv) the receipt by the Employee of notice from the Company of nonrenewal of the Agreement, (v) a voluntary resignation by the Employee following a required relocation of the Employee's principal place of business by more than fifty miles, or (vi) a failure by the Company to pay the compensation authorized by this Agreement, provided that Employee has given the Company notice of such breach and the Company has not cured such breach within thirty days of receipt of such notice (a "Material Breach"). 6. Other Benefits. During the Term, Employee will be eligible to receive -------------- the following benefits (collectively, "Benefits"): a. Savings and Retirement Plans. Participation in all savings, pension ---------------------------- and retirement plans and programs of the Company generally available to other executives of the Company as in effect from time to time; b. Welfare Plans. Participation in any welfare benefit plans and ------------- programs of the Company as in effect from time to time; -3- c. Life Insurance. Life insurance maintained by the Company on the -------------- life of Employee (naming the beneficiary of Employee's choice) in an amount consistent with policy of the Company as in effect from time to time; d. Vacation. Paid vacation (taken consecutively or in segments) in -------- accordance with the Company's policies generally applicable to other executives of the Company from time to time, taken at such times as is reasonably consistent with proper performance by Employee of Employee's duties and responsibilities hereunder; and e. Car Allowance. The Company shall continue to provide a car ------------- allowance or use of an automobile to Employee, including all reasonable expenses of operation, consistent with the car allowance that is presently provided to Employee. 7. Reimbursement for Expenses. During the Term, the Company shall -------------------------- reimburse Employee in full for all reasonable and necessary business and travel expenses incurred by him in connection with the performance of the Duties (collectively, "Expenses"). Notwithstanding any provision herein to the contrary, the Company shall reimburse Employee only (i) upon presentation by Employee of written vouchers or expense statements satisfactorily evidencing such expenses as may be reasonably required by the Company and (ii) if such expenses are in accordance with the Company's policies generally applicable to executives of the Company. 8. Termination. ----------- a. Death or Disability. Subject to Section 8.d. below, this ------------------- Agreement shall terminate immediately upon Employee's death. Subject to Section 8.d. below, the Company may terminate Employee's employment hereunder in the event of physical or mental incapacity or disability which renders Employee unable to perform the Duties for a period of one hundred twenty (120) days or more during any period of twelve (12) consecutive months ("Disability"). b. Termination for Cause. Subject to Section 8.d. below, the --------------------- Company may terminate this Agreement at any time with cause upon written notice to -4- Employee. Termination for "cause" shall mean discharge of the Employee by the Company on any of the following grounds: (i) Employee's indictment or conviction in a court of law of any crime or offense that makes Employee unfit for continuing employment, prevents Employee from performing the Duties or other obligations hereunder or adversely affects the reputation or business activities of the Company; (ii) Employee's dishonesty, substance abuse or misappropriation of funds; or (iii) Employee's failure or refusal to perform the Duties or other obligations hereunder. c. Resignation. Subject to Section 8.d. below, Employee may ----------- resign from his employment hereunder by giving the Company six (6) months' prior written notice. d. Obligations of the Company Upon Termination. ------------------------------------------- (1) Termination for Cause; Resignation; Death or Disability. ------------------------------------------------------- If the Company terminates Employee's employment hereunder for cause, or if Employee resigns, or if Employee dies or suffers a Disability, the Company shall have no further obligations to Employee hereunder other than for the payment of (i) accrued but unpaid salary prorated through the date of termination or effective date of resignation ("Accrued Salary"), (ii) any Benefits vested as of such date ("Vested Benefits") and (iii) unreimbursed Expenses incurred prior to such date. (2) Termination Without Cause, Upon Required Relocation or ------------------------------------------------------ Material Breach. If (i) the Company terminates Employee's employment hereunder - --------------- without cause or (ii) if the Employee voluntarily terminates his employment following a required relocation of his principal place of business by more than 50 miles or following a Material Breach, the Company shall have no further obligation to Employee hereunder other than for the payment of (i) Accrued Salary, (ii) a lump sum payment equal to (x) 1.5 multiplied by (y) the sum of all cash compensation awarded to Employee in the fiscal year immediately prior to -5- termination, or if Employee's compensation was higher or would be higher on an annualized basis, in the fiscal year in which such termination takes place, (iii) any Vested Benefits and (iv) unreimbursed Expenses incurred prior to the date of termination. 9. Restrictive Covenants and Confidentiality; Injunctive Relief. ------------------------------------------------------------ a. As a condition to the performance by the Company of its obligations hereunder so long as Employee remains an employee of the Company, and for a period of two (2) years thereafter, Employee shall not, without the prior written approval of the Board of Directors of the Company, directly or indirectly through any other person, firm or corporation, whether individually or in conjunction with any other person, or as an employee, agent, representative, partner or holder of any interest in any other person, firm, corporation or other association: (i) solicit, entice or induce any person, firm or corporation who or which presently is, within eighteen (18) months prior hereto was, or at any time during the Term shall be, a client or customer of the Company or any of its subsidiaries to become a client or customer of any other person, firm or corporation, and Employee shall not approach any such person, firm or corporation for such purpose or authorize or knowingly approve the taking of such actions by any other person; or (ii) solicit, entice, induce or hire any person who presently is, within eighteen (18) months prior hereto was, or at any time during the term hereof shall be an employee of the Company or any of its subsidiaries to become employed by any other person, firm or corporation, and Employee shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other person; or (iii) compete with, or encourage or assist others to compete with, or solicit orders or otherwise participate in business transactions in the electronic transcription services and health information management solutions services businesses anywhere within the United States (each, a "Competing Business"); or -6- (iv) lend any credit or money for the purposes of establishing or operating or assisting any Person to establish or operate a Competing Business, or otherwise give aid or advice to any other person or entity engaging in any Competing Business; or (v) lend or allow his professional skill, knowledge or experience to be so used by any person or entity which is engaged in a Competing Business. Nothing in the foregoing shall prohibit Employee from engaging in any business that is not a Competing Business after termination of Employee's employment with the Company, or investing in the securities of any corporation (including a Competing Business) having securities listed on a national security exchange, provided that such investment does not exceed 5% of any class of securities of any corporation engaged in business in competition with the Company, and provided that such ownership represents a passive investment and that neither Employee nor any group of persons including Employee, in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes any part in its business, other than exercising Employee's rights as a shareholder, or seeks to do any of the foregoing. b. Employee acknowledges that during the Term, Employee will have access to confidential information of the Company, including plans for future developments, and information about costs, customers, potential customers, profits, markets, sales, products, key personnel, pricing policies, operational methods, technical processes and other business affairs and methods and other information not available to the public or in the public domain (hereinafter referred to as "Confidential Information"). In recognition of the foregoing, Employee covenants and agrees that, except as required by Employee's duties to the Company, Employee will keep secret all Confidential Information and will not, directly or indirectly, either during the Term or at any time thereafter, disclose or disseminate to anyone or make use of, for any purpose whatsoever, any Confidential Information, and upon termination of Employee's employment, Employee will promptly deliver to the Company all tangible materials containing Confidential Information (including -7- all copies thereof, whether prepared by Employee or others) which Employee may possess or have under Employee's control. c. Employee represents (i) that Employee's experience and capabilities are such that the restrictions contained herein will not prevent Employee from obtaining employment or otherwise earning a living at the same general economic benefit as reasonably required by Employee and (ii) that Employee has, prior to the execution of this Agreement, reviewed this Agreement thoroughly with Employee's legal counsel. d. Employee acknowledges that the services to be rendered by Employee are special, unique and extraordinary, that the restrictions contained in this Section 9 are reasonable and necessary to protect the legitimate business interests of the Company and that the Company and Parent would not have entered into the Tender Offer Agreement in the absence of such restrictions. By reason of the foregoing, Employee consents and agrees that if Employee violates any of the provisions of this Section 9, the Company would sustain irreparable harm and, therefore, irrevocably and unconditionally agrees that in addition to any other remedies which the Company may have under this Agreement or otherwise, all of which remedies shall be cumulative, the Company shall be entitled to apply to any court of competent jurisdiction for preliminary and permanent injunctive relief and other equitable relief. In the event that any of the provisions of this Section 9 hereof should ever be adjudicated to exceed the time, geographic, service, or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, service, or other limitations permitted by applicable law. e. Employee agrees that the Company may provide a copy of this Agreement to any business or enterprise (i) which the Employee may directly or indirectly own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing, or control of, or (ii) with which Employee may be connected with as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise, or in connection with which Employee may use or -8- permit Employee's name to be used. Employee will provide the names and addresses of any of such persons or entities as the Company may from time to time reasonably request. f. In the event of any breach or violation of the restriction contained in Section 9.a. above, the period therein specified shall abate during the time of any violation thereof and that portion remaining at the time of commencement of any violation shall not begin to run until such violation has been fully and finally cured. g. Employee acknowledges that the Company shall be the sole owner of all the results and proceeds of Employee's services hereunder, including but not limited to, all inventions, developments, enhancements, discoveries and other improvements relating to equipment, methods or processes connected with or useful to the Company's and its subsidiaries' businesses, (collectively, the "Developments"), which Developments Employee, by himself or in conjunction with any other person or entity, may conceive, make, acquire, acquire knowledge of, develop or create in connection with and during the term of or prior, to Employee's employment hereunder, free and clear of any claims by Employee (or any successor or assignee of Employee) of any kind or character whatsoever other than Employee's right to compensation hereunder. Employee hereby assigns and transfers his right, title and interest in and to all such Developments, and agrees that he shall, at the request of the Company, execute such assignments, certificates or other instruments, and do any and all other acts, as the Company from time to time reasonably deems necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend the Company's right, title and interest in or to any such Developments. Employee acknowledges that any Development which may be copyrightable shall be deemed to be "work for hire." 10. Survival. The provisions of Section 9 shall survive the -------- termination of this Agreement for any reason whatsoever. 11. Certain Additional Payments by the Company ------------------------------------------ a. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution -9- (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) to or for the benefit of Employee (whether pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 11) (the "Payments") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Company shall pay to Employee an additional payment (a "Gross-Up Payment") in an amount such that after payment by Employee of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the Payments and (y) the product of any deductions disallowed because of the inclusion of the Gross-Up Payment in Employee's adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, the Employee shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-Up Payment is to be made, (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and (iii) have otherwise allowable deductions for federal income tax purposes at least equal to those which could be disallowed because of the inclusion of the Gross- Up Payment in the Employee's adjusted gross income. Notwithstanding the foregoing provisions of this Section 11(a), if it shall be determined that Employee is entitled to a Gross-Up Payment, but that the Payments would not be subject to the Excise Tax if the Payments were reduced by an amount that is less than 10% of the portion of the Payments that would be treated as "parachute payments" under Section 280G of the Code, then the amounts payable to Employee under this Agreement shall be reduced (but not below zero) to the maximum amount that could be paid to Employee without -10- giving rise to the Excise Tax (the "Safe Harbor Cap"), and no Gross-Up Payment shall be made to Employee. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing first the payments under Section 8(d)(ii), unless an alternative method of reduction is elected by Employee. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amounts payable hereunder would not result in a reduction of the Payments to the Safe Harbor Cap, no amounts payable under this Agreement shall be reduced pursuant to this provision. Notwithstanding the foregoing, this Section 11 shall not apply to any stock option grant if the result of the application of such Section 11 would be to alter the basis on which compensation expense is measured for purposes of APB Opinion Number 25. b. Subject to the provisions of Section 11(a), all determinations required to be made under this Section 11, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment, the reduction of the Payments to the Safe Harbor Cap and the assumptions to be utilized in arriving at such determinations, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Employee within fifteen (15) business days of the receipt of notice from the Company or the Employee that there has been a Payment, or such earlier time as is requested by the Company (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, Employee may appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and the Company shall enter into any agreement requested by the Accounting Firm in connection with the performance of the services hereunder. The Gross-Up Payment under this Section 11 with respect to any Payments shall be made no later than thirty (30) days following such Payment. If the Accounting Firm determines that no Excise Tax is payable by Employee, it -11- shall furnish Employee with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on Employee's applicable federal income tax return will not result in the imposition of a negligence or similar penalty. In the event the Accounting Firm determines that the Payments shall be reduced to the Safe Harbor Cap, it shall furnish Employee with a written opinion to such effect. The Determination by the Accounting Firm shall be binding upon the Company and Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment") or Gross-Up Payments are made by the Company which should not have been made ("Overpayment"), consistent with the calculations required to be made hereunder. In the event that the Employee thereafter is required to make payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the benefit of Employee. In the event the amount of the Gross-Up Payment exceeds the amount necessary to reimburse the Employee for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid by Employee (to the extent he has received a refund if the applicable Excise Tax has been paid to the Internal Revenue Service) to or for the benefit of the Company. Employee shall cooperate, to the extent his expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. 12. Miscellaneous. ------------- a. Any notice authorized or required to be given or made by or pursuant to this Agreement shall be made in writing and either personally delivered or mailed by overnight express mail to the respective address of the party to receive such notice, which address is the one designated below the signature of such party hereto, or to such other address as a party may specify by notice to the -12- other parties hereto. In the event that the Company desires to terminate Employee for cause pursuant to Section 8.b. of this Agreement, the Company shall provide Employee with prompt written notice of such termination and, if requested by Employee, afford Employee a reasonable opportunity to cure such default within sixty (60) days after receipt of such notice. b. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Employee hereunder are of a personal nature and shall not be assignable or delegatable in whole or in part by Employee. c. If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. d. No remedy conferred upon any party by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by any party in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by the party possessing the same from time to time and as often as may be deemed expedient or necessary by such party in its sole discretion. e. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in marking proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. -13- f. In the event of a lawsuit by either party to enforce any provisions of this Agreement, the prevailing party shall be entitled to recover reasonable costs, expenses and attorney's fees from the other party. 13. Controlling Law. The validity, interpretation, construction, --------------- performance and enforcement of this Agreement shall be governed by the laws of the State of New Jersey, without reference to principles of conflicts of laws. Venue, for purposes of all causes of action, mediation, arbitration or other disputes shall be in Camden County, New Jersey. 14. Gender; Number. In this Agreement, words of gender may be read -------------- as masculine, feminine, or neuter, as required by context. Words of number may be read as singular or plural, as required by context. -14- IN WITNESS WHEREOF, Employee has hereunto set Employee's hand and the Company has caused this instrument to be duly executed as of the day and year first above written. EMPLOYEE /s/ Ronald A. Scarpone ---------------------------------- Ronald A. Scarpone MEDQUIST INC. /s/ David A. Cohen ---------------------------------- Title: Chairman and Chief Executive Officer MedQuist Inc. Five Greentree Centre Suite 311 Marlton, New Jersey 08053 EX-99.(D)(1)(O) 23 0023.txt EMPLOY. AGREE. BET. MEDQUIST & JOHN W. QUAINTANCE EXHIBIT (d)(1)(O) EXECUTION COPY -------------- EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 22nd day of May, 2000, by and between MedQuist Inc., a New Jersey corporation (the "Company"), and John W. Quaintance, a resident of Phoenix, Arizona ("Employee"). BACKGROUND ---------- The Company desires to provide for Employee's continued employment with the Company. Employee desires to accept such employment on the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth, the parties hereto, intending legally to be bound, hereby agree as follows: 1. Effective Date. This Agreement shall become effective at the time -------------- Koninklijke Philips Electronics N.V. ("Purchaser") pays for Shares (as defined in Section 1.1(a) of the Tender Offer Agreement, dated as of the date hereof, between Purchaser and the Company (the "Tender Offer Agreement")), pursuant to the terms of the Offer (as defined in Section 1.1(a) of the Tender Offer Agreement), provided that Employee is employed by the Company at such time. This Agreement cancels and supersedes any and all prior oral or written agreements and understandings (the "Prior Agreements") between or among any or all of the parties hereto with respect to the employment by or obligations of Employee to any thereof, with the exception of the Employee's obligations under any restrictive covenants or confidentiality provisions contained in any Prior Agreement, which covenants and provisions shall survive with respect to the time period prior to the Effective Date of this Agreement. This Agreement constitutes the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. 2. Employment. The Company hereby employs Employee as Senior Vice ---------- President, Western Region of the Company and Employee hereby accepts such employment, upon the terms and conditions set forth in this Agreement. 3. Term. The Company shall employ Employee hereunder for a three (3) ---- year term commencing on the Effective Date hereof (the "Term"), which Term will be automatically extended for additional one (1) year periods beginning on the third anniversary of the Effective Date and upon each subsequent anniversary thereof unless either party provides the other party with at least ninety (90) days' prior written notice of its intention not to renew this Agreement. 4. Office and Duties. ----------------- a. Duties. During the Term, Employee shall render such services ------ as are appropriate for a person holding Employee's position and such additional or alternative duties as may from time to time be assigned to Employee by the Board of Directors of the Company ("Duties"). 5. Full Time Emp1oyment. During the Term, Employee shall use -------------------- Employee's best efforts to carry out the Duties and other obligations hereunder and devote Employee's entire working time to the business and affairs of the Company, and shall not, in any advisory or other capacity, work for any other individual, firm or corporation without the prior written consent of the Company. a. No Conflicting Agreements. Employee represents and warrants ------------------------- to the Company that he is not subject or a party to any Agreement, non- competition covenant, non-disclosure agreement or other agreement, covenant, understanding or restriction which would prohibit Employee from executing this Agreement or performing fully the Duties and other obligations hereunder, or which would in any manner, directly or indirectly, limit or affect the Duties or other obligations hereunder. b. Base Salary; Short Term Bonus; Options. As compensation for -------------------------------------- the services that Employee shall render hereunder, Employee shall be entitled to a total base salary of $154,000 per year ("Base Salary"), payable at such times as is consistent with the Company's pay periods -2- for other executives of the Company. In addition, Employee shall be eligible for participation in the Company's short term targeted bonus plan in an amount equal to up to 25% of Base Salary. Subject to approval of the Board of Directors, on or promptly following the Effective Date, the Company shall grant to Employee an option to purchase shares of the common stock of the Company under the Company's Incentive Stock Option Plan for Officers and Key Employees adopted by the Board of Directors on January 17, 1992 in accordance with the terms outlined on Schedule A annexed hereto. Employee agrees that the consummation of the transactions contemplated by the Tender Offer Agreement shall not constitute a "change in control" for purposes of 44,400 of the total of 49,800 outstanding unvested Company options he holds as of the Effective Date (the "Deferred Vesting Options") and hereby waives all rights to the accelerated vesting of the Deferred Vesting Options that would have occurred upon the consummation of the transactions authorized by the Tender Offer Agreement (the "Waiver"). Notwithstanding the foregoing, such Waiver shall be deemed revoked, and all Deferred Vesting Options will immediately vest in the event of (i) the Employee's death, (ii) the Employee's Disability, (iii) a termination by the Company of the Employee's employment without cause, (iv) the receipt by the Employee of notice from the Company of nonrenewal of the Agreement, (v) a voluntary resignation by the Employee following a required relocation of the Employee's principal place of business by more than fifty miles, or (vi) a failure by the Company to pay the compensation authorized by this Agreement, provided that Employee has given the Company notice of such breach and the Company has not cured such breach within thirty days of receipt of such notice (a "Material Breach"). 6. Other Benefits. During the Term, Employee will be eligible to -------------- receive the following benefits (collectively, "Benefits"): a. Savings and Retirement Plans. Participation in all savings, ---------------------------- pension and retirement plans and programs of the Company generally available to other executives of the Company as in effect from time to time; b. Welfare Plans. Participation in any welfare benefit plans ------------- and programs of the Company as in effect from time to time; -3- c. Life Insurance. Life insurance maintained by the Company on -------------- the life of Employee (naming the beneficiary of Employee's choice) in an amount consistent with policy of the Company as in effect from time to time; d. Vacation. Paid vacation (taken consecutively or in segments) -------- in accordance with the Company's policies generally applicable to other executives of the Company from time to time, taken at such times as is reasonably consistent with proper performance by Employee of Employee's duties and responsibilities hereunder; and e. Car Allowance. The Company shall continue to provide a car ------------- allowance or use of an automobile to Employee, including all reasonable expenses of operation, consistent with the car allowance that is presently provided to Employee. 7. Reimbursement for Expenses. During the Term, the Company shall -------------------------- reimburse Employee in full for all reasonable and necessary business and travel expenses incurred by him in connection with the performance of the Duties (collectively, "Expenses"). Notwithstanding any provision herein to the contrary, the Company shall reimburse Employee only (i) upon presentation by Employee of written vouchers or expense statements satisfactorily evidencing such expenses as may be reasonably required by the Company and (ii) if such expenses are in accordance with the Company's policies generally applicable to executives of the Company. 8. Termination. ----------- a. Death or Disability. Subject to Section 8.d. below, this ------------------- Agreement shall terminate immediately upon Employee's death. Subject to Section 8.d. below, the Company may terminate Employee's employment hereunder in the event of physical or mental incapacity or disability which renders Employee unable to perform the Duties for a period of one hundred twenty (120) days or more during any period of twelve (12) consecutive months ("Disability"). b. Termination for Cause. Subject to Section 8.d. below, the --------------------- Company may terminate this Agreement at any time with cause upon written notice to -4- Employee. Termination for "cause" shall mean discharge of the Employee by the Company on any of the following grounds: (i) Employee's indictment or conviction in a court of law of any crime or offense that makes Employee unfit for continuing employment, prevents Employee from performing the Duties or other obligations hereunder or adversely affects the reputation or business activities of the Company; (ii) Employee's dishonesty, substance abuse or misappropriation of funds; or (iii) Employee's failure or refusal to perform the Duties or other obligations hereunder. c. Resignation. Subject to Section 8.d. below, Employee may ----------- resign from his employment hereunder by giving the Company six (6) months' prior written notice. d. Obligations of the Company Upon Termination. ------------------------------------------- (1) Termination for Cause; Resignation; Death or -------------------------------------------- Disability . If the Company terminates Employee's employment hereunder for - ---------- cause, or if Employee resigns, or if Employee dies or suffers a Disability, the Company shall have no further obligations to Employee hereunder other than for the payment of (i) accrued but unpaid salary prorated through the date of termination or effective date of resignation ("Accrued Salary"), (ii) any Benefits vested as of such date ("Vested Benefits") and (iii) unreimbursed Expenses incurred prior to such date. (2) Termination Without Cause, Upon Required Relocation or ------------------------------------------------------ Material Breach. If (i) the Company terminates Employee's employment hereunder - --------------- without cause or (ii) if the Employee voluntarily terminates his employment following a required relocation of his principal place of business by more than 50 miles or following a Material Breach, the Company shall have no further obligation to Employee hereunder other than for the payment of (i) Accrued Salary, (ii) a lump sum payment equal to (x) 1.5 multiplied by (y) the sum of all cash compensation awarded to Employee in the fiscal year immediately prior to -5- termination, or if Employee's compensation was higher or would be higher on an annualized basis, in the fiscal year in which such termination takes place, (iii) any Vested Benefits and (iv) unreimbursed Expenses incurred prior to the date of termination. 9. Restrictive Covenants and Confidentiality; Injunctive Relief. ------------------------------------------------------------ a. As a condition to the performance by the Company of its obligations hereunder so long as Employee remains an employee of the Company, and for a period of two (2) years thereafter, Employee shall not, without the prior written approval of the Board of Directors of the Company, directly or indirectly through any other person, firm or corporation, whether individually or in conjunction with any other person, or as an employee, agent, representative, partner or holder of any interest in any other person, firm, corporation or other association: (i) solicit, entice or induce any person, firm or corporation who or which presently is, within eighteen (18) months prior hereto was, or at any time during the Term shall be, a client or customer of the Company or any of its subsidiaries to become a client or customer of any other person, firm or corporation, and Employee shall not approach any such person, firm or corporation for such purpose or authorize or knowingly approve the taking of such actions by any other person; or (ii) solicit, entice, induce or hire any person who presently is, within eighteen (18) months prior hereto was, or at any time during the term hereof shall be an employee of the Company or any of its subsidiaries to become employed by any other person, firm or corporation, and Employee shall not approach any such employee for such purpose or authorize or knowingly approve the taking of such actions by any other person; or (iii) compete with, or encourage or assist others to compete with, or solicit orders or otherwise participate in business transactions in the electronic transcription services and health information management solutions services businesses anywhere within the United States (each, a "Competing Business"); or -6- (iv) lend any credit or money for the purposes of establishing or operating or assisting any Person to establish or operate a Competing Business, or otherwise give aid or advice to any other person or entity engaging in any Competing Business; or (v) lend or allow his professional skill, knowledge or experience to be so used by any person or entity which is engaged in a Competing Business. Nothing in the foregoing shall prohibit Employee from engaging in any business that is not a Competing Business after termination of Employee's employment with the Company, or investing in the securities of any corporation (including a Competing Business) having securities listed on a national security exchange, provided that such investment does not exceed 5% of any class of securities of any corporation engaged in business in competition with the Company, and provided that such ownership represents a passive investment and that neither Employee nor any group of persons including Employee, in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes any part in its business, other than exercising Employee's rights as a shareholder, or seeks to do any of the foregoing. b. Employee acknowledges that during the Term, Employee will have access to confidential information of the Company, including plans for future developments, and information about costs, customers, potential customers, profits, markets, sales, products, key personnel, pricing policies, operational methods, technical processes and other business affairs and methods and other information not available to the public or in the public domain (hereinafter referred to as "Confidential Information"). In recognition of the foregoing, Employee covenants and agrees that, except as required by Employee's duties to the Company, Employee will keep secret all Confidential Information and will not, directly or indirectly, either during the Term or at any time thereafter, disclose or disseminate to anyone or make use of, for any purpose whatsoever, any Confidential Information, and upon termination of Employee's employment, Employee will promptly deliver to the Company all tangible materials containing Confidential Information (including -7- all copies thereof, whether prepared by Employee or others) which Employee may possess or have under Employee's control. c. Employee represents (i) that Employee's experience and capabilities are such that the restrictions contained herein will not prevent Employee from obtaining employment or otherwise earning a living at the same general economic benefit as reasonably required by Employee and (ii) that Employee has, prior to the execution of this Agreement, reviewed this Agreement thoroughly with Employee's legal counsel. d. Employee acknowledges that the services to be rendered by Employee are special, unique and extraordinary, that the restrictions contained in this Section 9 are reasonable and necessary to protect the legitimate business interests of the Company and that the Company and Parent would not have entered into the Tender Offer Agreement in the absence of such restrictions. By reason of the foregoing, Employee consents and agrees that if Employee violates any of the provisions of this Section 9, the Company would sustain irreparable harm and, therefore, irrevocably and unconditionally agrees that in addition to any other remedies which the Company may have under this Agreement or otherwise, all of which remedies shall be cumulative, the Company shall be entitled to apply to any court of competent jurisdiction for preliminary and permanent injunctive relief and other equitable relief. In the event that any of the provisions of this Section 9 hereof should ever be adjudicated to exceed the time, geographic, service, or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, service, or other limitations permitted by applicable law. e. Employee agrees that the Company may provide a copy of this Agreement to any business or enterprise (i) which the Employee may directly or indirectly own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing, or control of, or (ii) with which Employee may be connected with as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise, or in connection with which Employee may use or -8- permit Employee's name to be used. Employee will provide the names and addresses of any of such persons or entities as the Company may from time to time reasonably request. f. In the event of any breach or violation of the restriction contained in Section 9.a. above, the period therein specified shall abate during the time of any violation thereof and that portion remaining at the time of commencement of any violation shall not begin to run until such violation has been fully and finally cured. g. Employee acknowledges that the Company shall be the sole owner of all the results and proceeds of Employee's services hereunder, including but not limited to, all inventions, developments, enhancements, discoveries and other improvements relating to equipment, methods or processes connected with or useful to the Company's and its subsidiaries' businesses, (collectively, the "Developments"), which Developments Employee, by himself or in conjunction with any other person or entity, may conceive, make, acquire, acquire knowledge of, develop or create in connection with and during the term of or prior, to Employee's employment hereunder, free and clear of any claims by Employee (or any successor or assignee of Employee) of any kind or character whatsoever other than Employee's right to compensation hereunder. Employee hereby assigns and transfers his right, title and interest in and to all such Developments, and agrees that he shall, at the request of the Company, execute such assignments, certificates or other instruments, and do any and all other acts, as the Company from time to time reasonably deems necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend the Company's right, title and interest in or to any such Developments. Employee acknowledges that any Development which may be copyrightable shall be deemed to be "work for hire." 10. Survival. The provisions of Section 9 shall survive the -------- termination of this Agreement for any reason whatsoever. 11. Certain Additional Payments by the Company ------------------------------------------ a. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution -9- (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) to or for the benefit of Employee (whether pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 11) (the "Payments") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are incurred by Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Company shall pay to Employee an additional payment (a "Gross-Up Payment") in an amount such that after payment by Employee of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the Payments and (y) the product of any deductions disallowed because of the inclusion of the Gross-Up Payment in Employee's adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, the Employee shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-Up Payment is to be made, (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and (iii) have otherwise allowable deductions for federal income tax purposes at least equal to those which could be disallowed because of the inclusion of the Gross- Up Payment in the Employee's adjusted gross income. Notwithstanding the foregoing provisions of this Section 11(a), if it shall be determined that Employee is entitled to a Gross-Up Payment, but that the Payments would not be subject to the Excise Tax if the Payments were reduced by an amount that is less than 10% of the portion of the Payments that would be treated as "parachute payments" under Section 280G of the Code, then the amounts payable to Employee under this Agreement shall be reduced (but not below zero) to the maximum amount that could be paid to Employee without -10- giving rise to the Excise Tax (the "Safe Harbor Cap"), and no Gross-Up Payment shall be made to Employee. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing first the payments under Section 8(d)(ii), unless an alternative method of reduction is elected by Employee. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amounts payable hereunder would not result in a reduction of the Payments to the Safe Harbor Cap, no amounts payable under this Agreement shall be reduced pursuant to this provision. Notwithstanding the foregoing, this Section 11 shall not apply to any stock option grant if the result of the application of such Section 11 would be to alter the basis on which compensation expense is measured for purposes of APB Opinion Number 25. b. Subject to the provisions of Section 11(a), all determinations required to be made under this Section 11, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment, the reduction of the Payments to the Safe Harbor Cap and the assumptions to be utilized in arriving at such determinations, shall be made by the public accounting firm that is retained by the Company as of the date immediately prior to the Change in Control (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and Employee within fifteen (15) business days of the receipt of notice from the Company or the Employee that there has been a Payment, or such earlier time as is requested by the Company (collectively, the "Determination"). In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, Employee may appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and the Company shall enter into any agreement requested by the Accounting Firm in connection with the performance of the services hereunder. The Gross-Up Payment under this Section 11 with respect to any Payments shall be made no later than thirty (30) days following such Payment. If the Accounting Firm determines that no Excise Tax is payable by Employee, it -11- shall furnish Employee with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on Employee's applicable federal income tax return will not result in the imposition of a negligence or similar penalty. In the event the Accounting Firm determines that the Payments shall be reduced to the Safe Harbor Cap, it shall furnish Employee with a written opinion to such effect. The Determination by the Accounting Firm shall be binding upon the Company and Employee. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment") or Gross-Up Payments are made by the Company which should not have been made ("Overpayment"), consistent with the calculations required to be made hereunder. In the event that the Employee thereafter is required to make payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the benefit of Employee. In the event the amount of the Gross-Up Payment exceeds the amount necessary to reimburse the Employee for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid by Employee (to the extent he has received a refund if the applicable Excise Tax has been paid to the Internal Revenue Service) to or for the benefit of the Company. Employee shall cooperate, to the extent his expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. 12. Miscellaneous. ------------- a. Any notice authorized or required to be given or made by or pursuant to this Agreement shall be made in writing and either personally delivered or mailed by overnight express mail to the respective address of the party to receive such notice, which address is the one designated below the signature of such party hereto, or to such other address as a party may specify by notice to the -12- other parties hereto. In the event that the Company desires to terminate Employee for cause pursuant to Section 8.b. of this Agreement, the Company shall provide Employee with prompt written notice of such termination and, if requested by Employee, afford Employee a reasonable opportunity to cure such default within sixty (60) days after receipt of such notice. b. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Employee hereunder are of a personal nature and shall not be assignable or delegatable in whole or in part by Employee. c. If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. d. No remedy conferred upon any party by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by any party in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by the party possessing the same from time to time and as often as may be deemed expedient or necessary by such party in its sole discretion. e. This Agreement may be executed in several counterparts, each of which is an original. It shall not be necessary in marking proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. -13- f. In the event of a lawsuit by either party to enforce any provisions of this Agreement, the prevailing party shall be entitled to recover reasonable costs, expenses and attorney's fees from the other party. 13. Controlling Law. The validity, interpretation, construction, --------------- performance and enforcement of this Agreement shall be governed by the laws of the State of New Jersey, without reference to principles of conflicts of laws. Venue, for purposes of all causes of action, mediation, arbitration or other disputes shall be in Camden County, New Jersey. 14. Gender; Number. In this Agreement, words of gender may be read -------------- as masculine, feminine, or neuter, as required by context. Words of number may be read as singular or plural, as required by context. -14- IN WITNESS WHEREOF, Employee has hereunto set Employee's hand and the Company has caused this instrument to be duly executed as of the day and year first above written. EMPLOYEE /s/ John W. Quaintance ---------------------------------- John W. Quaintance MEDQUIST INC. /s/ David A. Cohen ---------------------------------- Title: Chairman and Chief Executive Officer MedQuist Inc. Five Greentree Centre Suite 311 Marlton, New Jersey 08053 -15- EX-99.(D)(1)(P) 24 0024.txt LICENSING AGREEMENT DATED AS OF 5/22/2000 CONFIDENTIAL EXHIBIT (d)(1)(P) Schedule A-2 LICENSING AGREEMENT This Agreement (the "Agreement") is made as of the 22nd day of May, 2000 by and between MedQuist Inc. ("MedQuist"), a New Jersey corporation, with its principal place of business at Five Greentree Centre, Suite 311, Marlton, NJ 08053, acting on its own behalf and on behalf of its wholly owned subsidiaries (direct and indirect) and Philips Speech Processing GmbH ("Philips"), an Austrian corporation, with its registered place of business at Computerstrasse 6, 1101 Vienna, Austria (MedQuist and Philips, each a "Party" and, collectively, the "Parties"). W I T N E S S E T H ------------------- WHEREAS, the parties hereto have executed a Tender Offer Agreement of this even date, and this Agreement shall have effect from and after the date the tender contemplated by the Tender Offer Agreement is completed (the "Effective Date"); WHEREAS, Philips has developed certain speech recognition and processing technology and is in the business of licensing and further developing that technology for integration into speech enabled products and services; and WHEREAS, MedQuist is in the business of providing the Services (as defined hereinafter); and WHEREAS, Philips has developed certain software required for the use and continuous improvement of the Contexts (as defined below), together with a background lexicon database to enable the recognition of words included in such database and their automated speech-to-text transformation and MedQuist wishes to obtain a license to use such software for MedQuist's business; and 1 WHEREAS, MedQuist and Philips desire to enter into a business relationship, whereby the Parties intend to provide for the integration and use of certain Philips speech recognition technology into MedQuist's business through a cooperative effort governed by this Agreement, subject to the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the mutual promises contained herein, the Parties agree as follows: Section 1. Definitions ----------- 1.0 Words shall have their normally accepted meanings as employed in this Agreement. The terms "herein" and "hereof", unless specifically limited, shall have reference to the entire Agreement. The word "shall" is mandatory, the word "may" is permissive, the word "or" is not exclusive, the word "includes" and "including" are not limiting and the singular includes the plural and vice versa. The following terms shall have the described meaning. 1.1 "Agreement" shall mean this present document including, as an integral part, its appendices, initialed or signed by the Parties and attached hereto, and any modifications and updates made from time to time in accordance with the provisions hereof. 1.2 "Confidential Information" shall have the meaning set forth in Section 8 of this Agreement. 1.3 "Context" shall mean a specific speech recognition software module, which can be added to the Licensed Product, containing a specialized class of Language Resources optimized for a specific user or application group or customer (e.g. gynecologists; radiologists; Ear-Nose-Throat specialists; etc.). 1.4 "Customer(s)" shall mean any individual or entity purchasing MedQuist's Services. 2 1.5 "Derivative Works" shall have the meaning ascribed thereto in 17 U.S.C. 101 et seq. 1.6 "Documentation" shall mean all visually or electronically readable materials, in English, developed by Philips for use in connection with the Licensed Product and all revisions thereto, and new documentation issued to reflect changes made in the Licensed Products. 1.7 "Effective Date" shall mean the date set forth in the preamble of this Agreement. 1.8 "IP Rights" shall mean any patent, copyright, trade secret, trademark, design, and mask work, or other intellectual property rights. 1.9 "Language Resources" shall mean the databases of words initially provided by Philips to MedQuist which also incorporates phonetics and statistics to enable the recognition and speech-to-text transformation of words included in such database. 1.10 "Level 1 Support" shall mean support which is provided by the internal MedQuist support unit to the MedQuist operational unit in response to an initial phone call which identifies and documents a Problem and includes initial responses to such internal calls, database searches for previously reported problems, installation of Patches and Maintenance Releases and the hand off of unresolved Problems to Level 2 Support. Level 1 Support is performed by licensees themselves. 1.11 "Level 2 Support" shall mean support that includes, to the extent possible, the recreation and resolution of Problems reported to Philips and for which Philips shall initiate a resolution within a response time commensurate with the severity level described in Schedule E.. This would normally result either in a solution to the licensee by way of Patches or otherwise, or in a hand off of unresolved problems to Level 3 Support. 3 1.12 "Level 3 Support" shall mean support that includes, to the extent possible, the resolution of Problems and the provision of Patches by Philips, all in accordance with good engineering practices and for which Philips shall initiate a resolution within a response time commensurate with the severity level described in Schedule E. 1.13 "Licensed Product" shall mean (i) the SpeechMagic 4.0 software, in the format developed by Philips in conjunction with which the Contexts will operate and (ii) other software tools, all as are described in Schedule A. In case a Context is added to the Licensed Product, then the term "Licensed Product" shall include that Context. 1.14 "Maintenance Release" shall mean any version of the Licensed Product, which includes a number of Patches (and sometimes minor new functionality), which is recommended by Philips to be installed by existing licensees and indicated as an increase after the decimal (e.g. 4.1, 4.2, 4.3). 1.15 "Major Release" shall mean a new version of the Licensed Product subsequent to the initial delivery in which Philips has incorporated one or more new functions, features or new technology of the Licensed Product developed by Philips and which provides a new capacity which the previous releases or versions of the Licensed Product did not have, together with new or revised Documentation which properly describes the upgraded Licensed Product and which is identified by a change in the release designation(e.g. 5.0, 6.0, 7.0). 1.16 "Object Code" shall mean computer programs for the Licensed Product assembled or compiled in magnetic or electronic binary form on software media, which are readable and usable by machines, but not generally readable by humans without reverse-assembly, reverse-compiling, or reverse- engineering the Licensed Product. 4 1.17 "Patches" shall mean solutions or workarounds to Problems reported by MedQuist or other licensees to Philips via the hotline service. 1.18 "Problem(s)" shall mean any error, problem, or defect resulting from (1) incorrect functioning of the Licensed Product, or (2) an incorrect or incomplete statement or diagram in Documentation, in the case of each of (1) and (2), only if such error, problem or defect renders the Licensed Products inoperable, causes the Licensed Products to fail to meet the product description thereof (but not related to the success rate of the Licensed Product), or causes the Documentation to be inaccurate or incomplete in any material respect. 1.19 "Services" shall mean outsourced medical transcription activities provided by MedQuist to third party customers. 1.20 "Work Made for Hire" shall have the meaning ascribed thereto in 17 U.S.C. @ Sec. 101 et seq. Section 2. Scope of License Grant, Ownership and Proprietary Rights -------------------------------------------------------- 2.1 Subject to the terms and conditions set forth in this Agreement, Philips grants to MedQuist during the term of this Agreement, a personal, non- assignable, non-transferable, indivisible, non-exclusive (except as provided herein) license, without the right to sub-license, to use the Licensed Product in Object Code and Documentation only (except as provided in Section 6) for MedQuist's internal use at its sites, solely in connection with MedQuist's network and in connection with providing Services MedQuist accepts the grants made by Philips under this Section 2.1. During the Term, as long as MedQuist is in full compliance with its obligations hereunder, 5 Philips undertakes not to grant a license of the Licensed Product and Contexts, or similar products, to a competitor of MedQuist providing outsourced medical transcription services in the USA. However, Philips explicitly reserves the right to license the Licensed Product, Contexts and similar products to others, such as, but not limited to distributors and third party endusers who wish to use such products (including SpeechMagic 3.0 and 3.1) for non-outsourced medical transcription or other services. For purposes of this Agreement, the term "outsourced" means that the healthcare provider utilises medical transcriptionists that are not engaged or employed by the healthcare provider nor his hospital organisation (i.e. if a hospital records department or a doctor uses their own employees or independent contractors or so-called statutory employees for their own transcriptions and the transcription service is performed with technology owned by or licensed to the hospital or doctor, the service is not outsourced). 2.2 Nothing herein is intended to, or shall be deemed to, convey to MedQuist any title or ownership interest in the Licensed Product, the Contexts, the Documentation or any Derivative Works of any of the foregoing. MedQuist acknowledges that, as between MedQuist and Philips, Philips is and shall continue to be the owner of each of the foregoing, as it exists and as it may be altered, modified or further developed, whether or not authorized, and IP Rights associated therewith. Each Derivative Work, including portions thereof and all copies thereof, in whatever medium, fixed or embodied, shall be considered a "Work Made for Hire" and Philips shall own all right, title and interest therein. MedQuist hereby assigns, and upon creation of each Derivative Work automatically and irrevocably assigns, to Philips ownership of all of MedQuist's right, title and interest in and to such Derivative Work insofar as any such Derivative Work, by operation of law, may not be considered a "Work Made for Hire" and MedQuist hereby agrees to disclose to Philips all Derivative Works promptly upon creation during the term of this Agreement. MedQuist reserves no rights, whatsoever, in the Derivative Works. 6 2.3 MedQuist agrees not to exceed the scope of the license granted in Section 2.1 and shall not copy (except as technically necessary to use the Licensed Product in accordance with the license granted), alter, decompile, disassemble, reverse engineer or otherwise attempt to learn any source code, structure, algorithms or ideas underlying the Licensed Product, nor shall it modify, translate or create derivative works (other than as expressly permitted herein) based on the Licensed Product, except that nothing in this Section 2.3 shall preclude integration of the Licensed Product with MedQuist's technology infrastructure as contemplated by Section 3.1. 2.4 Without limiting the generality of Section 2.2 hereof, Philips is being granted full access to (a) modifications to the Contexts generated automatically in the information technology infrastructure of MedQuist, (b) medical documents in MedQuist's possession and (c) user sound data in MedQuist's possession. Philips shall also have the right to copy, modify and use such data under customary confidentiality obligations in order for Philips to improve existing Contexts and generate new ones. MedQuist will receive such Contexts on or before the date that they are generally made available to other supported licensees of Philips. In addition, MedQuist will receive during the Term on a quarterly basis a royalty of 3.5 % (three and a half percent) of the license fees received by Philips from other licensees for each Context developed on the basis of such access to MedQuist's specific, Context related information described in the first sentence of this Section 2.4, provided such Context uses text data from MedQuist 2.5 MedQuist will not delete any Trademarks, trade names or copyright notices present in or displayed by the Licensed Product. Neither party will claim any right to use any of the Trademarks of the other party except pursuant to this Agreement and its use of each Trademark will inure to the benefit of the Trademark-owning party. Neither party (i) will act in any manner that might reasonably injure the rights or goodwill of the other party with respect to the other's Trademarks, (ii) will not challenge the validity or ownership of 7 the other's Trademarks, and (iii) will protect the other's Trademarks as necessary and appropriate. MedQuist expressly acknowledges that all of Philips' Trademarks with their associated goodwill, copyrights, trade secrets and proprietary rights falling within the scope of this Agreement are and shall remain the property of Philips. Philips similarly acknowledges that all of the MedQuist Trademarks with their associate goodwill, copyrights, trade secrets and proprietary rights falling within the scope of this Agreement are and shall remain the property of MedQuist. 2.6 Each Party reserves all rights in its proprietary information and IP Rights that are not explicitly granted to the other Party under this Agreement. Nothing herein is intended to, or shall be deemed to, convey to Philips any title or ownership interest in or license to the software MedQuist licenses to its clients (whether owned by or licensed to MedQuist for sublicensing purposes). Section 3. Delivery. -------- 3.1 Philips shall deliver the Licensed Product in Object Code form and related Documentation to MedQuist in accordance with Schedule A. MedQuist will be responsible for integrating the Licensed Product into MedQuist's existing information technology infrastructure. However, Philips will provide consultancy support to MedQuist covering integration, customization and start up activities in order to ensure the speedy and efficient introduction of this new technology. Up to fifteen man-years of such support activities is included within the initial sign up fee described in Section 4 below, to be consumed no later than December, 31 2001 on the basis of a timeschedule and workplan to be mutually agreed within 45 days after the Effective Date. In addition, as part of such sign up fee, Philips will provide Licensed Product and Level 1 Support services training sufficient in order for MedQuist's employees 8 to become familiar with the use of the Licensed Products and to be able to execute internally Level 1 Support services. 3.2 Subject to MedQuist's compliance with applicable Fee obligations set forth in this Agreement, Major Releases of the Licensed Product shall be added to this Agreement and delivered to MedQuist at the time such Major Releases are made available to other supported licensees of Philips at no additional cost to MedQuist. Section 4. Pricing ------- 4.1 The initial sign up fee payable by MedQuist to Philips shall be US$ 2.25 million payable in accordance with Schedule D (but not earlier than the Effective Date). The minimum annual as well as ongoing license fees for the Licensed Product payable by MedQuist to Philips are set forth in Schedule D (the "Fees"). The Fees (including the initial sign up fee) do not include sales, use, excise and similar taxes, nor the cost of shipping or insurance, for which MedQuist is responsible. 4.2 During the term of this Agreement and any extension thereof, MedQuist shall send a statement to Philips within ten (10) days following the last day of each calendar quarter certifying, in summary form, (i) the use of the Licensed Products and the basis for the Fees calculations set forth in Schedule D hereto and (ii) the Fees due for such period. Appropriate payments for each calendar quarter shall be made within 60 days after the date of such statement, and in no event later than the last day of the calendar quarter following the quarter covered by such statement. Upon MedQuist's request, Philips shall send an invoice covering the Fees so stated. 9 4.3 MedQuist shall maintain for at least three (3) years its records, contracts and accounts relating to Licensed Product and its use thereof, and will permit examination thereof as well as access to the Licensed Product upon reasonable request and during normal business hours by authorized representatives of Philips. In addition, Philips may at its own expense audit the books of account of MedQuist relating to this Agreement at the place where such books are kept, in order to investigate compliance with the payment obligations hereunder; such audits may not take place more than twice a year, unless an audit has revealed underpayments to Philips. Any such audit shall be conducted by an independent professional auditor reasonably acceptable to both parties, on at least ten (10) working days prior written notice and during normal business hours. A copy of the report made by such auditor shall be provided to both Parties at the same time. If during the course of such audit, it is discovered that any payment owed to Philips hereunder was not made or was miscalculated and the discrepancy in MedQuist's favor is five percent (5%) or more in any given period of 3 months or more (a "Payment Default"), the cost of such audit shall be borne by MedQuist. Furthermore, MedQuist shall immediately remedy such Payment Default, together with interest at the rate of 10% per annum (or such lower rate as may be the maximum allowable by law) calculated from the date such payment was due until such payment is actually made. 4.4 MedQuist shall submit to Philips, once per calendar year, a written statement by its external auditors, who shall be independent certified accountants, confirming that the quarterly statements submitted by MedQuist to Philips for the preceding calendar year, were true, complete and accurate in every respect. MedQuist shall use all commercially reasonable efforts to cause such statement to be submitted within 120 days following the end of the fiscal year. 10 4.5 For Level 2 and Level 3 Support services rendered by Philips in accordance with Schedule E, MedQuist will pay Philips fees as set forth on Schedule D. Section 5. Warranties, Indemnity and Liability Limitations ----------------------------------------------- 5.1 Schedule C sets forth the warranties and indemnification obligations of MedQuist and Philips in connection with this Agreement. Section 6. Further obligations of the Parties ---------------------------------- 6.1 In order that the relationship contemplated by this Agreement shall be mutually advantageous, and in recognition of the particular expertise and commitment necessary to properly use and support the Licensed Product, MedQuist agrees during the Term to comply with the following requirements: MedQuist shall (i) conduct business in a manner that does not reflect negatively at any time on the good name, goodwill and reputation of Philips; (ii) avoid deceptive, misleading or unethical practices that are or might be detrimental to Philips, its product or the public; (iii) make no false or misleading representations with regard to Philips or its products; (iv) not purchase, license or use a product competing with the Licensed Product during the Term; and (v) for any and all of its present and future speech technology needs, first invite Philips to submit a competitive offer. In case MedQuist is dissatisfied with such offer and subsequently receives a more attractive offer from a third party, MedQuist will afford Philips a final opportunity to match such third party offer. 11 6.2 Philips hereby grants to MedQuist a most favored customer status, meaning that in case Philips affords a third party/medical outsourcing transcription service provider outside the USA a license of the Licensed Product on terms and conditions which, taken as a whole, are more favorable to such third party than those set forth herein are to MedQuist, Philips will notify MedQuist within thirty days of agreeing to those better terms and MedQuist will then have a 30 day period to decide whether or not it wishes to replace these terms and conditions with those contained in the third party agreement. 6.3 In case MedQuist wishes Philips to develop additional enhancements, modifications or features to the Licensed Product, Philips is willing to negotiate same on reasonable, commercial terms and conditions and to undertake such activities, provided the parties hereto can agree on timeschedule, workplan, pricing and licensing conditions in connection with such possible development activities. Philips shall not transfer ownership on any development work under any circumstances, but is willing to discuss extending the exclusivity hereunder to such development work or provide up to a 3 month lead time in such case. Within twenty (20) days after receiving MedQuist's request pursuant to Section 6.3., Philips shall notify MedQuist of Philips's proposed prices, timeschedule, licensing conditions and other terms and conditions for performing such development work (unless Philips has declined, as set forth hereinafter). If MedQuist provides notice ("Acceptance Notice") accepting Philips's price and other performance terms, Philips shall perform such work at the accepted price and on the accepted performance terms. If either (i) Philips declines any work requested pursuant to this Section 6.3, or (ii) MedQuist provides notice that it does not accept Philips's price and performance terms, then MedQuist may engage a third party to perform such work, provided that such third party acknowledges that it has no license or right to any part of the Licensed Product nor access to the source codes. Whenever 12 MedQuist shall use such a third party developer, Philips shall allow such third party such access to the Licensed Product as shall be reasonably necessary to complete such work and shall cooperate with such third party, provided that such access and cooperation shall be subject to such third party (i) executing reasonable and appropriate security and confidentiality agreements with Philips, (ii) abiding by Philips' internal policies applicable to all third party developers, and (iii) agreeing to reimburse Philips for Philips' internal and out-of-pocket expenses incurred in providing such access and cooperation. 6.4 If MedQuist reasonably determines that Philips cannot or chooses not to provide changes which are required for the Licensed Product to remain in compliance with all applicable laws by thirty (30) days prior to a deadline imposed by governmental authority, MedQuist shall have the right to contract with a third party for such work or to do such work itself. The provisions of Section 6.3 relating to contracting with a third party shall apply to such a contract with a third party under this Section 6.4. Upon reasonable advance written notice to Philips, MedQuist may request, and if it so requests Philips shall use its good faith efforts to accommodate, prioritization of supporting such changes over any other software development work performed by or on behalf of Philips. 6.5 In case Philips intends to introduce speech technology applications to outsourcing service companies like MedQuist in other fields (e.g. law; insurance), it will first discuss such plans with MedQuist in order to jointly investigate whether or not MedQuist is optimally positioned to exploit such technology in such other fields as well. Section 7. Term and Termination -------------------- 13 7.1 Unless earlier terminated pursuant to this Section 7, this Agreement will have an initial term of five (5) years from the Effective Date. After the expiration of the initial term, this Agreement will thereafter continue for subsequent five year terms, unless earlier terminated as provided below. Neither party will be liable for terminating this Agreement in accordance with its terms. 7.2 This Agreement can be terminated as follows: 7.2.1 Philips shall have the right to terminate this Agreement for cause immediately in the event that (i) MedQuist defaults in any payment due to Philips and such default continues for a period of thirty (30) business days after written notice to MedQuist; (ii) MedQuist fails to perform any material obligation, duty or responsibility or is in default with respect to any material term or condition undertaken by it under this Agreement and such default continues for a period of thirty (30) business days after written notice to MedQuist; or (iii) a receiver is appointed for MedQuist or its property, or it makes an assignment for the benefit of its creditors, or any proceedings are commenced by, for or against it under any bankruptcy, insolvency or debtor's relief law, or it is liquidated or dissolved. In case the tender for MedQuist shares is not consummated in accordance with the terms of the Tender Offer Agreement, this Agreement shall have no effect, unless confirmed by both the parties hereto. 7.2.2 MedQuist shall have the right to terminate this Agreement immediately in the event that (i) Philips fails to perform any material obligation, duty or responsibility or is in default with respect to any material term or condition undertaken by it under this Agreement and such default continues for a period of thirty (30) business days after written notice to Philips; or (ii) a receiver is appointed for Philips or its property, or 14 it makes an assignment for the benefit of its creditors, or any proceedings are commenced by, for or against it under any bankruptcy, insolvency or debtor's relief law, or it is liquidated or dissolved or (iii) Philips defaults in any payment due to MedQuist and such default continues for a period of thirty (30) days after written notice to Philips. 7.2.3 Either Party shall have the right to terminate this Agreement (both at the end of the initial term and during or at the end of any subsequent term) at its sole discretion upon at least a two (2) years prior written notice to the other Party, the first possibility to issue such notice shall be no sooner than at the end of the initial term (i.e. the term of the license will be at least 7 years). 7.3 Upon the termination of this Agreement, all fees owed by one Party to the other Party pursuant to this Agreement shall be paid within ten (10) days after the date of termination. 7.4 Upon the termination of this Agreement, all licenses granted hereunder shall terminate. Each Party shall return to the other Party, erase, or destroy all copies of the other Party's Confidential Information in its possession or reasonably obtainable and shall certify same has been done. 7.5 Sections 5, 7.3, 7.4, 8, 9 and 10 shall survive the termination of this Agreement. 15 Section 8. Confidential Information ------------------------ 8.1 The Parties agree all information and materials received by one Party from the other Party ("Disclosing Party"), including Licensed Product, Documentation, Contexts, Language Resources, the terms of this Agreement and any information and materials about the other Party's business, product, technologies, customers, patient information and suppliers identified by the Disclosing Party as confidential and proprietary to, and trade secrets of, the other Party are referred to as "Confidential Information". 8.2 Each Party agrees to hold all Confidential Information of the Disclosing Party in strict confidence, not to disclose it to others and not to allow any unauthorized person access to it, either before or after termination of this Agreement. 8.3 Each Party agrees to restrict dissemination of the Confidential Information of the other Party to only those persons within its organization who must have access to such information to enable the Party receiving Confidential Information to perform its obligations under this Agreement. 16 8.4 A Party (the "Receiving Party") shall not be liable for the disclosure or other use of Confidential Information which (a) is in the public domain at the time of disclosure through no fault of such Receiving Party, (b) becomes rightfully known to such Receiving Party from a third party under no obligation to maintain confidentiality, (c) becomes publicly available through no fault of or failure to act by such Receiving Party in breach of this Agreement, (d) was independently developed or already known by such Receiving Party prior to the Parties having access to one another's Confidential Information, as proven with documentary evidence, or (e) is required by court order or by governmental authority to be disclosed, provided that such Receiving Party promptly notifies the Disclosing Party that it may be required to make a disclosure and uses reasonable efforts to make such disclosure subject to a protective order or confidentiality agreement. Section 9. Publicity --------- 9.1 The Parties will jointly draft and approve any press release and other announcements to the public relating to the Licensed Product and the intended cooperation set forth herein; neither Party shall issue any other press release or make any other public announcement relating to this Agreement without the prior written consent of the other Party. Section 10. General Terms ------------- 10.1 This Agreement is not transferable or assignable without the prior written consent of the other Party hereto, except by merger, reorganization, consolidation, or sale of all or substantially all of the Party's assets. 17 10.2 This Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York, without regard to its choice of law rules. 10.3 This Agreement, including the Schedules, contains the complete agreement between the Parties with respect to the subject matter herein and supersedes all previous and collateral agreements relating thereto. 10.4 This Agreement may only be amended and obligations under this Agreement may only be waived by a written instrument signed by both Parties. No failure or delay by any Party in exercising any right under this Agreement shall operate as a waiver. 10.5 Nothing contained in this Agreement shall be construed as making either Party the agent of the other Party, as granting to the other Party the right to enter into any contract on behalf of the other Party, or as establishing a partnership or a relationship of principal or agent between the Parties. 10.6 If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. 10.7 The headings of sections, portions or paragraphs of the Agreement are for convenience only and shall not affect the interpretation of the respective rights and obligations of the Parties. 10.8 Neither Party shall be liable on account of or lose its rights under this Agreement because of any delay or failure in performance (other than payment) caused by governmental restrictions, war, civil commotion, riots, strikes, lock outs and acts of God such as fire and flood or other similar cases that are beyond the control of the Parties. 18 10.9 All notices, consents and approvals given under this Agreement shall be in writing and shall be delivered in person, by first class or express mail or by facsimile confirmed by telephone to the address set forth below: If to Philips: If to MedQuist: Philips Speech Processing GmbH MedQuist Inc. Computerstrasse 6 Five Greentree Centre, Suite 311 A-1101 Vienna, Austria Marlton, NJ 08053 Facsimile: + 43.1.602-3359 Facsimile: (856) 596-3351 with a copy to: Office of the General Counsel Office of the General Counsel Philips Speech Processing MedQuist, inc. Five Greentree Centre, Suite 311 64 Perimeter Center East, Marlton, NJ 08053 Atlanta, Georgia 31146-467300 Facsimile: (770) 821-2700 Facsimile: (856)797-5949 or at such other address as either Party may from time to time advise the other Party in accordance herewith. 10.10 In no event shall Philips have any liability under this Agreement including but not limited to direct or indirect damages of any kind or nature, in the aggregate, in excess of the payments actually received by Philips under this Agreement, whether arising by contract, tort, strict liability or otherwise and in no event shall either party be liable for any indirect damages, including any consequential (including, but not limited to, loss of profits or 19 revenues, loss of use of or damage to any associated equipment, cost of capital, cost of substitute products, facilities or services, downtime cost, or claims of customer), special, indirect or incidental damages. 10.11 This Agreement may be executed in several counterparts, all of which taken together shall constitute one single Agreement between the Parties. The parties agree to accept facsimile signatures with originals being exchanged afterwards. Section 11. Dispute Resolution ------------------ 11.1 General. Except as otherwise provided in this Agreement, disputes between ------- Philips and MedQuist relating to the interpretation or application of this provisions of this Agreement shall be resolved in accordance with this Section 11. 11.2 Informal Dispute Resolution. Any dispute between the parties arising out --------------------------- of or with respect to this Agreement, either with respect to the interpretation of any provision of this Agreement or with respect to the performance by Philips or MedQuist, shall be resolved as provided in this Section 11.2. Prior to the initiation of formal dispute resolution procedures, the parties shall first attempt to resolve their dispute informally, as follows: (A) Representatives for each party (designated within 30 days after notice of the dispute is given (the "Representatives")) shall meet for the purpose of endeavoring to resolve such dispute. They shall meet as often as the parties reasonably deem necessary in order to gather and furnish to the other all information with respect to the matter in issue which the parties believe to be appropriate and germane in connection with its resolution. The 20 Representatives shall discuss the problem and negotiate in good faith in an effort to resolve the dispute without the necessity of any formal proceeding. If, within fifteen (15) days after a matter has been identified for resolution pursuant to this Section 11.2, either of the Representatives concludes in good faith that amicable resolution through continued negotiation by them does not appear likely, the matter shall be referred to the Supervisory Committee of the Board of Directors of MedQuist upon formal written notification to such effect by either Representative (provided such Supervisory Committee is then in existence), in an attempt to mediate the dispute; in case such mediation fails, the matter will be escalated by formal written notification to the respective chief executive officers of the Parties. The parties will use their respective best efforts to cause the MedQuist CEO and the Philips CEO to meet to attempt to resolve the dispute. Formal proceedings for the resolution of a dispute may not be commenced until the earlier of: (i) the date on which the MedQuist CEO and the Philips CEO conclude in good faith that amicable resolution through continued negotiation of the matter does not appear likely; or (ii) thirty (30) days after the dispute has been referred to the MedQuist CEO and the Philips CEO. The provisions of this Section 11 shall not be construed to prevent a party from instituting, and a party is authorized to institute, formal proceedings earlier to avoid the expiration of any applicable limitations period. 11.3 Arbitration. If the parties are unable to resolve any controversy arising ----------- under this Agreement as contemplated by Section 11.2, then such controversy shall be submitted to mandatory and binding arbitration at the election of either Party (the "Disputing Party") pursuant to the following conditions: 21 (i) The Disputing Party shall notify the American Arbitration Association ("AAA") and the other Party in writing describing in reasonable detail the nature of the dispute (the "Dispute Notice"). The parties shall each select a neutral arbitrator in accordance with the rules of AAA and the two (2) arbitrators selected shall select a third neutral arbitrator. The three (3) arbitrators so selected are herein referred to as the "Panel." The Panel shall allow reasonable discovery as permitted by the Federal Rules of Civil Procedure, to the extent consistent with the purpose of the arbitration. The Panel shall have no power or authority to amend or disregard any provision of this Section 11. The arbitration hearing shall be commenced promptly and conducted expeditiously, with each of Philips and MedQuist being allocated one-half of the time for the presentation of its case. Unless otherwise agreed to by the parties, an arbitration hearing shall be conducted on consecutive days. Should any arbitrator refuse or be unable to proceed with arbitration proceedings as called for by this Section, such arbitrator shall be replaced by an arbitrator selected in accordance with the rules of the AAA and consistent with this Section 11. The Panel rendering judgment upon disputes between parties as provided in this Section 11 shall, after reaching judgment and award, prepare and distribute to the parties a writing describing the findings of fact and conclusions of law relevant to such judgment and award and containing an opinion setting forth the reasons for the giving or denial of any award. The award of the arbitrator shall be final and binding on the parties, and judgment thereon may be entered in a court of competent jurisdiction. Arbitration hearings hereunder shall be held in New York, New York or other mutually agreeable location. The Panel shall be instructed that time is of the essence in the arbitration proceeding. The Panel shall render its judgment or award within fifteen (15) days following the conclusion of the hearing. Recognizing the express desire of the parties for an expeditious means of dispute 22 resolution, the Panel shall limit or allow the parties to expand the scope of discovery as may be reasonable under the circumstances. 11.4 Litigation. In the event of a breach of the confidentiality obligations ---------- set forth in this Agreement, or in the event a party makes a good faith determination that a breach of the terms of this Agreement by the other party is such that the damages to such party resulting from the breach will be so immediate, so large or severe, and so incapable of adequate redress after the fact that a temporary restraining order or other immediate injunctive relief is a necessary remedy, then such party may file a pleading with a court seeking immediate injunctive relief. If a party files a pleading with a court seeking immediate injunctive relief and this pleading is challenged by the other party and the injunctive relief sought is not awarded in substantial part (or in the event of a temporary restraining order is vacated upon challenge by the other party), the party filing the pleading seeking immediate injunctive relief shall pay all of the costs and attorneys' fees of the party successfully challenging the pleading. Philips and MedQuist each consent to venue in New York, New York and to the nonexclusive jurisdiction of competent New York state courts or federal courts located in New York, for all litigation which may be brought, subject to the requirement for arbitration hereunder, with respect to the terms of, and the transactions and relationships contemplated by, this Agreement. 23 IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed by their authorized representatives. PHILIPS SPEECH PROCESSING GmbH MedQuist Inc. By: /s/ C. Vohringer By: /s/ David A. Cohen ____________________________ ____________________________ Name: C. Vohringer Name: David A. Cohen Title: General Manager Title: Chief Executive Officer 24 SCHEDULE "A" List of Licensed Product, Contexts and Documentation SpeechMagic 4.0 and future Major Releases All Philips proprietary Contexts The Context Customization Tool 25 SCHEDULE "B" Description of Philips Trademarks The terms and conditions under which MedQuist can use the trademarks indicated below in accordance with Corporate Guidelines will be communicated separately to MedQuist by the Royal Philips Electronics, Corporate Intellectual Property Dept. within thirty days of the Effective Date 26 SCHEDULE "C" Warranties, Indemnification and Limitation on Liability Provisions ------------------------------------------------------------------ 1. Warranties of Both Parties. -------------------------- 1.1 As a material inducement to the other Party to enter into this Agreement, each of the Parties warrants to the other that: (i) it is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and it is in good standing and qualified to do business in every jurisdiction where the nature of its business or the lease or ownership of property requires it to be so qualified or where failure to so qualify may materially affect its ability to perform its obligations hereunder; (ii) it has the full power and authority to execute, deliver and perform this Agreement; (iii) this Agreement has been duly authorized, executed and delivered by such Party and is its legal, valid and binding obligation enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, moratorium, insolvency or other similar laws affecting creditors' rights generally, or by general principles of equity; (iv) its obligations hereunder shall be performed by personnel with the requisite skill, training, experience and abilities to perform such obligations hereunder in a diligent and professional manner; and (v) its performance hereunder shall not violate or be in conflict with (a) its 27 governing documents, (b) any judgment, decree or order to which it is a party, (c) any agreement, contract, understanding, indenture or other instrument to which it is a party, or (d) any applicable law, rule or regulation. 2. Additional Philips' Warranties. ------------------------------ 2.1 Philips further warrants that: (i) as of the date of this Agreement, it is not involved in any litigation where a claim of patent, copyright or trade secret infringement has been made against the Licensed Product; and (ii) the Intellectual Property Department of Philips Electronics North America Corporation is responsible for intellectual property matters of Philips in the United States and that, as of the date of this Agreement, the Intellectual Property Department has not received any assertions, threats, or claims from any third party that the Licensed Product infringes any IP Rights of any third party. 3. Indemnification. --------------- 3.1 Philips Indemnification. ----------------------- Subject to the provision set forth herein below, Philips shall defend, at its expense, any action brought against MedQuist based on a claim that the Licensed Product, when used in accordance with the terms of this Agreement and for its intended use, infringes a United States copyright or trademark, trade secrets, patents or other IP Rights, provided Philips is notified promptly in writing by MedQuist of the claim, is 28 given sole control of the defense and settlement for so long as it diligently pursues such defense, and is provided all reasonable assistance by MedQuist in connection therewith. Philips shall pay any costs, settlements and damages finally awarded against MedQuist in connection with the claims. If the Licensed Product is finally adjudged to so infringe, or in Philips's opinion such a claim is likely to succeed, Philips will, at its option: (i) procure for MedQuist the right to continue using the Licensed Product in the USA; (ii) modify or replace the infringing Licensed Product so there is no infringement (provided the Licensed Product's performance is not materially adversely affected thereby); or (iii) refund the license fees thereof to MedQuist, less a reasonable allowance for amortization, depreciation and use. 3.2 In the case of a third party claim of infringement asserted against a Philips trademark, Philips may instruct MedQuist to use a different trademark. 3.3 Philips will have no liability for any claim of infringement of any third party IP Right that arises as a result of (i) MedQuist's use of the Licensed Product as furnished by Philips with other software, product or data if such claim would have been avoided by exclusive use of the Licensed Product, (ii) modification of the Licensed Product as furnished by Philips by anyone other than Philips if such claim would have been avoided by use of the unmodified Licensed Product; (iii) third party software or (iv) use of other than the most current release of the Licensed Product as furnished by Philips if the claim could have been avoided by the use of the most current release. Licensing of the Licensed Products by Philips does not convey any license, by implication, estoppel or otherwise, under patent claims covering combinations of the Licensed Products with other devices or elements. 3.4 THE FOREGOING STATES PHILIPS' ENTIRE LIABILITY TO MEDQUIST FOR INFRINGEMENT OF COPYRIGHTS, PATENTS, OR OTHER 29 INTELLECTUAL PROPERTY RIGHTS. SUCH LIABILITY EXTENDS ONLY TO THE ACTIVITIES OF MEDQUIST UNDER THIS AGREEMENT AND NOT TO (i) ANY USE OR OTHER ACTIVITIES OF END USERS, CUSTOMERS OR OTHER THIRD PARTIES OR (ii) LIABILITIES INCURRED BY MEDQUIST ARISING FROM ANY OTHER ACTIVITIES OF END USERS, CUSTOMERS OR OTHER THIRD PARTIES. IN NO EVENT SHALL PHILIPS' LIABILITY TO MEDQUIST EXCEED A SUM EQUAL TO THE TOTAL LICENSE FEES PAID BY MEDQUIST TO PHILIPS HEREUNDER DURING A 12 MONTH PERIOD IMMEDIATELY PROCEEDING THE DATE THAT PHILIPS IS NOTIFIED IN WRITING BY MEDQUIST OF SUCH CLAIM. EXCEPT AS SPECIFICALLY PROVIDED HEREIN, PHILIPS WILL NOT BE LIABLE FOR ANY LOSS OR DAMAGE OF WHATEVER KIND (INCLUDING, IN PARTICULAR, ANY INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS OF TURNOVER OR PROFITS) SUFFERED BY MEDQUIST OR ANY OTHER PERSON AS A RESULT OF THE INFRINGEMENT OF ANY PATENT, COPYRIGHT, OR OTHER INTELLECTUAL PROPERTY RIGHT. 4.1 MedQuist agrees to indemnify, defend and hold harmless Philips against any suit or proceeding brought against Philips incident to any infringement or claimed infringement of any patent, copyright or other intellectual property right arising out of (i) compliance with any MedQuist furnished specification or designs; (ii) unauthorized modification of the Licensed Product or any part thereof by MedQuist; (iii) use of the Licensed Product by MedQuist in connection or combination with software or hardware not provided by Philips under this agreement, where the claim arises by the combination with the other software or hardware with which the Licensed Product is combined; (iv) the use of the Licensed Product by MedQuist in a 30 manner other than as recommended in the Documentation; or (v) the use of any non-current release of the Licensed Product by MedQuist where the current release avoids said infringement, and has been made available to MedQuist along with written notice that the current release avoids a potential issue of infringement. Subject to the limitations contained in Section 4 of this Schedule C, MedQuist shall pay all settlements and damages awarded as a final judgment by a court of competent jurisdiction, provided MedQuist is promptly notified by Philips in writing of any such claim and, at MedQuist's expense is given full and exclusive control of said suit, and all reasonable requested assistance from Philips. 4.2 THE FOREGOING STATES MEDQUIST'S ENTIRE LIABILITY TO PHILIPS FOR INFRINGEMENT OF COPYRIGHTS, PATENTS OR OTHER PROPRIETARY RIGHTS. IN NO EVENT WILL MEDQUIST'S LIABILITY TO PHILIPS EXCEED A SUM EQUAL TO THE LICENSE FEES AND PURCHASE PRICES INVOICED TO MEDQUIST BY PHILIPS HEREUNDER DURING A 12 MONTH PERIOD IMMEDIATELY PRECEDING THE DATE MEDQUIST IS NOTIFIED IN WRITING BY PHILIPS OF SUCH A CLAIM . EXCEPT AS SPECIFICALLY PROVIDED HEREIN, MEDQUIST WILL NOT BE LIABLE FOR ANY LOSS OR DAMAGE OF WHATEVER KIND (INCLUDING, IN PARTICULAR, ANY INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS OF TURNOVER OR PROFIT) SUFFERED BY PHILIPS OR ANY OTHER PERSON AS A RESULT OF THE INFRINGEMENT OF ANY PATENT, COPYRIGHT, OR OTHER INTELLECTUAL PROPERTY RIGHT. 5. Limited Product Warranty. ------------------------ 31 5.1 Philips represents, undertakes and warrants to MedQuist that the Licensed Product will perform substantially in conformance with the documentation accompanying such Licensed Product for a period of ninety (90) days from the date of shipment and acceptance of the Licensed Product and documentation by MedQuist. Philips does not, however, warrant that (a) the operation of such Licensed Product will be uninterrupted or error free; (b) the Licensed Product meets certain success rates or performance levels; nor (c) that the Licensed Product will meet the requirements of MedQuist or any third party. If the Licensed Product fails to perform substantially in conformance with the documentation accompanying the Licensed Product during the warranty period set forth herein, then Philips, upon receipt of written complaint to that effect, will undertake all commercial endeavors to correct that non-conformity in accordance with good software engineering practices, or, if unable to do so, will replace the nonconforming Licensed Product with a functionally equivalent Licensed Product. 5.2 In order to obtain service under the terms of the warranty provided in Section 5.1 hereof, before the expiration of the appropriate warranty period, MedQuist must notify Philips in writing of the defective or non-conforming item. Philips reserves the right to charge MedQuist for any and all costs incurred by Philips in connection with allegedly defective warranty claims hereunder that Philips reasonably determines not to be non-conforming or defective as described above and under such circumstances MedQuist will pay Philips such costs promptly after its receipt of an invoice therefor. 5.3 The warranty provided in Section 5.1 hereof shall not apply if failure of the Licensed Product covered by such warranty to perform substantially in conformance with the documentation accompanying the Licensed Product has resulted from accident, abuse, modification, misapplication, improper use or faulty equipment. 32 5.4 EXCEPT FOR THE LIMITED WARRANTY SPECIFIED IN 5.1 THROUGH 5.3 HEREOF, THE LICENSED PRODUCT AND SERVICES ARE PROVIDED "AS IS". FURTHERMORE, THE WARRANTIES AND REMEDIES PROVIDED BY SECTIONS 5.1 THROUGH 5.3 ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES EXPRESS OR IMPLIED, AND PHILIPS MAKES NO OTHER WARRANTIES OF ANY KIND, EXPRESS, IMPLIED, ORAL OR WRITTEN. IN ADDITION PHILIPS DISCLAIMS ANY IMPLIED WARRANTIES OF INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. PHILIPS SHALL NOT BE LIABLE FOR ANY INCIDENTAL, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOSS OF ANTICIPATED PROFITS OR BENEFITS. NO PHILIPS AUTHORIZED REPRESENTATIVE, AGENT OR EMPLOYEE IS AUTHORIZED TO MAKE ANY MODIFICATIONS, EXTENSION OR ADDITION TO THE WARRANTIES PROVIDED IN SECTIONS 5.1 THROUGH 5.3. PHILIPS MAKES NO WARRANTY AS TO (A) DEFECTS IN LICENSED PRODUCT OTHER THAN THOSE WHICH MATERIALLY AFFECT PERFORMANCE IN ACCORDANCE WITH THE APPLICABLE PRINTED PRODUCT DOCUMENTATION MENTIONED ABOVE, AND (B) AS TO DEFECTS THAT APPEAR IN THE LICENSED PRODUCT USED IN VIOLATION OF THE LICENSE GRANTED HEREIN. 33 SCHEDULE "D" Pricing and Fees Initial Sign-up fee (15 man years, as described hereinafter) 15 x 150k US$ = 2.25 M US$ payable: 500k$ on 20 September 2000 500k$ on 20 December 2000 500k$ on 20 March 2001 250k$ on 20 June 2001 250k$ on 20 September 2001 250k$ on 20 December 2001 2/nd/ and 3/rd/ level Support 2000: 0 2001: 1 person at 200k US$ / year 2002: 2 persons at 400k US$ / year 2003 (and onwards)-3 persons at 600k US$ / year Support payable per Quarter, no later than by the middle of the second month License Fees License Fees are based on a per use basis following the formula below. Note: PAYROLL lines are the lines that serve as basis to pay the transcriptionists (Payroll-Line is 65 black/white characters) 34
- ----------------------------------------------------------------------------------------------------------------------------- Year Year 2001 Year 2002 Year 2003 Year 2004 Year 2005 2000 and beyond - ----------------------------------------------------------------------------------------------------------------------------- Estimated Penetration of SR applied as a percentage of 0% 4 % 13 % 25 % 45 % Pay-roll lines (A) - ----------------------------------------------------------------------------------------------------------------------------- Cost per Pay-roll line via Speech * 500 Million Payroll Lines via Speech Recognition in a year at 0,012 US$ per Line Recognition from (a new count starts each year as from Jan. 1st) MedQuist to PSP (equals revenue to PSP) and for each Payroll Line via Speech Recognition in such year ** 500 Million Lines at 0,010 US$ per Line - ----------------------------------------------------------------------------------------------------------------------------- Guaranteed License 0% 75% of Estimated 75% of Estimated 50% of Estimated 25% of Estimated No Guarantee. fees Penetration (A) Penetration (A) Penetration (A) Penetration (A) x Total Volume x Total Volume x Total Volume x Total Volume License fee in Pay-roll in Pay-roll in Pay-roll in Pay-roll is based on lines (both via lines (both via lines (both via lines (both via ACTUAL Speech Speech Speech Speech Pay-roll Recognition and Recognition and Recognition and Recognition and LINES via directly to directly to directly to directly to Speech transcriptionist) transcriptionist) transcriptionist) transcriptionist) Recognition in Year 2001 x in Year 2002 x in Year 2003 x in Year 2004 x x Cost per line Cost per line Cost per line Cost per line Cost per line formula (B) formula (B) formula (B) formula (B) formula (B) - -----------------------------------------------------------------------------------------------------------------------------
* less than ** more than Payable in advance per Q based on estimations ALL CHARGES FOR ADDITIONAL SERVICES ( e.g. development, consultancy, training etc) will be on commercial Terms &Conditions to be negotiated in good faith 15 Man years of pre-committed payment at Philips' internal, fully loaded cost basis. 35 This payment is for three kind of services: 1) Development / Project Management / Consultancy for a MedQuist optimized ----------------------------------------------------------------------- Correction Editor. ------------------ The current Correction Editor of Philips has been developed for European circumstances and may well need to be adapted to the speed and customs (habits) of MedQuist transcriptionists who are used to using short-hand codes. (E.g. 1) if stopped at a mis-recognized word by just typing over this word, the original word disappears, preventing the correctionist from first having to delete this word, or 2) if stopped at a certain word and a period is pressed on the keyboard then this period will follow this word and the next word will be capitalized; etc.). Philips will be actively involved in the design and specification phase, and undertake the development and testing of the modifications. The jointly to be agreed specifications will serve as the input for the jointly to be agreed project plan. In the project plan also the acceptance criteria must be defined. No later than June 2000 Josef Reisinger, product manager Professional Dictation will come to MedQuist to start the Specification Process. Philips will employ new and existing resources to this Project on a dedicated basis. 2) Consultancy Development / Project Management / Consultancy for Integration of ----------------------------------------------------------------------------- SR into MedQuist IT infrastructure. ---------------------------------- Although this activity is under responsibility of MedQuist, a close (technical) co-operation is needed to make sure sound- and text-files are flowing from one database to the other. Also some customizations/adaptations are expected on the Speech Recognition system to accommodate the MedQuist system. No later than June 2000 , Dieter Hoi, Development Project Leader SpeechMagic and Josef Reisinger will come to MedQuist to start planning the integration process. 3) Start-up services. ------------------ In addition to the normal 2/nd/ and 3/rd/ line support Philips will provide technical expertise on site during start-up time to minimize down-time risks. The best person(s) for this will be identified later. 36 The 15 man-year is a minimum commitment to Philips to be invoked before December 2001. The commitment is on so called fully loaded cost basis. When resources are needed after or in addition to the 15 man-years having been spent (a monthly report on spent time will be provided to MedQuist) or after December 2001, whichever comes first, the cost for these additional services will be on Commercial Terms and Conditions to be negotiated. 37 Schedule E SUPPORT 1. Philips offers to MedQuist Support as described in this Schedule E. Philips agrees to make available Support for a period of one year from the date of discontinuation of a certain release of the Licensed Product. In case Philips opts not to continue offering such Support services, MedQuist will receive access to the source code for internal error correction purposes. Support shall include the following: (a) Supply of routine Patches, Maintenance Releases and Documentation updates and - corrections; (b) Problem diagnosis and resolution including Level 2 and Level 3 Support. 2. MedQuist can only obtain Support services by payment of a quarterly fee described in Schedule D. 3. If MedQuist has paid for Support services pursuant to Schedule D: (a) Upon receiving notice from the appointed MedQuist internal Level 1 Support unit of a Problem, Philips shall verbally acknowledge receipt of such notice, and confirm the same by fax or e-mail within 24 hours thereafter. Such acknowledgment shall contain a unique number identifying the particular problem for tracking purposes. Philips shall provide MedQuist with a status of any Patch, bug or error logged for MedQuist provided that MedQuist identifies the particular Problem by the tracking number assigned to it by Philips. Each Problem logged for MedQuist shall remain open until closure notification is agreed to by MedQuist. 38 (b) Philips shall provide prompt written notice to MedQuist of all defects, malfunctions, Patches, bugs, viruses, and/or other anomalies in the Licensed Products which become known to Philips, in case Philips believes that such conditions are likely to result in actual or potential degradation of the functionality or performance of the Licensed Products. (c) Philips shall make all reasonable efforts to provide a Patch for the Licensed Product(s) according to the following "restoration time" schedule: (1) Severity 1 - within four (4) normal Business hours of receipt of notice of existence of a Problem by the appointed MedQuist internal Level 1 Support unit. (2) Severity 2 - within one (1) business day of receipt of notice of existence of Problem by the appointed MedQuist internal Level 1 Support unit. (3) Severity 3 and Severity 4 - if not a Minor Release, within twenty (20) working days of acknowledging the receipt of the Problem the appointed MedQuist internal Level 1 Support unit and thereafter in all other instances resolved in a Major Release of the supported Licensed Product. (d) In the event Philips does not respond to a verifiable MedQuist reported Problem within the time schedule and guidelines, as provided for in this Schedule E or if MedQuist in MedQuist's good faith determination, believes the progress of Philips in attempting to resolve the Problem or in responding to the information request is not being made in accordance with Philips's Problem plan, then MedQuist may escalate the Problem to a higher severity level. 39 5 Upon MedQuist's request and subject to availability, Philips shall furnish qualified personnel for on-site assistance to MedQuist to resolve Problems. In such event, MedQuist shall pay Philips at its then current time and materials rates, which shall be consistent with customary and reasonable industry rates therefor, for the time of such personnel and reimburse Philips for reasonable travel and living expenses of such personnel incurred in rendering such assistance. 6. Severity: (a) "Severity 1" shall mean a Problem which critically impacts MedQuist's ability to continue its business in the ordinary course. (b) "Severity 2" shall mean a Problem where a major function of the supported Licensed Product is unusable and significantly impacts MedQuist's ability to do business but MedQuist's can continue to perform its business as necessary. (c) "Severity 3" shall mean a Problem which does not seriously impact MedQuist's business. (e) "Severity 4" shall mean a Problem not covered above, including supported Licensed Product enhancement requests. MedQuist will ensure that escalation to Level 2 Support is only being received by Philips from the appointed MedQuist internal Level 1 Support unit. Level 2 Support will only communicate to such appointed MedQuist internal Level 1 Support unit. 40 EX-99.(D)(1)(Q) 25 0025.txt GOVERNANCE AGREEMENT DATED AS OF 5/22/2000 Exhibit (d)(1)(Q) GOVERNANCE AGREEMENT Among MEDQUIST INC. and KONINKLIJKE PHILIPS ELECTRONICS N.V. Dated as of May 22, 2000 TABLE OF CONTENTS ----------------- ARTICLE I DEFINITIONS......................................................................................... 1 Section 1.01. Definitions.............................................................................. 1 ARTICLE II PURCHASES AND SALES OF EQUITY SECURITIES........................................................... 2 Section 2.01. Purchases of Equity Securities........................................................... 2 Section 2.02. Transfer of Common Stock................................................................. 3 Section 2.03. Co-Sale Right............................................................................ 4 ARTICLE III CORPORATE GOVERNANCE.............................................................................. 4 Section 3.01. Composition of the Board of Directors.................................................... 4 Section 3.02. Election and Removal of Directors........................................................ 6 Section 3.03. Solicitation and Voting of Shares........................................................ 6 Section 3.04. Committees............................................................................... 7 Section 3.05. Certificate of Incorporation and By-Laws................................................. 8 ARTICLE IV REPRESENTATIONS AND WARRANTIES..................................................................... 8 Section 4.01. Representations of Purchaser and the Company............................................. 8 Section 4.02. Required Filings and Consents............................................................ 9 ARTICLE V DIRECTORS AND OFFICERS LIABILITY INSURANCE.......................................................... 9 Section 5.01. Insurance................................................................................ 9 ARTICLE VI MISCELLANEOUS...................................................................................... 9 Section 6.01. Notices.................................................................................. 9 Section 6.02. Amendments; No Waivers................................................................... 10 Section 6.03. Severability............................................................................. 10 Section 6.04. Entire Agreement; Assignment............................................................. 11 Section 6.05. Parties in Interest...................................................................... 11 Section 6.06. Governing Law and Venue; Waiver of Jury Trial; Specific Performance...................... 11 Section 6.07. Headings................................................................................. 12 Section 6.08. Counterparts; Facsimile.................................................................. 12 Section 6.09. Effective Time; Termination.............................................................. 12 Section 6.10. Combinations or Divisions of Equity Securities........................................... 12
-i- GOVERNANCE AGREEMENT GOVERNANCE AGREEMENT (this "Agreement"), dated as of May 22, 2000, between Koninklijke Philips Electronics N.V., a corporation organized under the laws of The Netherlands ("Purchaser"), and MedQuist Inc., a New Jersey corporation (the "Company"). WHEREAS, Purchaser and the Company have entered into a Tender Offer Agreement dated as of May 22, 2000 (the "Tender Offer Agreement") pursuant to which Purchaser will commence a tender offer for 22,250,327 shares of the Company's common stock, no par value (the "Common Stock"), at a price of $51.00 per share in cash net to the Seller, subject to the terms and conditions set forth in the Tender Offer Agreement (the "Tender Offer"); and WHEREAS, Purchaser and the Company desire to establish in this Agreement certain terms and conditions concerning the corporate governance of the Company and certain terms and conditions concerning the acquisition and disposition of securities of the Company by Purchaser and its Affiliates and Associates (each as defined in Section 1.01 below); and WHEREAS, to induce the Company to enter into the Tender Offer Agreement, the Company has requested that Purchaser enter into this Agreement; and NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, Purchaser and the Company hereby agree as follows: ARTICLE I DEFINITIONS Section 1.01. Definitions. As used in this Agreement, the following ----------- terms have the following meanings: (a) "Affiliate" has the same meaning as in Rule 12b-2 promulgated under the Exchange Act. (b) "Associate" has the same meaning as in Rule 12b-2 promulgated under the Exchange Act. (c) "Beneficial owner" and to "beneficially own" has the same meaning as in Rule 13d-3 promulgated under the Exchange Act. (d) "Board of Directors" means the entire Board of Directors of the Company, as constituted from time to time. (e) "Director" means a member of the Board of Directors. (f) "Equity Security" means any (i) Voting Stock, (ii) securities of the Company convertible into or exchangeable for Voting Stock, and (iii) options, rights, warrants and similar securities issued by the Company to purchase Voting Stock. (g) "Exchange Act" means the Securities Exchange Act of 1934, and the rules and regulations promulgated thereunder, as amended. (h) "Independent Director" means a director of the Company (i) who is not and has never been an officer or employee of the Company, any Affiliate or Associate of the Company, or an entity that derived 5% or more of its revenues or earnings in its most recent fiscal year from transactions involving the Company or any Affiliate or Associate of the Company, (ii) who is not and has never been an officer, employee or director of Purchaser, any Affiliate or Associate of Purchaser, or an entity that derived more than 5% of its revenues or earnings in its most recent fiscal year from transactions involving Purchaser or any Affiliate or Associate of Purchaser and (iii) who was nominated for such position by the Nominating Committee in accordance with Section 3.04(a)(i). The initial Independent Directors shall be John H. Underwood, Richard H. Stowe and A. Fred Ruttenberg. (i) "Officer" has the same meaning as in Rule 16a-1(f) promulgated under the Exchange Act. (j) "SEC" means the United States Securities and Exchange Commission. (k) "Securities Act" means the Securities Act of 1933, and the rules and regulations promulgated thereunder, as amended. (l) "Subsidiary" has the same meaning as in Rule 12b-2 promulgated under the Exchange Act. (m) "Voting Stock" means shares of capital stock of the Company (including the Common Stock) having the right to vote generally in any election of Directors. ARTICLE II PURCHASES AND SALES OF EQUITY SECURITIES Section 2.01. Purchases of Equity Securities. ------------------------------ (a) Until the third anniversary of the Effective Time, Purchaser shall not, directly or indirectly through one or more of its Affiliates or Associates, purchase or otherwise acquire, or propose or offer to purchase or acquire, or otherwise become the beneficial owner, individually or as a member of a "group" (as defined for purposes of Section 13d of the Exchange Act), of any Equity Securities, whether by merger, consolidation, recapitalization, tender or exchange offer, market purchase, privately negotiated purchase, or otherwise, if, immediately after such transaction, Purchaser and its Affiliates or Associates would, directly or indirectly, beneficially own in excess of 75% of the then outstanding shares of Voting Stock; provided, however, that after the first anniversary of the Effective Time, subject to the receipt of the approval of the Supervisory Committee (as defined below), Purchaser or any of its Affiliates or Associates may acquire, in one transaction or in a series of related transactions, all, but not -2- less than all, of the Equity Securities of the Company which are not then, directly or indirectly, beneficially owned by Purchaser or one or more of its Affiliates or Associates. (b) Notwithstanding the foregoing, Purchaser shall not be deemed to be in violation of this Section 2.01 if Purchaser, or its Affiliates or Associates in the aggregate, inadvertently becomes the direct or indirect beneficial owner of more than 75% of the then outstanding shares of Voting Stock and, as soon as commercially practicable, divests itself or themselves of a sufficient amount of the Equity Securities so that it or they are no longer the beneficial owner of more than 75% of the then outstanding shares of Voting Stock. Section 2.02. Transfer of Common Stock. ------------------------- (a) Until the first anniversary of the Effective Time, Purchaser will not, and will not permit any of its Subsidiaries to, directly or indirectly, sell, transfer or otherwise dispose of any Equity Securities beneficially owned, directly or indirectly, by Purchaser or its Subsidiaries except to Purchaser or to any Subsidiary of Purchaser. Until the first anniversary of the Effective Time, Purchaser will not sell, transfer or otherwise dispose of any of the capital stock (or any options or warrants to purchase capital stock or securities convertible or exchangeable for capital stock (collectively, "Derivative Equity Securities")) of any Subsidiary of Purchaser that owns Equity Securities if, as a result of such sale, transfer or other disposition, such Subsidiary would no longer be a Subsidiary, unless Purchaser shall have first caused any such Equity Securities to be transferred to another Subsidiary of Purchaser. Notwithstanding anything to the contrary contained in Section 2.02(a), Purchaser may sell, transfer or assign Equity Securities, or the capital stock or Derivative Equity Securities of its Subsidiaries, or permit any of its Subsidiaries which beneficially own Equity Securities to sell, transfer or assign such Equity Securities, so long as after giving affect to any such sales, transfers or assignments of Equity Securities, Purchaser and its Subsidiaries, beneficially own at least 60% of the then outstanding shares of Voting Stock. (b) Subject to the provisions of Section 2.03, after the first anniversary of the Effective Time, Purchaser and its Subsidiaries may sell, transfer or otherwise dispose of any of the Equity Securities beneficially owned to any person or entity. (c) Until the third anniversary of the Effective Time, each certificate evidencing outstanding Equity Securities that is beneficially owned by Purchaser or its Affiliates or Associates shall be stamped or otherwise imprinted with a legend substantially in the following form: "THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCKHOLDERS AGREEMENT DATED AS OF MAY 22, 2000, A COPY OF WHICH IS AVAILABLE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. NO REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE -3- BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS HAVE BEEN COMPLIED WITH." (d) Any Affiliate or Associate of Purchaser that is a purported purchaser, transferee or other recipient of Equity Securities permitted pursuant to this Article II (other than in open-market purchases) shall, as a condition precedent to its receipt and ownership of any such Equity Securities, execute an agreement pursuant to which it becomes legally bound by this Agreement and the restrictions contained herein. (e) Proposed transfers of Equity Securities that are not in compliance with this Article II shall be of no force or effect and the Company shall not be required to recognize any such transfer or purported transfer. Section 2.03. Co-Sale Right. ------------- (a) During the period beginning on the first anniversary of the Effective Time and ending on the third anniversary of the Effective Time, Purchaser shall not enter into or consummate any transaction (or series of related transactions) involving the sale or transfer of Equity Securities (or the sale or transfer of capital stock or Derivative Equity Securities of any Subsidiary which beneficially owns Equity Securities) that would result in (i) any person other than the Purchaser or any Affiliate or Associate of Purchaser beneficially owning in excess of 10% of the outstanding Voting Stock (a "Third Party Purchaser") and (ii) Purchaser and its Affiliates and Associates beneficially owning less than a majority of the then outstanding Voting Stock, unless: (i) the Third-Party Purchaser contemporaneously therewith offers to acquire, or acquires, on the same terms and conditions as are applicable to Purchaser, its Affiliates or Associates, 100% of the Voting Stock beneficially owned by persons or entities other than Purchaser, its Affiliates or Associates, or (ii) the Third-Party Purchaser offers to purchase, on the same terms and conditions as are applicable to the Purchaser, its Affiliates or Associates, pursuant to a tender or exchange offer made in accordance with applicable law, including Section 14(d)(1) and Regulation 14D of the Exchange Act, all or a specified percentage of the outstanding shares of Voting Stock; it being understood that in such event, Purchaser agrees that neither it, nor any of its Affiliates or Associates will sell to the Third Party Purchaser, its Affiliates or Associates, any shares of Voting Stock beneficially owned by it other than pursuant to such contemplated tender or exchange offer. ARTICLE III CORPORATE GOVERNANCE Section 3.01. Composition of the Board of Directors. ------------------------------------- -4- (a) The Company shall take any and all action necessary (including by securing the resignation of persons who were Directors prior to the Effective Time) so that promptly following the Effective Time, the Board of Directors shall consist of eleven Directors, of which (i) one Director shall be the Chief Executive Officer of the Company and one Director shall be another Officer of the Company designated by the Chief Executive Officer of the Company (together, the "Management Directors"), (ii) six Directors shall be designated by Purchaser, all of whom may be directors, officers, employees, Affiliates or Associates of Purchaser (the "Purchaser Directors"), and (iii) three Directors shall be Independent Directors. From and after the time the Board of Directors has been reconstituted in accordance with the preceding sentence, the Board of Directors shall consist of eleven Directors, of which (i) two Directors shall be Management Directors, (ii) in accordance with subsection (b) below, six or fewer Directors shall be Purchaser Directors, and (iii) in accordance with subsection (c) below, three or more shall be Independent Directors; provided, however, the Board of Directors shall be empowered in its discretion to increase or decrease, from time to time, the number of Directors so long as (x) there shall be at least two Management Directors and three Independent Directors, and (y) the relative percentage of Management Directors, Independent Directors and Purchaser Directors shall be maintained, in all material respects, as in effect immediately prior to any such increase or decrease; and, provided, further, that if the Board of Directors changes the number of Directors constituting the entire Board of Directors, then the number of Directors and the percentages set forth in subsection (b) below shall be appropriately adjusted, subject to the immediately preceding provisions. (b) Subject to subsection (a) above and subsection (c) below, the parties agree that: (i) until the first date that Purchaser and its Subsidiaries shall not beneficially own, in the aggregate, at least a majority of the outstanding Voting Stock, Purchaser shall have the right to designate six Purchaser Directors; (ii) after the first date that Purchaser and its Subsidiaries shall beneficially own, in the aggregate, less than a majority but at least 36% of the outstanding Voting Stock, Purchaser shall have the right to nominate four, but not more than four, Purchaser Directors; (iii) after the first date that Purchaser and its Subsidiaries shall beneficially own, in the aggregate, less than 36% but at least 27% of the outstanding Voting Stock, Purchaser shall have the right to nominate three, but not more than three, Purchaser Directors; (iv) after the first date that Purchaser and its Subsidiaries shall beneficially own, in the aggregate, less than 27% but at least 18% of the outstanding Voting Stock, Purchaser shall have the right to nominate two, but not more than two, Purchaser Directors; (v) after the first date that Purchaser and its Subsidiaries shall beneficially own, in the aggregate, less than 18% but at least 5% of the outstanding Voting -5- Stock, Purchaser shall have the right to nominate one, but not more than one, Purchaser Director; and (vi) After the first date that Purchaser and its Subsidiaries shall beneficially own, in the aggregate, less than 5% of the outstanding Voting Stock, Purchaser shall have no right to nominate any Directors. (c) In the event that Purchaser shall have the right to designate less than six Directors pursuant to subsection 3.01(b) above, the Nominating Committee shall nominate that number of additional Independent Directors as is necessary to constitute the entire Board of Directors (as constituted at such time) and Purchaser shall cause such Purchaser Directors to resign promptly so as to permit the additional Independent Directors to be appointed or elected. (d) Purchaser shall have the right to designate any replacement for a Purchaser Director at the termination of such Director's term or upon such Director's death, resignation, retirement, disqualification, removal from office or other cause, and the Chief Executive Officer of the Company shall have the right to designate any replacement for a Management Director at the termination of such Director's term or upon such Director's death, resignation, retirement, disqualification, removal from office or other cause. (e) No individual who is an officer, director, partner or principal stockholder of any competitor of the Company or any of its Subsidiaries shall serve as a Director; provided, however, the foregoing shall not apply to officers, directors, partners or principal stockholders of Purchaser, its Affiliates or Associates. (f) The parties hereto acknowledge that no director of the Company shall be deemed to be the deputy of, or otherwise be required to discharge his or her duties as a member of the Board of Directors under the direction of, or with special attention to the interests of, any shareholder of the Company, and each director shall be required to discharge his or her duties to all shareholders of the Company. Section 3.02. Election and Removal of Directors. In connection with the --------------------------------- filling of any vacancy on the Board of Directors, however such vacancy shall have resulted, Purchaser shall cause each Purchaser Director to vote in favor of those Directors nominated or designated in accordance with this Article III. Purchaser shall not take any action or permit any Purchaser Director to take any action to remove any Director, other than a Purchaser Director, without cause. Section 3.03. Solicitation and Voting of Shares. --------------------------------- (a) The Company shall use commercially reasonable efforts to solicit from the stockholders of the Company eligible to vote for the election of Directors proxies in favor of the nominees designated or nominated in accordance with this Article III. (b) Purchaser shall vote or cause to be voted all of its shares of Voting Stock beneficially owned by it or by any of its Affiliates or Associates (other than shares of Voting -6- Stock obtained by its Affiliates (other than its Subsidiaries) or Associates in open-market purchases) in favor of nominees designated or nominated in accordance with this Article III. (c) Purchaser shall vote or cause to be voted, whether at a meeting or by execution of a written consent, all of the shares of Voting Stock beneficially owned by it or by any of its Affiliates or Associates in favor of the approval of an increase in the maximum number of shares of the Common Stock which may be issued under the Company's Incentive Stock Option Plan for Officers and Key Employees to 7,130,000 shares. Section 3.04. Committees. ---------- (a) Subject to the general oversight and authority of the full Board of Directors, the Board of Directors shall establish and, during the term of this Agreement, empower and maintain the committees of the Board of Directors contemplated by this Section 3.04: (i) a Nominating Committee, responsible, among other things, for the nomination, subject to Section 3.01, of the Independent Directors and consisting solely of two Independent Directors, one Purchaser Director and one Management Director as selected by the Board of Directors from time to time; (ii) a Compensation Committee, responsible, among other things, for the adoption, amendment and administration of all employee benefit plans and arrangements and the compensation of all Officers of the Company, and consisting of two Independent Directors and two Purchaser Directors as selected by the Nominating Committee and the Purchaser, respectively, from time to time; (iii) a Supervisory Committee, responsible, among other things, for (A) the general oversight, administration, amendment and enforcement, on behalf of the Company, of (1) those provisions of the Tender Offer Agreement that survive Purchaser's purchase of shares pursuant to the Tender Offer, (2) this Agreement, and (3) that certain License Agreement dated today's date between an Affiliate of Purchaser and the Company, and (B) the entry into, general oversight, administration, amendment and enforcement, on behalf of the Company, of any other agreements or arrangements between the Company or any of its Subsidiaries, on the one hand, and the Purchaser and any of its Subsidiaries on the other hand, which would be required pursuant to Regulation S-K promulgated by the SEC to be disclosed in a registration statement filed under the Securities Act or in a proxy statement or other report filed under the Exchange Act; and consisting of at least three Independent Directors selected by a majority of the Independent Directors; and (iv) such other committees as the Board of Directors deems necessary or desirable; provided that such committees shall not conflict with, -------- supersede or duplicate the duties or responsibilities of the Committees established pursuant to this Section 3.04. (b) Each Committee established pursuant to this Agreement shall act by the affirmative vote of a majority of its members or by unanimous written consent. -7- Section 3.05. Certificate of Incorporation and By-Laws. ---------------------------------------- (a) The Company and Purchaser shall take or cause to be taken all lawful action necessary to ensure at all times that the Company's Certificate of Incorporation and By-Laws are not, at any time, inconsistent with the provisions of this Agreement. (b) The Certificate of Incorporation and By-laws of the Company shall contain provisions no less favorable with respect to indemnification than are set forth in Article X of the By-laws of the Company as in effect on the date hereof, which provisions shall not be amended, repealed or otherwise modified in any manner that would affect adversely the rights thereunder of the directors, officers, employees, fiduciaries or agents of the Company, unless such modification shall be required by law. ARTICLE IV REPRESENTATIONS AND WARRANTIES Section 4.01. Representations of Purchaser and the Company. Purchaser -------------------------------------------- and the Company represent and warrant, to each other as follows: (a) Authority Relative to This Agreement. It has all necessary power ------------------------------------ and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by it and the consummation by it of this Agreement have been duly and validly authorized by all necessary corporate action and no other corporate proceedings on its part are necessary to authorize this Agreement. This Agreement has been duly and validly executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (b) No Conflict. The execution and delivery by it of this Agreement ----------- do not, and its performance of its obligations under this Agreement will not, (i) conflict with or violate the Certificate of Incorporation or By-Laws (or similar constitutive documents) of it or any of its Subsidiaries, (ii) conflict with or violate any law, rule, regulation, order, judgment or decree applicable to it or to any of its Subsidiaries, or by which any of its property or assets or any of the property or assets of its Subsidiaries is bound or affected, or (iii) result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or other encumbrances on any of its property or assets or on any of the property or assets of its Subsidiaries pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which it or any of its Subsidiaries is a party or by which it or any of its Subsidiaries or any of its property or assets or any of the property or assets of its Subsidiaries is bound or affected, except for any such conflicts, violations, breaches, defaults or other occurrences which could not, individually or in the aggregate, reasonably be expected to have a material adverse -8- effect on its ability to perform its obligations under this Agreement (a "Material Adverse Effect"). Section 4.02. Required Filings and Consents. This execution and delivery ----------------------------- by it of this Agreement does not, and the performance of this Agreement by it will not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, domestic or foreign, except (i) for applicable requirements, if any, of the Securities Act, the Exchange Act, state blue sky and takeover laws, and (ii) where failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on it. ARTICLE V DIRECTORS AND OFFICERS LIABILITY INSURANCE Section 5.01. Insurance. The Company hereby agrees that it shall --------- maintain the same directors and officers liability ("D&O Insurance") for the benefit of each Director and officer of the Company, provided, however, that in -------- ------- the event that Purchaser determines that it can provide such D&O Insurance more cost effectively than the Company, Purchaser may do so. ARTICLE VI MISCELLANEOUS Section 6.01. Notices. All notices, requests, claims, demands and other ------- communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile transmission, overnight courier guaranteeing next business day delivery, or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section): if to Purchaser, to: Koninklijke Philips Electronics N.V. Rembrandt Tower Amstelplein 1 1096 HA Amsterdam, The Netherlands Attention: General Secretary Facsimile: (011) 31-20-597-7150 -9- with a copy to: Sullivan & Cromwell 125 Broad Street New York, NY 10004 Attention: Stephen M. Kotran Facsimile: 212-558-3588 if to the Company, to: MedQuist Inc. Five Greentree Centre, Suite 311 Marlton, New Jersey 08053 Attention: Chief Executive Officer; and Senior Vice President and General Counsel Facsimile: 856-596-3351 with a copy to: Pepper Hamilton LLP 3000 Two Logan Square Eighteenth and Arch Streets Philadelphia, PA 19103-2799 Attention: James D. Epstein Facsimile: 215.981.4750 Section 6.02. Amendments; No Waivers. ---------------------- (a) Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of any amendment, by Purchaser and the Company, or in the case of a waiver, by the party against whom the waiver is to be effective; provided that no such amendment or waiver by the Company shall be effective without the approval of the Supervisory Committee. (b) No failure or delay by any party in exercising any right, power or privilege hereunder, shall operate as waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. Section 6.03. Severability. If any term or other provision of this ------------ Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the matters contemplated hereby are not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal -10- or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner. Section 6.04. Entire Agreement; Assignment. This Agreement constitutes ---------------------------- the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. This Agreement shall not be assigned by operation of law or otherwise without the written consent of the other parties hereto. Section 6.05. Parties in Interest. This Agreement shall be binding upon ------------------- and inure solely to the benefit of each party hereto and its successors and assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. Section 6.06. Governing Law and Venue; Waiver of Jury Trial; Specific ------------------------------------------------------- Performance. - ----------- (a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW JERSEY WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The parties hereby irrevocably submit to the jurisdiction of the Federal courts of the United States of America located in the State of New Jersey solely in respect of the interpretation and enforcement of the provisions of this Agreement, and of the documents referred to in this Agreement, and in respect of the transactions contemplated hereby, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or of any such document, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims with respect to such action or proceeding shall be heard and determined in such a Federal court. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 6.01 or in such other manner as may be permitted by law shall be valid and sufficient service thereof. (b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY (i) IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AND (ii) AGREES THAT THE PARTIES SHALL BE ENTITLED TO SPECIFIC PERFORMANCE OF THE TERMS HEREOF WITHOUT THE REQUIREMENT THAT A BOND BE POSTED. EACH -11- PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAVIERS AND CERTIFICATIONS IN THIS SECTION 6.06. Section 6.07. Headings. The descriptive headings contained in this -------- Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. Section 6.08. Counterparts; Facsimile. This Agreement may be executed ----------------------- and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Section 6.09. Effective Time; Termination. This Agreement shall --------------------------- automatically become effective, without any action on the part of any party hereto, upon payment by Purchaser for all shares of Common Stock validly tendered and not withdrawn (subject to the terms and conditions of the Offer (as defined in the Tender Offer Agreement)) pursuant to the Tender Offer Agreement (the "Effective Time"), and shall terminate upon the earlier of (i) the mutual agreement of the parties hereto and (ii) the first date on which Purchaser no longer, directly or indirectly, beneficially owns at least 5% of the Voting Stock; provided, however, the provisions of Section 3.04 shall terminate and be of no further force or effect as of the first date when Purchaser Directors do not constitute a majority of the Board of Directors. Section 6.10. Combinations or Divisions of Equity Securities. In the ---------------------------------------------- event that any of the outstanding Equity Securities shall be subdivided into a greater or combined into a lesser number of such securities, whether by stock dividend, stock split, reverse stock split, recapitalization, combination of shares or any similar action, any references to numbers, percentages or calculations thereof in this Agreement shall be proportionately adjusted wherever applicable. -12- IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto on the date first hereinabove written. KONINKLIJKE PHILIPS ELECTRONICS NV By: /s/ A. Baan ----------------------------- Name: A. Baan Title: Executive Vice President Philips Electronics By: /s/ J.H.M. Hommen ----------------------------- Name: J.H.M. Hommen Title: Executive Vice President Philips Electronics MEDQUIST INC. By: /s/ David A. Cohen ----------------------------- Name: David A. Cohen Title: Chairman & CEO -13- -----END PRIVACY-ENHANCED MESSAGE-----