As filed with the Securities and Exchange Commission on August 31, 2011

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

MEDQUIST HOLDINGS INC.

(Exact name of Registrant as specified in its charter)

 

9009 Carothers Parkway
Franklin, Tennessee 37067
(615) 261-1740
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Roger L. Davenport

Chief Executive Officer

MedQuist Holdings Inc.

9009 Carothers Parkway

Franklin, Tennessee 37067

(615) 261-1740

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

With copy to:

Steven J. Abrams, Esq.

Pepper Hamilton LLP

3000 Two Logan Square

Eighteenth and Arch Streets

Philadelphia, PA 19103-2779

(215) 981-4241

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after this Registration Statement is declared effective and upon consummation of the transactions described in the enclosed prospectus.

 

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box.  o

 

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

(Do not check if a smaller reporting company)

 

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

 

Exchange Act Rule 13e-4(i) (Cross-Border Issue Tender Offer)  o

 

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  o

CALCULATION OF REGISTRATION FEE

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

Subject to Completion, dated August 31, 2011

MedQuist Holdings Inc.

 

Offer to Exchange

 

Up to 1,231,246 shares of MedQuist Holdings Inc. common stock for any and all issued

and outstanding shares of MedQuist Inc. common stock

 

 

We are offering to exchange, upon the terms and subject to the conditions set forth in this prospectus and in the related letter of transmittal, or the Exchange Offer, shares of MedQuist Holdings Inc. common stock, par value $0.10 per share, or our common stock, for properly tendered and accepted shares of MedQuist Inc. common stock. For each share of MedQuist Inc. common stock that we accept for exchange in accordance with the terms of the Exchange Offer, we will issue one share of our common stock. We refer to the number of shares of our common stock we will issue for each share of MedQuist Inc. common stock we accept in the Exchange Offer as the “Exchange Ratio.”

 

Following the settlement of the Exchange Offer, CBay Inc., one of our wholly-owned subsidiaries, will create a newly-formed subsidiary incorporated in New Jersey, or “Merger Subsidiary,” for the purpose of merging Merger Subsidiary with and into MedQuist Inc. without the affirmative vote of any shareholder of MedQuist Inc. We refer to this transaction as the “Merger.” At the effective time of the Merger, each of your shares of MedQuist Inc. common stock that were not tendered in the Exchange Offer will be converted into shares of our common stock in accordance with the Exchange Ratio.

 

The table below sets forth certain information regarding the MedQuist Inc. common stock that is the subject of the Exchange Offer and the Merger.

 

 

 

 

Because the number of shares of our common stock to be issued in the Exchange Offer and the Merger is fixed, changes in the trading prices of our common stock will result in the market value of our common stock you receive in exchange for tendering your shares in the Exchange Offer or pursuant to the conversion of your shares in the Merger being different than the value reflected in the table above.

 

Our common stock is listed on The NASDAQ Global Market under the symbol “MEDH.” The closing price of our shares on The NASDAQ Global Market on August 26, 2011 was $7.86. See “Market Price Information for Common Stock” herein. MedQuist Inc. common stock trades on the OTCQB under the symbol “MEDQ.”

 

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.

 

The Exchange Offer will expire at 5:00 p.m., New York City time, on          , 2011, or the expiration date, unless extended or earlier terminated by us. You must validly tender your shares of MedQuist Inc. common stock for exchange in the Exchange Offer on or prior to the expiration date to receive the Exchange Offer consideration. You should carefully review the procedures for tendering shares of MedQuist Inc. common stock beginning on page 162 of this prospectus. You may withdraw shares of MedQuist Inc. common stock tendered in the Exchange Offer at any time prior to the expiration date. There will be no record date for determining holders of MedQuist Inc. common stock entitled to participate in the exchange.

 

The Exchange Offer is subject to a number of conditions that must be satisfied or waived by us. The Exchange Offer is not conditioned on any minimum number of MedQuist Inc. common stock being tendered.

 

We urge you to carefully read the “Risk Factors” section of this prospectus beginning on page 25 before you make any decision regarding the Exchange Offer.

 

You must make your own decision whether to tender shares of MedQuist Inc. common stock in the Exchange Offer. Neither we, the information agent, the exchange agent (each as defined herein) nor any other person is making any recommendation as to whether or not you should tender your MedQuist Inc. common stock for exchange in the Exchange Offer.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of this transaction or these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The Information Agent for the Exchange Offer and the Merger is:

PHOENIX ADVISORY PARTNERS

110 Wall Street, 27th floor

New York, NY 10005

Banks and brokers call: (212) 493-3910

Other call toll free: (800) 576-4314

 

 

The Exchange Agent for the Exchange Offer and the Merger is:

American Stock Transfer & Trust Company LLC

 

Prospectus dated          .

 

Table of Contents

 

 

This prospectus incorporates important business and financial information about MedQuist Holdings Inc. and MedQuist Inc. that is not included in or delivered with this document and is included as an exhibit to the registration statement of which this prospectus is a part. You may obtain copies of these documents, without charge, upon written or oral request to our Information Agent, Phoenix Advisory Partners at (800) 576-4314. To obtain timely delivery of copies of these documents, you should request them no later than five business days prior to the expiration of the Exchange Offer. Unless the Exchange Offer is extended, the latest date on which you should request copies of these documents is          .

 

This prospectus is part of a registration statement that we have filed with the Securities and Exchange Commission, or the “SEC,” and we will not consummate the Exchange Offer or the Merger until the SEC has declared the registration statement effective. You should read this prospectus, including the annex, together with the registration statement, the exhibits thereto and the additional information described under the heading “Where You Can Find More Information.”

 

None of MedQuist Holdings Inc., the Exchange Agent or the Information Agent have authorized any person (including any dealer, salesperson or broker) to provide you with any information or to make any representation other than as contained in this prospectus. MedQuist Holdings Inc. does not take any responsibility for, and can provide no assurance as to the reliability of, any information that others may give you. The information included in this prospectus is accurate as of the date of this prospectus. You should not assume that the information included in this prospectus is accurate as of any other date.

 

The Exchange Offer is being made on the basis of this prospectus and the letter of transmittal and is subject to the terms described in this prospectus and the letter of transmittal. After the Exchange Offer, the Merger will be made on the basis of an agreement and plan of merger. The conversion of your shares of common stock for shares of common stock of MedQuist Holdings Inc. as a result of the Merger will be made on the basis of this prospectus and a letter of transmittal and is subject to the terms described in this prospectus and such letter of transmittal. This prospectus does not constitute an offer to participate in the Exchange Offer to any person in any jurisdiction in which it would be unlawful to make such offer. Any decision to participate in the Exchange Offer must be based on the information included in this prospectus. In making an investment decision, prospective investors must rely on their own examination of MedQuist Holdings Inc. and the terms of the Exchange Offer, including the merits and risks involved. Investors should not construe anything in this prospectus and the letter of transmittal as legal, investment, business or tax advice. Each investor should consult its advisors as needed to make its investment decision and to determine whether it is legally permitted to participate in the Exchange Offer under applicable laws or regulations.

 

This prospectus contains summaries believed to be accurate with respect to certain documents, but reference is made to the actual documents themselves for complete information. All such summaries are qualified in their entirety by such reference. Copies of documents referred to in this prospectus will be made available to holders in the Exchange Offer and Merger at no cost. See “Where You Can Find More Information.”

 

You should not rely on or assume the accuracy of any representation or warranty in any agreement that we have filed as an exhibit to any document that we have publicly filed or that we may otherwise publicly file in the future because such representation or warranty may be subject to exceptions and qualifications contained in separate disclosure schedules, may have been included in such agreement for the purpose of allocating risk between the parties to the particular transaction, and may no longer continue to be true as of any given date.

 

Except where the context otherwise requires, or where otherwise indicated, references to the “Company,” “we,” “us,” or “our” are to MedQuist Holdings Inc. and its subsidiaries, and references to “Spheris” are to Spheris Inc. for the period prior to April 22, 2010 and to the business we acquired from Spheris Inc. for the period after such date.

 

References in this prospectus to “dollars” or “$” are to the currency of the United States and references to “£”, “pound” or “pence” are to the currency of the United Kingdom. There are 100 pence to each pound.

 

Except where otherwise indicated, reference in this prospectus to “volume” or “volumes” are to lines of text edited or transcribed by our medical transcriptionists, or “MTs,” and medical editors, or “MEs.”

 

The industry and market data and other statistical information used throughout this prospectus are based on independent industry publications, government publications, reports by market research firms or other published independent sources that we believe to be reliable.

 

These answers to questions that you may have as a holder of MedQuist Inc. common stock are highlights of selected information included elsewhere in this prospectus. To fully understand the Exchange Offer, the other considerations that may be important to your decision about whether to participate in the Exchange Offer, the effects of the Merger and the risks associated with holding shares of MedQuist Holdings Inc. common stock, you should carefully read this prospectus in its entirety, including the section entitled “Risk Factors” and our financial statements and related notes.

 

Why are we making the Exchange Offer?

 

We are making this offer as part of our ongoing plan to acquire full ownership of our majority-owned subsidiary MedQuist Inc. Since our acquisition of the majority ownership stake in MedQuist Inc., our management and directors have been aware that further consolidating our operations with those of MedQuist Inc. could lead to substantial overhead reductions and allow us to capitalize on our underlying technology, healthcare domain expertise and attractive long-term relationships with customers of MedQuist Inc.

 

In February 2011, we consummated an exchange agreement, or “Exchange Agreement,” with certain of MedQuist Inc.’s noncontrolling shareholders pursuant to which we issued 4.8 million shares of our common stock in exchange for their 4.8 million shares of MedQuist Inc. common stock. This private exchange increased our ownership in MedQuist Inc. from 69.5% to 82.2%. We then commenced a public registered exchange offer with the same exchange ratio as the private exchange to those noncontrolling MedQuist Inc. shareholders who did not participate in the private exchange, which we refer to as the “Initial Registered Exchange Offer,” to exchange shares of our common stock for shares of MedQuist Inc. common stock as an additional means to acquire full ownership of MedQuist Inc. As a result of the Initial Registered Exchange Offer, we increased our ownership in MedQuist Inc. from 82.2% to approximately 97%.

 

We continue to believe that if we acquire full ownership of MedQuist Inc. it will simplify our capital structure, help us to achieve greater integration with MedQuist Inc., and reduce costs and eliminate potential conflicts of interests between us and MedQuist Inc. Therefore we are making this offer as a step in our plan to acquire full ownership of MedQuist Inc.

 

You may receive more favorable tax treatment if you participate in the Exchange Offer than if you do not participate in the Exchange Offer and have your shares converted in the Merger. Please see the section of this prospectus entitled “Material United States Federal Income Tax Consequences” for more information. You should consult your own tax advisor for a full understanding of the tax consequences to you of the Exchange Offer and Merger.

 

Why are we seeking to consummate the Merger?

 

Following the completion of the Exchange Offer, CBay Inc., one of our wholly-owned subsidiaries, intends to consummate a merger of Merger Subsidiary with and into MedQuist Inc. The purpose of the Merger is to acquire all of the issued and outstanding shares of MedQuist Inc. stock not exchanged pursuant to the Exchange Offer and not already owned by us. Pursuant to the Shareholder Litigation (described below), we agreed that if, as a result of the Initial Registered Exchange Offer, we obtained ownership of at least 90% of the outstanding common stock of MedQuist Inc., we would conduct a short-form merger under applicable law to acquire the remaining shares of MedQuist Inc. common stock that we do not currently own at the same exchange ratio applicable under the Initial Registered Exchange Offer. The terms of the Merger will provide that each remaining issued and outstanding share of MedQuist Inc. common stock will be converted into the same amount of shares of MedQuist Holdings Inc. common stock in accordance with the Exchange Ratio. Please see the section of this prospectus entitled “MedQuist Holdings Inc. Business – Legal proceedings” for more information on the Shareholder Litigation.

What shares of stock are being sought in the Exchange Offer?

 

We are offering to exchange, upon the terms and subject to the conditions set forth in this prospectus and in the related letter of transmittal, shares of our common stock for properly tendered and accepted shares of MedQuist Inc. common stock, or “MedQuist Inc. common stock.”

 

What will you receive in the Exchange Offer if you tender your shares of MedQuist Inc. common stock and they are accepted?

 

You will receive one share of our common stock for each share of MedQuist Inc. common stock that you validly tender in this Exchange Offer that is accepted by us. We sometimes refer to this number in this document as the “Exchange Ratio.” Shares of our common stock issued in this Exchange Offer will be issued in book-entry form. If you do not tender your shares of MedQuist Inc. common stock in the Exchange Offer, or if you withdraw them before the expiration date, upon consummation of the Merger, each share of MedQuist Inc. common stock that you hold will be converted into one share of our common stock.

 

 

 

 

Because the number of shares of our common stock to be issued in the Exchange Offer is fixed, changes in the trading prices of our common stock will result in the market value of our common stock you receive in exchange for tendering your shares being different than the value reflected in the table above. Our common stock is listed on The NASDAQ Global Market under the symbol “MEDH.” The closing price of our shares on The NASDAQ Global Market on August 26, 2011 was $7.86.

 

MedQuist Inc. common stock trades on the OTCQB under the symbol “MEDQ.” The closing price of shares of MedQuist Inc. common stock on the OTCQB on August 26, 2011 was $7.85. See “Market Price Information for Common Stock” herein.

 

Your right to receive the Exchange Offer consideration in the Exchange Offer is subject to all of the conditions set forth in this prospectus and the related letter of transmittal.

 

Do you have a choice in whether to tender your MedQuist Inc. common stock?

 

Yes. You are not required to tender your MedQuist Inc. common stock pursuant to this prospectus.

 

What happens if you choose not to take part in this Exchange Offer?

 

You will retain the same rights, obligations and interests which you presently have with respect to your ownership of the MedQuist Inc. common stock. However, CBay Inc. intends to cause the Merger of Merger Subsidiary with and into MedQuist Inc. as soon as practicable after consummation of the Exchange Offer. Pursuant to the Merger, holders of MedQuist Inc. common stock that did not tender their shares of common stock in the Exchange Offer will receive in the Merger the same consideration that they would have received had they tendered their shares in the Exchange Offer. Each such share of MedQuist Inc. common stock will automatically convert into one share of MedQuist Holdings Inc. common stock.

Is there any difference to me whether I tender my shares in the Exchange Offer or have them canceled in the Merger?

 

If you do not tender your shares in the Exchange Offer, you will receive MedQuist Holdings Inc. common stock that may have a market price that is greater than or less than the price of MedQuist Holdings Inc. common stock on the date you would have received the consideration if you had tendered in the Exchange Offer. Furthermore, your receipt of shares pursuant to the Merger generally will be taxable to you but the receipt of shares pursuant to the Exchange Offer may be tax-free. Please see the section of this prospectus entitled “Material United States Federal Income Tax Consequences” for more information. You should consult your own tax advisor for a full understanding of the tax consequences to you of the Exchange Offer and Merger.

 

Will our common stock to be issued in the Exchange Offer and the Merger be listed for trading?

 

Yes. The shares of our common stock to be issued in the Exchange Offer have been approved for listing on The NASDAQ Global Market under the symbol “MEDH.” For more information regarding the market for our common stock, see the section of this prospectus entitled “Comparative Market Price and Dividend Information.”

 

Will MedQuist Inc. deregister under the Securities Exchange Act of 1934, as amended, or the Exchange Act, following the Exchange Offer and the Merger?

 

It is our intent to have MedQuist Inc. become our indirect wholly-owned subsidiary. Following the consummation of the Merger, we intend to cause MedQuist Inc. to deregister its common stock under the Exchange Act and MedQuist Inc. will cease to be a separate SEC reporting company. Please see the section of this prospectus entitled “The Exchange Offer and the Merger – Registration Under Exchange Act.”

 

What are the potential benefits of this Exchange Offer and the Merger to holders of MedQuist Inc. common stock?

 

We believe the completion of the Exchange Offer and Merger will enable MedQuist Inc. and us to create a simpler, unified capital structure in which equity investors would participate in the equity of MedQuist Holdings Inc. and MedQuist Inc. through ownership at the MedQuist Holdings Inc. level.

 

We believe that unifying public stockholders at a single level could lead to greater liquidity for investors, particularly for the former holders of MedQuist Inc. common stock, due to the increased combined public float.

 

Additionally, the unified capital structure that would result from the Exchange Offer would facilitate the investment and transfer of funds between MedQuist Holdings Inc. and MedQuist Inc. and our respective subsidiaries, thereby facilitating more efficient uses of our consolidated financial resources.

 

Finally, by acquiring full ownership of MedQuist Inc. we will eliminate any potential conflicts between our interests and the interests of the other MedQuist Inc. shareholders. We currently have the ability to cause the election of all of the members of the MedQuist Inc. board of directors, the appointment of new management and the approval of actions requiring the approval of MedQuist Inc. shareholders, including amendments to its certificate of incorporation and mergers or sales of substantially all of its assets. The directors we elect are able to make decisions affecting the capital structure of MedQuist Inc., including decisions to issue additional capital stock, implement stock repurchase programs and declare dividends. Without full ownership of MedQuist Inc. our interests could conflict with the interests of MedQuist Inc., and the interests of its other shareholders.

May you tender only a portion of the MedQuist Inc. common stock that you hold?

 

Yes. You do not have to tender all of your MedQuist Inc. common stock to participate in the Exchange Offer. You may choose to tender in the Exchange Offer all or any portion of the MedQuist Inc. common stock that you hold. Any shares not tendered in the Exchange Offer will be cancelled in the Merger and you will receive the same consideration you would have received had you tendered your shares in the Exchange Offer.

 

How does the amount of consideration that you will receive if you validly tender shares of MedQuist Inc. common stock in the Exchange Offer compare to amounts that you would otherwise receive if you do not tender?

 

Should you decide to not participate in this Exchange Offer, each of your shares of MedQuist Inc. common stock will be converted into the same number of shares of MedQuist Holdings Inc. common stock in accordance with the Exchange Ratio upon consummation of the Merger. However, your receipt of shares pursuant to the Merger generally will be taxable to you but the receipt of shares pursuant to the Exchange Offer may be tax-free. Please see the section of this prospectus entitled “Material United States Federal Income Tax Consequences” for more information. You should consult your own tax advisor for a full understanding of the tax consequences to you of the Exchange Offer and Merger.

 

Any value received from any sale of your shares of MedQuist Inc. common stock prior to the Merger will depend on such factors as the market prices and the level of demand for the MedQuist Inc. common stock.

 

Has MedQuist Inc. made a recommendation regarding the Exchange Offer?

 

MedQuist Inc. will file a Solicitation/Recommendation Statement on Schedule 14D-9 with the SEC conveying to MedQuist Inc. shareholders the recommendation of the MedQuist Inc. board of directors regarding whether MedQuist Inc. shareholders should tender their MedQuist Inc. shares in the Exchange Offer. Once filed, the MedQuist Inc. Schedule 14D-9 will be mailed to MedQuist Inc. shareholders. MedQuist Inc. shareholders are urged to read the MedQuist Inc. Schedule 14D-9 because it will contain important information. The MedQuist Inc. Schedule 14D-9 will be available free of charge at the web site maintained by the SEC at www.sec.gov.

 

When does the Exchange Offer expire?

 

Unless earlier terminated by us, the Exchange Offer will expire at 5:00 p.m., New York City time, on          , 2011, or at such other time if this date is extended by us. MedQuist Inc. common stock tendered may be validly withdrawn at any time before the expiration date, but not thereafter. If a broker, dealer, commercial bank, trust company or other nominee holds your MedQuist Inc. common stock, such nominee may have an earlier deadline for accepting the Exchange Offer. You should promptly contact the broker, dealer, commercial bank, trust company or other nominee that holds your MedQuist Inc. common stock to determine its deadline.

 

What are the conditions to the Exchange Offer?

 

The Exchange Offer is conditioned upon the closing conditions described in “The Exchange Offer and the Merger – Conditions of the Exchange Offer.” The Exchange Offer is not conditioned upon any minimum number of shares of MedQuist Inc. common stock being tendered. We may waive certain conditions of the Exchange Offer described in this prospectus prior to the expiration date. If any of the conditions are not satisfied or waived, we will not complete the Exchange Offer.

 

Under what circumstances can the Exchange Offer be extended, amended or terminated?

 

We reserve the right to extend the Exchange Offer for any reason or no reason at all. We also expressly reserve the right, at any time or from time to time, to amend the terms of the Exchange Offer in any respect prior to the expiration date. Further, we may be required by law to extend the Exchange Offer if we make a material change in the terms of the Exchange Offer or in the information contained in this prospectus or waive a material condition to the Exchange Offer. During any extension of the Exchange Offer, MedQuist Inc. common stock that was previously

tendered and not validly withdrawn will remain subject to the Exchange Offer. We reserve the right, in our sole and absolute discretion, but subject to applicable law, to terminate the Exchange Offer at any time prior to the expiration date if any condition to the Exchange Offer is not met. If the Exchange Offer is terminated, no shares of MedQuist Inc. common stock will be accepted for purchase, and any shares of MedQuist Inc. common stock that have been tendered will be promptly returned to the holder. For more information regarding our right to extend, amend or terminate the Exchange Offer, see “The Exchange Offer and the Merger – Expiration date; extensions; termination; amendment.”

 

How will you be notified if the Exchange Offer is extended, amended or terminated?

 

If the Exchange Offer is extended, amended or terminated, we will promptly make a public announcement thereof. For more information regarding notification of extensions, amendments or the termination of the Exchange Offer, see “The Exchange Offer and the Merger – Expiration date; extensions; termination; amendment.”

 

How do you tender shares of MedQuist Inc. common stock in the Exchange Offer?

 

Certain shares of MedQuist Inc. common stock were issued in book-entry form, and are all currently represented by one or more global certificates held for the account of the Depository Trust Company, or “DTC.” If your securities are book entry securities, you may tender your shares of MedQuist Inc. common stock by transferring them through DTC’s Automated Tender Offer Program, or “ATOP,” or following the other procedures described under “The Exchange Offer and the Merger – Procedures for tendering.”

 

If your interest as a holder of MedQuist Inc. common stock is in certificated form, you must deliver to the exchange agent (1) the certificates for the shares of your MedQuist Inc. common stock to be exchanged in the manner specified in the accompanying letter of transmittal and (2) a properly completed letter of transmittal.

 

If you hold your shares of MedQuist Inc. common stock through a bank, broker or other nominee, in order to validly tender your shares of MedQuist Inc. common stock in the Exchange Offer, you must follow the instructions provided by your bank, broker, custodian, commercial bank, trust company or other nominee with regard to procedures for tendering, in order to enable your bank, broker, custodian, commercial bank, trust company or other nominee to comply with the procedures described below. Beneficial owners are urged to appropriately instruct their bank, broker, custodian, commercial bank, trust company or other nominee at least five business days prior to the expiration date in order to allow adequate processing time for their instruction.

 

In order for a bank, broker, custodian, commercial bank, trust company or other nominee to validly tender your shares of MedQuist Inc. common stock in the Exchange Offer, such bank, broker, custodian, commercial bank, trust company or other nominee must deliver to the exchange agent an electronic message that will contain:

 

 

If you are unable to tender your MedQuist Inc. common stock before 5:00 p.m., New York City time, on          , 2011, or such other time if this date is extended by us, you may comply with the guaranteed delivery procedures set forth in “The Exchange Offer and the Merger – Guaranteed delivery” beginning on page 163.

 

Should you have any questions as to the procedures for tendering your shares of MedQuist Inc. common stock, please call your bank, broker, custodian, trust company or other nominee, or call the information agent.

What happens to tendered shares of MedQuist Inc. common stock that are not accepted for exchange?

 

If your tendered shares of MedQuist Inc. common stock are not accepted for exchange for any reason pursuant to the terms and conditions of the Exchange Offer, such shares will be returned without expense to you or, in the case of shares of MedQuist Inc. common stock tendered by book-entry transfer, such shares will be credited to an account maintained at DTC, designated by the participant who delivered such shares, in each case, promptly following the expiration date or the termination of the Exchange Offer. Any shares not tendered in the Exchange Offer, however, will be cancelled in the Merger and you will receive the same consideration you would have received had you tendered your shares in the Exchange Offer.

 

If you change your mind, can you withdraw your tender of MedQuist Inc. common stock?

 

You may withdraw previously tendered MedQuist Inc. common stock at any time until the Exchange Offer has expired, unless extended by us. See “The Exchange Offer and the Merger – Withdrawal of tenders.” Any shares not tendered in the Exchange Offer, however, will be cancelled in the Merger and you will receive the same consideration you would have received had you tendered your shares in the Exchange Offer.

 

How long will it take to complete the Exchange Offer and the Merger?

 

We will not consummate the Exchange Offer or the Merger until the SEC has declared the registration statement effective. As soon as practicable after the registration statement is declared effective we will launch the Exchange Offer. The expiration date of the Exchange Offer will be at least 20 business days after the beginning of the Exchange Offer, as required by Rule 14e-1(a) under the Exchange Act. We intend to seek to cause the Merger to take place as soon as reasonably practicable following the expiration date of the Exchange Offer.

 

Why is there no shareholder vote for the Exchange Offer or the Merger?

 

Your vote is not required for the Exchange Offer or the Merger. You simply need to tender your shares if you choose to do so in the Exchange Offer or each of your shares will automatically convert into one share of our common stock pursuant to the Merger. Our board of directors and the board of directors and sole shareholder of the Merger Subsidiary will be required to approve the Merger.

 

Will you have to pay any fees or commissions if you tender your MedQuist Inc. common stock in the Exchange Offer or if your shares are automatically converted pursuant to the Merger?

 

Holders are not obligated to pay brokerage fees or commissions to us, the information agent or the exchange agent in connection with the Exchange Offer and Merger. If your shares of MedQuist Inc. common stock are held through a broker or other nominee who tenders the MedQuist Inc. common stock on your behalf in connection with the Exchange Offer or Merger, your broker may charge you a commission for doing so. You should consult with your broker or nominee to determine whether any charges will apply. See “The Exchange Offer and the Merger.”

 

What risks should you consider in deciding whether or not to tender any or all of your MedQuist Inc. common stock?

 

In deciding whether to participate in the Exchange Offer, you should carefully consider the discussion of risks and uncertainties pertaining to the Exchange Offer, and those affecting our businesses and an investment in our common stock, described in this section “Questions and Answers About the Exchange Offer and the Merger,” in the section entitled “Risk Factors” and in the section entitled “Material United States Federal Income Tax Consequences.”

What are the U.S. federal income tax consequences of participating in the Exchange Offer or the Merger?

 

For United States federal income tax purposes, your receipt of shares pursuant to the Merger generally will be taxable to you while the receipt of shares pursuant to the Exchange Offer may be tax-free. Please see the section of this prospectus entitled “Material United States Federal Income Tax Consequences” for more information. You should consult your own tax advisor for a full understanding of the tax consequences to you of the Exchange Offer and Merger.

 

What is the impact of the Exchange Offer and Merger to our earnings per share and capitalization?

 

Assuming all of the outstanding shares of MedQuist Inc. common stock are validly tendered and accepted and not withdrawn so that we issue all 1.2 million shares of our common stock being offered pursuant to this prospectus, we would have 55.9 million shares of our common stock outstanding.

 

As a result of the exchange of the MedQuist Inc. common stock and the Merger described herein, the number of outstanding shares of our common stock will increase, which will result in dilution of ownership to existing holders of our common stock. However, our share of MedQuist Inc.’s net income will increase as a result of this Exchange Offer. After giving effect to the Spheris Acquisition (as defined in “Summary – History – MedQuist Inc.”), the Recapitalization Transactions (as defined in “Summary – Recent Developments – Recapitalization Transactions”), the private exchange, the Initial Registered Exchange Offer and our initial public offering, or “IPO,” for the year ended December 31, 2010 and the six months ended June 30, 2011, the incremental impact of this Exchange Offer and the Merger on our diluted earnings per share would have been an increase of $0.01 and $0.03 per share of our common stock on a pro forma basis, respectively. Future dividends, if any, on the MedQuist Inc. common stock will not be paid to holders whose MedQuist Inc. common stock has been exchanged.

 

The impact of the Exchange Offer will be a reclassification between noncontrolling interests and additional paid in capital with no net impact to stockholders’ equity as a result of this exchange. See “The Exchange Offer and the Merger – Accounting treatment.”

 

Do our directors or executive officers beneficially own any shares of MedQuist Inc. common stock that will be subject to the Exchange Offer or Merger?

 

As of August 25, 2011, our directors and executive officers beneficially owned in the aggregate 66 shares of MedQuist Inc. common stock that are subject to the Exchange Offer.

 

What percentage of our common stock will current MedQuist Inc. shareholders own after the successful consummation of the Exchange Offer and the Merger?

 

We anticipate that the completion of the Exchange Offer and the Merger will result in the exchange of the outstanding shares of MedQuist Inc.’s common stock that we do not currently own into approximately 2.2% of shares of our common stock outstanding at the conclusion of the Exchange Offer and Merger. In general, this assumes that:

 

 

Are dissenters’ or appraisal rights available in either the Exchange Offer or the Merger?

 

You do not have dissenters’ or appraisal rights as a result of the Exchange Offer or the Merger. Under New Jersey law, which governs your rights as a shareholder of a New Jersey corporation, you do not have the right to dissent in the Exchange Offer or the Merger. See “The Exchange Offer and the Merger – No appraisal rights.”

 

With whom may you talk if you have questions about the Exchange Offer?

 

If you have questions regarding the procedures for tendering in the Exchange Offer or require assistance in tendering your MedQuist Inc. common stock, please contact the exchange agent listed on the back cover of this prospectus. If you would like additional copies of this prospectus, our annual, quarterly, and current reports or proxy statement, please contact the information agent. The contact information for the exchange agent and the information agent is set forth on the back cover of this prospectus. Holders of MedQuist Inc. common stock may also contact their brokers, dealers, commercial banks, trust companies or other nominees through whom they hold their MedQuist Inc. common stock with questions and requests for assistance.

 

IF YOU HOLD YOUR MEDQUIST INC. COMMON STOCK THROUGH A BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE, YOU SHOULD KEEP IN MIND THAT SUCH ENTITY MAY REQUIRE YOU TO TAKE ACTION WITH RESPECT TO THE EXCHANGE OFFER A NUMBER OF DAYS BEFORE THE EXPIRATION DATE IN ORDER FOR SUCH ENTITY TO TENDER MEDQUIST INC. COMMON STOCK ON YOUR BEHALF ON OR PRIOR TO THE EXPIRATION DATE. TENDERS NOT RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE WILL BE DISREGARDED AND HAVE NO EFFECT. IF YOUR INTEREST AS A HOLDER OF MEDQUIST INC. COMMON STOCK IS IN CERTIFICATED FORM, YOU MUST DELIVER THE MEDQUIST INC. COMMON STOCK CERTIFICATE TO BE EXCHANGED IN THE MANNER SPECIFIED IN THE ACCOMPANYING LETTER OF TRANSMITTAL AND A PROPERLY COMPLETED LETTER OF TRANSMITTAL.

 

Summary

	n	Leader in a large, fragmented market – We are the largest provider by revenue of clinical documentation solutions based on the Physician Narrative in the United States. Our size enables us to meet the needs of large, sophisticated healthcare customers, provides economies of scale, and enables us to devote significantly more resources to research and development and quality assurance than many other providers.
	n	Integrated solutions delivered as a complete managed service – We offer fully-integrated end-to-end managed services that capture and convert the Physician Narrative into a high quality customized electronic record. We integrate technologies and services for voice capture and transmission, ASR, medical transcription and editing, workflow automation, and document management and distribution. The end result is value-added clinical documentation with high accuracy and quick turn-around times.
	n	Large and diversified customer base with long-term relationships – We serve hospitals, clinics and physician practices throughout the United States. We have a long-standing history with our customers and the majority of our revenue is from recurring services.
	n	Highly-efficient operating model – Since we acquired MedQuist Inc. in the fourth quarter of 2008, we have driven down our cost structure through leveraging our scalable infrastructure, standardizing

		processes, and increased utilization of ASR. Our use of ASR, which has grown from 39% of our volume in the fourth quarter of 2008 to 74% in the second quarter of 2011, has increased our productivity. With the acquisition of MultiModal, we now own our own ASR technology which we expect will further reduce our cost structure. Additionally, our expanding footprint in India has enabled us to increase our offshore production from 28% of our volume to 42% over this same period. The financial impact of these measures has been an improvement in gross margins during this timeframe from 34% to 40%.

	n	Proven management team – We have assembled an outstanding senior leadership team with significant industry experience and domain expertise in both domestic and offshore operations. Our management team has delivered substantial results and brings an entrepreneurial spirit with proven experience in managing growth, driving operational improvements, and successfully integrating acquisitions.

	n	Expand our customer base and increase existing customer penetration – We intend to grow our customer base by targeting three market segments: large healthcare providers still using in-house services, large healthcare providers currently using competing outsourced alternatives, and small-to-medium medical practices. Given our market leadership, strong solution offerings, and low cost structure, we believe we are well positioned to both replace in-house solutions as well as displace competing outsourced alternatives for large healthcare providers. In order to increase penetration within our existing customer base, we intend to continue targeting additional healthcare clinical areas and facilities of our current customers. Additionally, as healthcare providers centralize their purchasing decisions, we believe that our ability to deliver outstanding services for large, complex requirements provides us with increasing access to new sales opportunities within our existing customer base and through existing customer relationships. Through our acquisition of MultiModal, we have expanded our customer base to include medical transcription service organizations, or MTSOs. We intend to grow our business by providing new and innovative speech and natural language understanding technologies and new products to these transcription partners.
	n	Continue to develop and enhance our integrated solutions – We seek to differentiate our integrated solutions through sophisticated technology and process improvement. With the acquisition of MultiModal, we now have over 200 employees dedicated to research and development, with in-house expertise in speech and natural language understanding technologies. Over the last year, we launched numerous enhancements, including a front end speech platform for general medicine, additional EHR system integration, and advanced performance monitoring.
	n	Enhance profitability through technical and operational expertise – We have made significant improvements in productivity through business process and infrastructure improvements. Notwithstanding reductions in customer pricing, our gross margins have expanded from 34% in the fourth quarter of 2008, our first fiscal quarter after we acquired MedQuist Inc., to 40% in the second quarter of 2011. Our management team has proven its ability to implement continuous process improvements and we intend to further increase offshore production and our use of technological automation, including ASR, to lower costs and enhance our profitability. We also expect that the acquisition of MultiModal will further enhance our gross margins by building market share in the in-house transcription market.
	n	Facilitate the adoption and promote meaningful use of EHR systems – Our integrated solutions provide a comprehensive, accurate and effective method to incorporate Physician Narrative into an EHR system. We interface with substantially all of the leading EHR vendors to integrate our clinical documentation solutions and to help our customers realize the full potential of their EHR systems through the use of the Physician Narrative. In our experience, when EHR is adopted, customers tend to consolidate their purchase decisions, which benefits us as a leading provider of clinical documentation solutions.

	n	Pursue strategic acquisitions – We believe that there are significant opportunities available to create value through strategic acquisitions. We intend to seek appropriate opportunities to grow our customer base, enhance or expand our solutions, incorporate synergy opportunities, and expand our value proposition to our customers. For example, we recently completed our acquisition of MultiModal which provides us with ownership of speech and natural language understanding technologies, and is expected to facilitate consolidation to a single speech recognition platform, provide a broader product offering to local and regional transcription partners and leverage MultiModal’s cloud based services to enhance our gross margins.

	n	We compete with many others in the market for clinical documentation solutions which may result in lower prices for our services, reduced operating margins and an inability to maintain or increase our market share.
	n	Our business is dependent on the continued demand for transcription services, and, if electronic health records companies produce solutions acceptable to large hospital systems for the creation of electronic clinical documentation, the overall demand for medical transcription services could be reduced.
	n	Our ability to sustain and grow profitable operations is dependent on the willingness of new customers to outsource and adopt new technology platforms, as well as our ability to retain customers.
	n	Our success will depend on our ability to support existing technologies, as well as adopt and integrate new technology into our workflow platforms.

	n	the completion of the Initial Registered Exchange Offer would enable MedQuist Inc. and us to create a simpler, unified capital structure in which equity investors would participate in the equity of us and MedQuist Inc. only at the MedQuist Holdings Inc. level. Our board also believed that unifying public stockholdings at a single level could lead to greater liquidity for investors, particularly for the former holders of MedQuist Inc. common stock, due to the increased combined public float;
	n	the unified capital structure that would result from the Initial Registered Exchange Offer would facilitate the investment and transfer of funds between us and MedQuist Inc. and its subsidiaries, thereby facilitating more efficient uses of our consolidated financial resources;
	n	the belief that we will be better positioned than MedQuist Inc. on a stand-alone basis to develop and exploit MedQuist Inc.’s assets, including through acquisitions and dispositions;
	n	the elimination of public shareholders at the MedQuist Inc. level would create opportunities for cost reductions through the reduction of overhead and reporting and compliance costs;
	n	the opportunity to eliminate, by converting the public’s ownership of MedQuist Inc. common stock into ownership of our common stock through the Initial Registered Exchange Offer, the potential for conflicts of interest between us, on the one hand, and the assets of MedQuist Inc. and its public shareholders, on the other, including with respect to the disposition or use of MedQuist Inc. for the benefit of us and our stockholders;
	n	the exchange ratio;
	n	the ability of MedQuist Inc.’s shareholders, through ownership of our common stock, to participate in the growth of MedQuist Inc.’s business and our other businesses;
	n	the financial and operating results of MedQuist Inc.;
	n	the terms and conditions of the Initial Registered Exchange Offer; and
	n	the level of dilution that our current stockholders would experience in connection with the Initial Registered Exchange Offer.

Exchange Offer		We are offering to exchange “newly issued” shares of our common stock for properly tendered and accepted shares of MedQuist Inc. common stock pursuant to our ongoing plan to acquire full ownership of our majority-owned subsidiary MedQuist Inc. All shares of MedQuist Inc. common stock validly tendered and not withdrawn and accepted by us will be exchanged at a ratio of one share of our common stock for each share of MedQuist Inc. common stock, on the terms and subject to the conditions of this Exchange Offer. The terms and conditions of this Exchange Offer are described in this document, the letter of transmittal and the instructions to the letter of transmittal. We will promptly return any shares of MedQuist Inc. common stock not accepted by us for exchange following the expiration date.
Expiration Date		The Exchange Offer will expire at 5:00 p.m., New York City time, on     , 2011, unless extended or earlier terminated by us. If a broker, dealer, commercial bank, trust company or other nominee holds your MedQuist Inc. common stock, such nominee may have an earlier deadline for accepting the offer. You should promptly contact the broker, dealer, commercial bank, trust company or other nominee that holds your shares of MedQuist Inc. common stock to determine its deadline.
Settlement Date		The settlement date in respect of any shares of MedQuist Inc. common stock that are validly tendered prior to the expiration date will be promptly following the expiration date and is anticipated to be on or about     , 2011. See “The Exchange Offer and the Merger – Settlement date.”
Certain Consequences to Non-Tendering Holders		Shares of MedQuist Inc. common stock not tendered in the Exchange Offer will remain outstanding after the consummation of the Exchange Offer. Pursuant to the Merger, however, holders of MedQuist Inc. common stock (other than us) that did not tender their shares of common stock in the Exchange Offer will receive in the Merger the same consideration that they would have received had they tendered their shares in the Exchange Offer. Your receipt of shares pursuant to the Merger generally will be taxable to you while the receipt of shares pursuant to the Exchange Offer may be tax-free. Please see the section of this prospectus entitled “Material United States Federal Income Tax Consequences” for more information. You should consult your own tax advisor for a full understanding of the tax consequences to you of the Exchange Offer and Merger.
Conditions to the Exchange Offer		The Exchange Offer is conditioned upon the closing conditions described in “The Exchange Offer and the Merger – Conditions of the Exchange Offer.”
Procedures For Tendering Shares of MedQuist Inc. Common Stock		Most shares of MedQuist Inc. common stock were issued in book-entry form, and are all currently represented by one or more global certificates held for the account of the DTC. If your securities are book entry securities, you may tender your shares of common stock by transferring them through DTC’s ATOP or following the other procedures described under “The Exchange Offer and the Merger – Procedures for tendering.”
		If your interest as a holder of common stock is in certificated form, you must deliver to the exchange agent a properly completed and duly executed letter of transmittal or a duly executed copy thereof, along with any

		additional information required by the exchange agent as well as payment for transfer or similar taxes, if any.
		If you wish to tender shares of MedQuist Inc. common stock pursuant to the Exchange Offer and your MedQuist Inc. common stock certificates are not immediately available, you cannot deliver the MedQuist Inc. common stock certificates and all other required documents to the exchange agent prior to the expiration of the Exchange Offer or you cannot complete the procedure for book-entry transfer on a timely basis, your shares of MedQuist Inc. common stock may nevertheless be tendered, so long as all of the following conditions are satisfied:
		n you make your tender by or through an eligible institution;
		n a properly completed and duly executed notice of guaranteed delivery, substantially in the form made available by us, is received by the exchange agent as provided below on or prior to the expiration of the Exchange Offer; and
		n the certificates for all tendered shares of MedQuist Inc. common stock (or a confirmation of a book-entry transfer of such securities into the exchange agent’s account at DTC as described above), in proper form for transfer, together with a properly completed and duly executed letter of transmittal or a manually signed facsimile with any required signature guarantees, or, in the case of a book-entry transfer, an agent’s message, and all other documents required by the letter of transmittal are received by the exchange agent within three business days after the date of execution of the notice of guaranteed delivery.
		You may deliver the notice of guaranteed delivery by hand or transmit it by facsimile transmission or mail to the exchange agent.
		In all cases, we will exchange shares of MedQuist Inc. common stock tendered and accepted for exchange pursuant to the Exchange Offer only after timely receipt by the exchange agent of certificates for shares of MedQuist Inc. common stock, or timely confirmation of a book-entry transfer of those shares of MedQuist Inc. common stock into the exchange agent’s account at DTC, a properly completed and duly executed letter of transmittal or a manually signed facsimile thereof, or an agent’s message in connection with a book-entry transfer, and any other required documents.
		If you beneficially own common stock through an account maintained by a broker, dealer, commercial bank, trust company or other DTC participant and you desire to tender common stock, you should contact your DTC participant promptly and instruct it to tender your shares of common stock on your behalf. Beneficial owners are urged to appropriately instruct their bank, broker, custodian, commercial bank, trust company or other nominee at least five business days prior to the expiration date in order to allow adequate processing time for their instruction.
		In order for your bank, broker, custodian, commercial bank, trust company or other nominee to validly tender shares of common stock in the Exchange Offer, such bank, broker, custodian, commercial bank, trust company or other nominee must deliver to the exchange agent via DTC an electronic message that will contain certain information specified under “The Exchange Offer and the Merger – Procedures for tendering – How to tender if you are a beneficial owner but not a DTC participant?”

		To participate in the Exchange Offer, a DTC participant must:
		n comply with the ATOP procedures of DTC described under “The Exchange Offer and the Merger – Procedures for tendering – Tendering through DTC’S ATOP;” or
		n (i) complete and sign and date the letter of transmittal, or a facsimile of the letter of transmittal; (ii) have the signature on the letter of transmittal guaranteed if the letter of transmittal so requires; and (iii) mail or deliver the letter of transmittal or facsimile to the exchange agent prior to the expiration date.
		In addition, a DTC participant must comply with the additional procedures set forth under “The Exchange Offer and the Merger – Procedures for tendering – How to tender if you are a DTC participant?”
		On the date of any tender for exchange, if your interest is in certificated form, you must do each of the following in order to validly tender for exchange:
		n complete and manually sign the accompanying letter of transmittal provided by the exchange agent, or a facsimile of the exchange notice, and deliver the signed letter to the exchange agent;
		n surrender the certificates of your shares of common stock to the exchange agent;
		n if required, furnish appropriate endorsements and transfer documents; and
		n if required, pay all transfer or similar taxes.
		If you are using a letter of transmittal or notice of withdrawal, you must have signatures guaranteed by a member firm of a registered national securities exchange or of the Financial Industry Regulatory Authority, Inc., a commercial bank or trust company having an office or correspondent in the United States, or an “eligible guarantor institution” within the meaning of Rule 17Ad-15 under the Exchange Act. In addition, such entity must be a member of one of the recognized signature guarantee programs identified in the letter of transmittal. Signature guarantees are not required, however, if the shares of common stock are tendered for the account of a member firm of a registered national securities exchange or of the Financial Industry Regulatory Authority, Inc., a commercial bank or trust company having an office or correspondent in the United States, or an eligible guarantor institution.
		IF YOUR INTEREST AS A HOLDER OF MEDQUIST INC. COMMON STOCK IS IN CERTIFICATED FORM, YOU MUST DELIVER THE MEDQUIST INC. COMMON STOCK CERTIFICATES TO BE EXCHANGED IN THE MANNER SPECIFIED IN THE ACCOMPANYING LETTER OF TRANSMITTAL AND A PROPERLY COMPLETED LETTER OF TRANSMITTAL.
Extensions, Termination or Amendment of the Exchange Offer		We reserve the right to extend the Exchange Offer for any reason or no reason at all. We also expressly reserve the right, at any time or from time to time, to amend the terms of the Exchange Offer in any respect prior to the expiration date. Further, we may be required by law to extend the Exchange Offer if we make a material change in the terms of the Exchange Offer or in the information contained in this prospectus or waive a material condition to the Exchange Offer. During any extension of the Exchange Offer, MedQuist Inc. common stock that was previously tendered and not validly withdrawn will remain subject to the Exchange Offer. We reserve the right, in our sole and absolute discretion, but subject to applicable law, to terminate

		the Exchange Offer at any time prior to the expiration date if any condition to the Exchange Offer is not met. If the Exchange Offer is terminated, no shares of MedQuist Inc. common stock will be accepted for purchase, and any shares of MedQuist Inc. common stock that have been tendered will be promptly returned to the holder. For more information regarding our right to extend, terminate or amend the Exchange Offer, see “The Exchange Offer and the Merger – Expiration date; extensions; termination; amendment.”
Withdrawal Rights		You may withdraw any MedQuist Inc. common stock tendered in the Exchange Offer at any time prior to the expiration date. Pursuant to Section 14(d)(5) of the Exchange Act, you may also withdraw your shares of MedQuist Inc. common stock at any time after 60 days from          , 2011, the date that the Exchange Offer was commenced, unless we have previously accepted them. If you validly request to withdraw your shares of MedQuist Inc. common stock prior to the expiration of the Exchange Offer, they will be returned without expense to you or, in the case of shares of MedQuist Inc. common stock tendered by book-entry transfer, such shares of MedQuist Inc. common stock will be credited to an account maintained at DTC, designated by the participant therein who so delivered such shares of MedQuist Inc. common stock, in each case, promptly following the expiration date or the termination of the Exchange Offer.
		For further information regarding the withdrawal of tendered MedQuist Inc. common stock, see “The Exchange Offer and the Merger – Withdrawal of tenders.”
Return of Unaccepted Shares		If any tendered shares of MedQuist Inc. common stock are not accepted for payment for any reason pursuant to the terms and conditions of the Exchange Offer, such shares will be returned without expense to the tendering holder or, in the case of shares tendered by book-entry transfer, such shares will be credited to an account maintained at DTC, designated by the participant therein who so delivered such shares, in each case, promptly following the expiration date or the termination of the Exchange Offer. Any shares not tendered in the Exchange Offer, however, will be cancelled in the Merger and you will receive the same consideration you would have received had you tendered your shares in the Exchange Offer.
No Appraisal Rights		No appraisal rights are available to holders of MedQuist Inc. common stock in connection with the Exchange Offer or the Merger.
Comparative Market Price Information		MedQuist Inc. common stock is currently traded on the OTCQB under the symbol “MEDQ.” On August 12, 2011, the last trading day before we announced this Exchange Offer, the closing price of MedQuist Inc. common stock on the OTCQB was $10.15 per share.
		Our common stock is listed on The NASDAQ Global Market under the symbol “MEDH.” On August 12, 2011, the last trading day before we announced this Exchange Offer, the closing price of our shares on The NASDAQ Global Market was $10.07.
Accounting Treatment		Assuming we acquire all shares of MedQuist Inc. common stock pursuant to the Exchange Offer and Merger, the transaction would be accounted for as an equity transaction, as we would retain control of MedQuist Inc. after the transaction.
Comparison of Rights of Holders of Our Common Stock and MedQuist Inc. Common Stock		After the completion of the Exchange Offer and the Merger, you will become a stockholder of our company and your rights as a stockholder will

		be governed by our certificate of incorporation and by-laws. There are differences between the certificates of incorporation and by-laws of MedQuist Inc. and our company. MedQuist Inc. is a New Jersey corporation and our company is a Delaware corporation, so your rights will be governed by Delaware law after the completion of the Exchange Offer. For a summary comparison of the rights of holders of our common stock and holders of MedQuist Inc. common stock, see “Comparison of Rights of Holders of Our Common Stock and MedQuist Inc. Common Stock.”
Risk Factors		The Exchange Offer and Merger are subject to a number of risks. You should consider carefully all of the information set forth in this prospectus and, in particular, you should evaluate the specific factors set forth under “Risk Factors” before deciding whether to participate in the Exchange Offer and assessing the impact of the Merger.
United States Federal Income Tax Considerations For MedQuist Inc. Common Stock Holders		We intend to take the position that the Exchange Offer will be treated for United States federal income tax purposes as part of a transaction described in Section 351(a) of the Internal Revenue Code of 1986, as amended, under which you would generally not recognize gain or loss upon the receipt of shares of our common stock in exchange for your shares of MedQuist Inc. common stock.
		In contrast, the receipt of shares pursuant to the Merger generally will be taxable to you for United States federal income tax purposes. The tax consequences to you pursuant to the Exchange Offer and Merger will depend on the facts and circumstances of your own situation. Please consult your tax adviser for a full understanding of the tax consequences to you. See “Material United States Federal Income Tax Consequences.”
Use of Proceeds		We will not receive any cash proceeds from the tender of the MedQuist Inc. common stock pursuant to the Exchange Offer or the Merger.
Brokerage Commissions		If your shares of MedQuist Inc. common stock are held through a broker or other nominee who tenders shares of MedQuist Inc. common stock on your behalf in connection with the Exchange Offer or Merger, your broker may charge you a commission for doing so.
Exchange Agent		American Stock Transfer & Trust Company, LLC has been appointed as the exchange agent for the Exchange Offer and the Merger. We have agreed to pay American Stock Transfer & Trust Company, LLC reasonable and customary fees for its services and will reimburse American Stock Transfer & Trust Company, LLC for its reasonable out-of-pocket expenses.
Information Agent		Phoenix Advisory Partners has been appointed as the information agent for the Exchange Offer and the Merger. We have agreed to pay Phoenix Advisory Partners reasonable and customary fees for its services and will reimburse Phoenix Advisory Partners for its reasonable out-of-pocket expenses.
Further Information		If you have questions regarding the procedures for tendering in the Exchange Offer or require assistance in tendering your shares of MedQuist Inc. common stock, please contact the exchange agent or the information agent. If you would like additional copies of this prospectus, our annual, quarterly, and current reports, proxy statement and other information, please contact the information agent. The contact information for the exchange agent and the information agent is set forth on the back cover of this prospectus.

	n	the Spheris Acquisition and the incurrence by MedQuist Inc. of $113.6 million of debt to finance the Spheris Acquisition;
	n	the incurrence by MedQuist Inc. of $285.0 million of indebtedness under the Senior Secured Credit Facility and Senior Subordinated Notes, the simultaneous repayment of $80.0 million of indebtedness under the Acquisition Credit Facility, the repayment of $13.6 million of indebtedness under the Acquisition Subordinated Promissory Notes, the payment of a $176.5 million special dividend to MedQuist Inc.’s shareholders, of which we received $122.6 million and the noncontrolling shareholders of MedQuist Inc. received $53.9 million, and the repayment by us, using the proceeds of such dividend of $104.1 million to extinguish our 6% Convertible Notes including a $7.7 million premium on early prepayment and $3.7 million under certain of our other lines of credit;
	n	the issuance of 4.8 million shares of our common stock in exchange for 4.8 million shares of MedQuist Inc. common stock pursuant to the terms of the Exchange Agreement with certain noncontrolling shareholders of MedQuist Inc., which increased our ownership in MedQuist Inc. from 69.5% to 82.2%;
	n	the issuance of 0.8 million shares of our common stock pursuant to the Consulting Services Agreement (as defined in “Certain Relationships and Related Party Transactions – Agreements with SAC PCG and affiliates and related transactions – Consulting Services Agreement,”);
	n	the issuance of 5.4 million shares of our common stock in exchange for 5.4 million shares of MedQuist Inc. common stock under the Initial Registered Exchange Offer. This increased our ownership in MedQuist Inc. from 82.2% to approximately 97%; and

	n	the issuance of approximately 1.2 million shares of our common stock in exchange for 1.2 million shares of MedQuist Inc. common stock under the Exchange Offer and Merger. This would increase our ownership in MedQuist Inc. from approximately 97% to 100%.

		Historical																				Pro forma
																						Year				Six months
														Six months ended								ended				ended
		Years ended December 31,												June 30,								December 31,				June 30,
		2008				2009				2010				2010				2011				2010				2011
														(Unaudited)								(Unaudited)
		(In thousands, except per share amounts)
Statement of Operations Data
Net revenues		$	171,413			$	353,932			$	417,326			$	193,592			$	219,675			$	460,697			$	219,675
Cost of revenues			113,127				229,701				259,194				124,950				130,637				290,537				130,637
Gross profit			58,286				124,231				158,132				68,642				89,038				170,160				89,038
Operating costs and expenses
Selling, general and administrative			37,282				53,089				61,062				30,099				30,267				67,225				30,267
Research and development			6,099				9,604				12,030				5,593				4,892				12,222				4,892
Depreciation and amortization			13,488				25,366				32,617				14,620				17,297				36,459				17,297
Cost (benefit) of legal proceedings, settlements and accommodations			5,311				14,943				3,605				2,152				(6,932	)			3,605				(6,932	)
Goodwill impairment charge			89,633				—				—				—				—				—				—
Acquisition and restructuring			7,726				3,973				11,079				7,011				11,269				4,184				11,269
Total operating costs and expenses			159,539				106,975				120,393				59,475				56,793				123,695				56,793
Operating income (loss)			(101,253	)			17,256				37,739				9,167				32,245				46,465				32,245
Gain on sale of investment			—				—				8,780				—				—				8,780				—
Equity in income of affiliated company			66				1,933				693				546				—				693				—
Other income			9				13				460				78				7				412				7
Loss on extinguishment of debt			—				—				(13,525	)			—				—				(13,525	)			—
Interest expense, net			(3,813	)			(9,019	)			(19,268	)			(7,306	)			(13,998	)			(29,491	)			(13,998	)
Income (loss) from continuing operations before income taxes and noncontrolling interests			(104,991	)			10,183				14,879				2,485				18,254				13,334				18,254
Income tax provision (benefit)			(5,531	)			1,012				(2,312	)			(382	)			2,030				(2,067	)			2,030
Net income (loss) from continuing operations		$	(99,460	)		$	9,171			$	17,191			$	2,867			$	16,224			$	15,401			$	16,224
Discontinued operations
Income (loss) from discontinued Patient Financial Services business, net of tax			(9,059	)			(1,351	)			556				183				—				556				—
Net income (loss)			(108,519	)			7,820				17,747				3,050				16,224				15,957				16,224
Less: Net income attributable to noncontrolling interests			(5,154	)			(7,085	)			(9,240	)			(2,497	)			(1,777	)			—				—
Net income (loss) attributable to MedQuist Holdings Inc.		$	(113,673	)		$	735			$	8,507			$	553			$	14,447			$	15,957			$	16,224
Net income (loss) per common share from continuing operations
Basic		$	(4.68	)		$	(0.02	)		$	0.14			$	(0.03	)		$	0.17			$	0.31			$	0.29
Diluted		$	(4.68	)		$	(0.02	)		$	0.14			$	(0.03	)		$	0.17			$	0.30			$	0.28
Net income (loss) per common share from discontinued operations
Basic		$	(0.40	)		$	(0.04	)		$	0.02			$	0.01			$	—			$	0.01			$	—
Diluted		$	(0.40	)		$	(0.04	)		$	0.02			$	0.01			$	—			$	0.01			$	—
Net income (loss) per common share attributable to MedQuist Holdings Inc.
Basic		$	(5.08	)		$	(0.06	)		$	0.16			$	(0.02	)		$	0.17			$	0.32			$	0.29
Diluted		$	(5.08	)		$	(0.06	)		$	0.16			$	(0.02	)		$	0.17			$	0.31			$	0.28
Weighted average shares outstanding:
Basic			22,593				34,692				35,102				35,046				45,128				47,333				49,714
Diluted			22,593				34,692				35,954				35,046				46,410				48,185				50,996
Adjusted EBITDA(1)		$	17,038			$	60,543			$	86,265			$	33,350			$	55,206			$	91,890			$	55,206

(1)	See below for reconciliations of net income (loss) attributable to MedQuist Holdings Inc. to Adjusted EBITDA. Adjusted EBITDA does not include earnings attributable to our investment in A-Life, which was sold in October 2010.

		Historical																				Pro forma
																						Year
																						ended
		Years ended December 31,																				December 31,
		2006				2007				2008				2009				2010				2010
																						(Unaudited)
Ratio of earnings to fixed charges(1)			0.88				(0.56	)			(16.12	)			1.75				1.61				1.41

Historical

Pro forma

Six months

Six months

ended

ended

June 30,

June 30,

2010

2011

2011

(Unaudited)

(Unaudited)

Ratio of earnings to fixed charges(1)

1.25

1.84

2.07

(1)

For the purposes of calculating the ratio of earnings to fixed charges, “earnings” consists of income (loss) from continuing operations before income taxes and noncontrolling interests increased by fixed charges. “Fixed charges” consists of interest expense including an estimate of the interest within rental expense and amounts payable to our principal stockholders. Earnings were insufficient to cover fixed charges in the fiscal years ended December 31, 2006, 2007 and 2008.

		As of June 30,
		2011
		Actual				Pro forma
		(Unaudited)
		(In thousands, except per share amounts)
Balance Sheet Data
Cash and cash equivalents		$	60,801			$	60,801
Working capital(a)			32,057				32,057
Current assets			159,726				159,726
Non-current assets			239,353				239,353
Total assets			399,079				399,079
Current liabilities			78,893				78,893
Non-current liabilities			266,131				266,131
Long term debt, including current portion of debt			269,832				269,832
Total equity			54,055				54,055
Book value per share		$	1.11			$	1.07

(a)	Working capital is defined as total current assets, excluding cash and cash equivalents, minus total current liabilities, excluding current portion of debt.

		Historical																				Pro forma
																										Six months
														Six months ended								Year ended				ended
		Years ended December 31,												June 30,								December 31,				June 30,
		2008				2009				2010				2010				2011				2010				2011
														(Unaudited)								(Unaudited)
														(In thousands)
Net income (loss) attributable to MedQuist Holdings Inc.		$	(113,673	)		$	735			$	8,507			$	553			$	14,447			$	15,957			$	16,224
Net income (loss) attributable to noncontrolling interests			5,154				7,085				9,240				2,497				1,777				—				—
Income tax provision (benefit)			(5,531	)			1,012				(2,312	)			(382	)			2,030				(2,067	)			2,030
Interest expense, net			3,813				9,019				19,268				7,306				13,998				29,491				13,998
Depreciation and amortization			13,488				25,366				32,617				14,620				17,297				36,459				17,297
Cost (benefit) of legal proceedings, settlements and accommodations			5,311				14,943				3,605				2,152				(6,932	)			3,605				(6,932	)
Acquisition and restructuring			7,726				3,973				11,079				7,011				11,269				4,184				11,269
Goodwill impairment charge			89,633				—				—				—				—				—				—
Equity in (income) loss of affiliated companies			(66	)			(1,933	)			(693	)			(546	)			—				(693	)			—
Gain on sale of investment			—				—				(8,780	)			—				—				(8,780	)			—
Loss on extinguishment of debt			—				—				13,525				—				—				13,525				—
(Income) loss from discontinued operations			9,059				1,351				(556	)			(183	)			—				(556	)			—
Asset impairment charges, severance charges and accrual reversals(a)			2,000				(1,864	)			—				—				—				—				—
Share based compensation and other non-cash awards			124				856				765				322				1,320				765				1,320
Adjusted EBITDA		$	17,038			$	60,543			$	86,265			$	33,350			$	55,206			$	91,890			$	55,206

(a)	Includes the write-off of amounts due from an unconsolidated affiliate of Spheris, an impairment charge to write-off the balance of an investment and the reversal of certain accruals, related to litigation claims, as a result of the expiration of the applicable statute of limitations.

	n	potential differences caused by variations in capital structures (affecting interest expense, net), tax positions (such as the impact on periods or companies for changes in effective tax rates), the age and book depreciation of fixed assets (affecting depreciation expense);
	n	the impact of non-cash charges, such as goodwill impairment charges and asset impairment charges; and
	n	the impact of acquisition related charges, restructuring charges, severance costs and certain unusual or nonrecurring items.

	n	Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
	n	Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
	n	although depreciation is a non-cash charge, the assets being depreciated will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and
	n	other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

																							Successor Company
		Predecessor Company																					For the period
														For the six months				For the period					February 12, to
		Years ended December 31,												ended June 30,				January 1, to					June 30,
		2008				2009				2010				2010				February 11, 2011					2011
														(unaudited)				(unaudited)					(unaudited)
		(In thousands, except per share amounts)
Statement of Operations Data
Net revenues		$	326,853			$	307,200			$	375,240			$	171,509			$	47,048				$	154,588
Operating costs and expenses
Cost of revenues			230,375				206,265				249,571				116,923				29,987					99,840
Selling, general and administrative			47,520				33,441				37,070				18,817				5,219					15,046
Research and development			15,848				9,604				12,813				5,593				1,302					4,244
Depreciation and amortization			17,504				15,672				21,989				9,531				2,554					12,021
Cost (benefit) of legal proceedings and settlements			19,738				14,843				3,603				2,152				174					(7,524	)
Acquisition and integration related charges			—				1,263				7,007				5,659				278					1,267
Goodwill impairment charge			82,233				—				—				—				—					—
Restructuring Charges			2,055				2,727				2,829				930				—					2,965
Total operating costs and expenses			415,273				283,815				334,882				159,605				39,514					127,859
Operating income (loss)			(88,420	)			23,385				40,358				11,904				7,534					26,729
Gain on sale of investment			—				—				9,911				—				—					—
Equity in income of affiliated company			236				2,015				693				546				—					—
Other income			438				—				—				—				—					—
Loss on extinguishment of debt			—				—				(5,811	)			—				—					—
Interest income (expense), net			2,438				(134	)			(13,429	)			(3,779	)			(3,115	)				(10,526	)
Income (loss) before income taxes			(85,308	)			25,266				31,722				8,671				4,419					16,203
Income tax provision (benefit)			(16,513	)			1,975				671				447				453					1,115
Net income (loss)		$	(68,795	)		$	23,291			$	31,051			$	8,224			$	3,966				$	15,088
Net income (loss) per common share
Basic		$	(1.83	)		$	0.62			$	0.83			$	0.22			$	0.11				$	0.40
Diluted		$	(1.83	)		$	0.62			$	0.83			$	0.22			$	0.10				$	0.40
Weighted average shares outstanding:
Basic			37,549				37,556				37,556				37,556				37,556					37,556
Diluted			37,549				37,556				37,556				37,556				37,852					37,803

		Successor Company
		As of June 30,
		2011
		(Unaudited)
		(In thousands, except per share amounts)
Balance Sheet Data
Cash and cash equivalents		$	24,383
Working capital(a)			40,050
Current assets			109,043
Non-current assets			220,694
Total assets			329,737
Current liabilities			49,610
Non-current liabilities			261,603
Long term debt, including current portion of debt			260,000
Total equity			18,524
Book value per share		$	0.49

(a)	Working capital is defined as total current assets, excluding cash and cash equivalents, minus total current liabilities, excluding current portion of debt.

	n	the results of operations or financial position which would have been achieved if the Corporate Reorganization (excluding our U.S. Initial Public Offering) and the stock issuance under the Consulting Services Agreement had occurred at the beginning of the period or as of the date indicated, or
	n	the results of operations or financial position which may be achieved in the future.

		Six months ended				Year ended
		June 30, 2011				December 31, 2010
Net income per share:
MedQuist Holdings Inc. historical basic		$	0.17			$	0.16
MedQuist Holdings Inc. historical diluted		$	0.17			$	0.16
MedQuist Holdings Inc. pro forma basic(1)		$	0.29			$	0.32
MedQuist Holdings Inc. pro forma diluted(1)		$	0.28			$	0.31
MedQuist Inc. historical basic(2)		$	0.51			$	0.83
MedQuist Inc. historical diluted(2)		$	0.50			$	0.83
MedQuist Inc. pro forma equivalent basic(3)		$	0.29			$	0.32
MedQuist Inc. pro forma equivalent diluted(3)		$	0.28			$	0.31
Cash dividends per share:
MedQuist Holdings Inc. historical			—				—
MedQuist Inc. historical			—			$	4.70
MedQuist Inc. pro forma equivalent(3)			—				—
		As of				As of
		June 30, 2011				December 31, 2010
Book value per share:
MedQuist Holdings Inc. historical		$	1.11			$	1.25
MedQuist Holdings Inc. pro forma(4)		$	1.07				N/A
MedQuist Inc. historical		$	0.49			$	(0.81	)
MedQuist Inc. pro forma equivalent(3)		$	1.07				N/A

(1)	Determined by dividing the pro forma net income by the pro forma number of weighted average shares outstanding for the year ended December 31, 2010 and the six months ended June 30, 2011.
(2)	Represents MedQuist Inc. historical net income per share. Comprised of $0.11 (basic) and $0.10 (diluted) for Predecessor Company and $0.40 for Successor Company for the six months ended June 30, 2011.
(3)	The MedQuist Inc. equivalent pro forma amounts are calculated by multiplying MedQuist Holdings Inc. pro forma combined amounts by one, which is the Exchange Ratio.
(4)	Determined by dividing the pro forma shareholders’ equity by the pro forma number of shares outstanding as of December 31, 2010 and June 30, 2011.

 

In addition to the other information included in this prospectus, including the matters addressed in “Special Note Regarding Forward-Looking Statements,” you should carefully consider the matters described below in order to assess the risks associated with tendering your shares in the Exchange Offer, the Merger and holding shares of MedQuist Holdings Inc. common stock.

 

Risks related to the Exchange Offer and the Merger

 

You will be affected by this Exchange Offer whether or not you tender your shares of MedQuist Inc. common stock.

 

Your investment in MedQuist Inc. common stock will be subject to different risks as a result of this Exchange Offer. As a holder of shares of MedQuist Inc. common stock, you will be affected by this Exchange Offer regardless of whether you tender all, some or none of your shares of MedQuist Inc. common stock in this Exchange Offer.

 

Following the completion of the Exchange Offer the Merger will be consummated, all issued and outstanding shares of MedQuist Inc. common stock not already owned by us will be converted into shares of our common stock and MedQuist Inc. will be deregistered under the Exchange Act.

 

There can be no assurances the exchange of shares pursuant to the Exchange Offer will qualify as a non-taxable exchange for U.S. federal income tax purposes.

 

We intend to take the position for U.S. federal income tax purposes that the exchange of shares of MedQuist Inc. common stock for our common stock pursuant to the Exchange Offer is part of a transaction described in Section 351(a) of the Internal Revenue Code of 1986, as amended, or “351 Exchange.” Assuming such exchange qualifies as a 351 Exchange, then, in general, U.S. holders of shares of MedQuist Inc. common stock will not recognize gain or loss for U.S. federal income tax purposes from the exchange of MedQuist Inc. common stock solely for our common stock. There is no direct tax authority for treatment of such exchange as a 351 Exchange and 351 Exchange treatment depends on numerous factors, including factors beyond our control. As a result, there can be no assurances that the exchange will qualify as a 351 Exchange. Neither we nor MedQuist Inc. has or will seek any ruling from the Internal Revenue Service regarding any matters relating to the exchange pursuant to the Exchange Offer, and as a result, there can be no assurance that the Internal Revenue Service will not disagree with or challenge our position that such exchange qualifies as a 351 Exchange. U.S. investors should discuss the tax treatment of an exchange pursuant to the Exchange Offer with their tax advisors. See “Material United States Federal Income Tax Consequences.”

 

The conversion of shares pursuant to the Merger generally will be a taxable event for U.S. federal income tax purposes.

 

The conversion of MedQuist Inc. common stock into our common stock pursuant to the Merger generally will be a taxable event for U.S. federal income tax purposes. In general, U.S. holders will recognize gain for U.S. federal income tax purposes as a result of the Merger in an amount per share equal to the difference between the closing price of our common stock on the date of the Merger and the U.S. holders’ adjusted basis in such share of MedQuist Inc. common stock. Holders should discuss the tax treatment of the Merger to them with their tax advisors. See “Material United States Federal Income Tax Consequences” for more information.

 

You may not receive any premium on the issuance of our common stock in exchange for MedQuist Inc. common stock.

 

We cannot predict whether or to what extent there will be a premium at the end of this Exchange Offer. As a result, if you tender your shares of MedQuist Inc. common stock in this Exchange Offer, you may not receive any premium. Any premium that you would receive through your participation in this Exchange Offer will depend upon a variety of factors including the market prices of shares of MedQuist Inc. common stock and our common stock at the time of the closing of this Exchange Offer, which we cannot predict. Even if you receive a premium in this

Exchange Offer, it is possible that over time, the market value of the number of shares of MedQuist Inc. common stock tendered and accepted in this Exchange Offer will exceed the market value of our common stock received in this Exchange Offer.

 

The number of shares of our common stock offered per share of MedQuist Inc. common stock in the Exchange Offer and Merger is fixed and will not be adjusted. The market price of our common stock may fluctuate, and the market price of the shares of our common stock upon settlement of the Exchange Offer or the closing of the Merger could be less than the market price at the time of this prospectus.

 

The number of shares of our common stock offered for each share of MedQuist Inc. common stock pursuant to the Exchange Offer and the Merger is fixed at the amounts specified on the cover of this prospectus and will not be adjusted regardless of any increase or decrease in the market price of our common stock or the MedQuist Inc. common stock between the date of this prospectus and the settlement date of the Exchange Offer or the closing of the Merger. Therefore, the market price of our common stock at the time you receive our common stock when we deliver our common stock in exchange for MedQuist Inc. common stock, could be less than the market price at the time of this prospectus. The market price of our common stock has recently been subject to significant fluctuations and volatility.

 

We may fail to realize all of the anticipated benefits of the Exchange Offer.

 

The primary goal of the Exchange Offer is to unify public stockholdings at a single level, which we believe could lead to greater liquidity for investors, particularly for the former holders of MedQuist Inc. common stock, due to the increased combined public float. We also believe that the unified capital structure that would result from the Exchange Offer would also facilitate the investment and transfer of funds between us and MedQuist Inc. and its subsidiaries, thereby facilitating more efficient uses of our consolidated financial resources. To the extent the challenges of unifying our corporate structure turn out to be greater than we have expected we may fail to realize these and other anticipated benefits. Our costs could also be adversely affected by our inability to fully integrate MedQuist Inc. into our consolidated operations and management structure.

 

We have not obtained a third-party determination that the Exchange Offer or the Merger is fair to holders of the MedQuist Inc. common stock.

 

We are not making a recommendation as to whether or not you should exchange your MedQuist Inc. common stock in the Exchange Offer. We have not retained, and do not intend to retain, any unaffiliated representative to act solely on behalf of the holders of the MedQuist Inc. common stock for purposes of negotiating the Exchange Offer, the Merger or preparing a report concerning the fairness of the Exchange Offer or the Merger. You must make your own independent decision regarding your participation in the Exchange Offer.

 

The Merger consideration was not determined by arms’ length negotiation and there was no formal valuation by an independent third party. Neither we, CBay Inc. or MedQuist Inc. has obtained a fairness opinion by an investment banking firm or other qualified appraiser in connection with the Merger. Because the Merger is being effected pursuant to a “short form” merger statute, the board of directors of MedQuist Inc. have not considered or made any determination as to whether the terms of the Merger are fair to, or in the best interests, of the holders of MedQuist Inc. common stock. Under the terms of the Memorandum of Understanding, or “MOU,” relating to the Shareholder Litigation, we agreed to conduct a short-form merger to acquire the remaining shares of MedQuist Inc. common stock that we do not currently own at the same exchange ratio under the Initial Registered Exchange Offer (one-for-one). On April 1, 2011, the parties executed the Stipulation of Settlement that memorialized the terms of the settlement outlined in the MOU. On June 17, 2011, the Court entered an Order and Final Judgment, or “Final Judgment,” that, among other things, found the terms set forth in the Stipulation of Settlement to be fair and reasonable and in the best interests of the Settlement Class.

We may not own 100% of the stock of MedQuist Inc. after the consummation of the Exchange Offer, which may impact our ability to consummate the Merger.

 

Unless the Exchange Offer is completed at the highest acceptance level, we will not wholly own MedQuist Inc., and our ability to gain 100% ownership of MedQuist Inc. through a short-form merger could be adversely affected by provisions of New Jersey corporate law described below, that limit certain business combinations between corporations such as MedQuist Inc. organized in New Jersey and their significant shareholders. If we do not wholly own MedQuist Inc., our interests in MedQuist Inc. could conflict with the interests of MedQuist Inc.’s remaining noncontrolling shareholders. Our costs could also be adversely affected by our inability to fully integrate MedQuist Inc. into our consolidated operations and management structure.

 

Section 14A:10A of the New Jersey Business Corporation Act, or the “NJBCA,” prohibits certain business combinations involving New Jersey corporations and an interested shareholder. An “interested shareholder” is defined generally as a shareholder who is the beneficial owner, directly or indirectly, of 10% or more of the voting power of the outstanding stock of the corporation. The NJBCA prohibits business combinations subject to the NJBCA for a period of five years after the date the interested shareholder acquired its stock, unless the transaction was approved by the corporation’s board of directors prior to the time the interested shareholder acquired its shares. After the five year period expires, the prohibition on business combinations with an interested shareholder continues unless: (i) the business combination is approved by the board of directors of the target corporation prior to the time the interested shareholder acquired its shares; (ii) the business combination is approved by a vote of two-thirds of the voting stock not owned by the interested shareholder; or (iii) the shareholder of the corporation receive a price in accordance with a fair price formula set forth in the NJBCA.

 

In August 2008, we, through our subsidiary, CBay Inc., acquired over 10% of the outstanding shares of MedQuist, Inc., a New Jersey corporation, from Royal Philips Electronics. The board of directors of MedQuist Inc. did not approve future business combinations with us, CBay Inc. or any of our affiliates prior to that acquisition for purposes of the provisions of NJBCA Section 14A:10A and, accordingly, we believe that these provisions of the NJBCA apply to CBay Inc., us and our other affiliates.

 

If we do not acquire 100% of MedQuist Inc. in the Exchange Offer, we intend, promptly following the Exchange Offer, to contribute the shares of MedQuist Inc. common stock that we then hold to CBay Inc. CBay Inc. intends, promptly following the contribution, to form a subsidiary incorporated in New Jersey, or Merger Subsidiary, and to contribute the shares of MedQuist Inc. common stock that CBay Inc. then holds to Merger Subsidiary. Merger Subsidiary will then own at least 90% of MedQuist Inc. Since Merger Subsidiary will own at least 90% of MedQuist Inc., we will be able to utilize a short-form back-end merger through Section 14A:10-5.1 of the NJBCA by which Merger Subsidiary will merge with and into MedQuist Inc. and each share of MedQuist Inc. common stock will be automatically converted into a share of our common stock. The New Jersey courts have not interpreted the ability of a corporation to effect a short-form merger in the context of Section 14A:10A since the adoption of New Jersey’s Shareholder Protection Act. Therefore, our ability to consummate the short-form merger could be challenged.

 

Failure to successfully complete the Exchange Offer could negatively affect the price of MedQuist Inc. common stock.

 

There are certain conditions that must be satisfied or waived in order to complete the Exchange Offer, including that no event has occurred that in our reasonable judgment would materially impair the anticipated benefits to us of the Exchange Offer or that has had, or could reasonably be expected to have, a material adverse effect on us, our businesses, condition (financial or otherwise) or prospects. See “The Exchange Offer and the Merger – Conditions of the Exchange Offer.” The foregoing conditions may not be satisfied, and if not satisfied or waived, the Exchange Offer may not occur or may be delayed.

 

If the Exchange Offer is not completed or is delayed, we and MedQuist Inc. may be subject to material risks, including the risk that the market price of MedQuist Inc. common stock may decline to the extent that the current market price of MedQuist Inc. common stock reflects a market assumption that the Exchange Offer has been or will be completed.

The price of our common stock may be affected by factors different from those affecting the price of common stock of MedQuist Inc.

 

If you participate in the exchange or if we complete the Merger, you will become a holder of our common stock. Our business is broader than the business of MedQuist Inc., and the results of our operations, as well as the market price of our common stock, may be affected by factors different from those affected MedQuist Inc.’s results of operations and the market price of MedQuist Inc. common stock. As a result, factors that had little or no effect on the price of MedQuist Inc.’s common stock may adversely affect the price of our common stock.

 

Our stock price may decline due to the number of shares of our common stock that could be sold in the market after the Exchange Offer or Merger.

 

The market price of our common stock could decline as a result of the large number of shares of our common stock that could be sold in the market after the Exchange Offer or Merger or the perception that such sales could occur. This also might make it more difficult for stockholders to sell shares in the future at a time and at a price they would deem appropriate.

 

We will issue approximately 1.2 million shares of our common stock between the Exchange Offer and Merger. As of August 25, 2011 there were 54.7 million shares outstanding.

 

We may issue preferred stock in the future, which may adversely affect the market price of our common stock.

 

Our board of directors is authorized to issue one or more classes or series of preferred stock from time to time without any action on the part of the stockholders. Our board of directors also has the power, without stockholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights, conversion rights and preferences over our common stock with respect to dividends or upon our dissolution, winding up and liquidation and other terms. If we issue preferred shares in the future that are convertible into common stock, have a preference over our common stock with respect to the payment of dividends or upon liquidation, or if we issue preferred shares with voting rights that dilute the voting power of our common stock, the rights of holders of our common stock or the market price of our common stock could be adversely affected.

 

The shares of our common stock to be received by MedQuist Inc. shareholders will have different rights from the shares of MedQuist Inc. common stock.

 

Upon receipt of shares of MedQuist Holdings Inc. common stock pursuant to the Exchange Offer or the Merger, MedQuist Inc. shareholders will become MedQuist Holdings Inc. stockholders and their rights as stockholders will be governed by the certification of incorporation and bylaws of MedQuist Holdings Inc. Certain of the rights associated with MedQuist Holdings Inc. are different from the rights associated with MedQuist Inc. common stock. See “Comparison of Rights of Holders of Our Common Stock and MedQuist Inc. Common Stock.”

 

Risks related to our business

 

Integration of our acquired MultiModal business may be costly and may cause disruption to the existing business operations.

 

On August 18, 2011, we completed our acquisition of MultiModal. On the closing date of the acquisition we paid an aggregate of approximately $48.4 million in cash to MultiModal’s shareholders, optionholders and other third parties and issued an aggregate of 4,134,896 shares of our common stock (the “Shares”) to certain of MultiModal’s shareholders. We are also obligated to pay up to approximately $28.8 million of additional cash consideration in three installments of approximately $16.3 million, $4.8 million and $7.7 million, respectively, following the first, second and third anniversaries of the closing date of the acquisition. Also on the closing date of the acquisition, we granted to certain of MultiModal’s employees that became employees of ours up to $10 million of restricted shares of our common stock. The costs to acquire and integrate MultiModal may limit the our ability to pursue other growth opportunities, unless additional capital can be obtained. The successful integration of independent businesses like us and MultiModal is a complex, costly, and time-consuming process

that, even with proper planning and implementation, could significantly disrupt the business of MultiModal and our other operations. Achieving anticipated synergies and other benefits of the acquisition is subject to a number of uncertainties, including the timely integration of technology, operations and personnel of the two businesses. The challenges involved in this integration include:

 

 

Failure to successfully integrate the MultiModal business may reduce or eliminate the anticipated benefits of the MultiModal acquisition, which in turn could result in increased costs, decreased revenues, and diversion of management’s time and energy and could materially impact MedQuist’s, MultiModal’s and the combined businesses’ financial condition and results of operations, as well as the market price of MedQuist common stock.

 

We compete with many others in the market for clinical documentation solutions which may result in lower prices for our services, reduced operating margins and an inability to maintain or increase our market share.

 

We compete with other outsourced clinical documentation solutions companies in a highly fragmented market that includes national, regional and local service providers, as well as service providers with global operations. These companies have services that are similar to ours, and certain of these companies are substantially larger or have significantly greater financial resources than we do. We also compete with the in-house medical transcription staffs of our customers and potential customers. There can be no assurance that we will be able to compete effectively against our competitors or timely implement new products and services. Many of our competitors attempt to differentiate themselves by offering lower priced alternatives to our outsourced medical transcription services and customers could elect to utilize less comprehensive solutions than the ones we offer due to the lower costs of those competitive products. Some competition may even be willing to accept less profitable business in order to grow revenue. Increased competition and cost pressures affecting the healthcare markets in general may result in lower prices for our services, reduced operating margins and the inability to maintain or increase our market share.

 

Many of MultiModal’s speech recognition customer contracts and vendor agreements can be terminated by its customers and vendors, respectively, which could have a materially negative impact on our speech recognition business.

 

Due to the closing of our recent acquisition of MultiModal, many of MultiModal’s speech recognition customer contracts and vendor agreements can be terminated by its customers and vendors, respectively. Many of MultiModal’s speech recognition customers are direct competitors of our medical transcription business and may feel threatened by our acquisition of MultiModal. We continue to have discussions with these customers and vendors in order to retain their business and services, respectively. If certain customers or vendors terminate their contracts with us, our speech recognition business could be materially impacted in a negative way.

 

Speech recognition and natural language understanding technologies may not achieve widespread acceptance, which could limit our ability to grow our business.

 

Our business is primarily focused on, and we continue to invest heavily in, the development and marketing of speech recognition and natural language understanding technologies. The market for such technologies is relatively new and rapidly evolving. Our ability to increase revenue in the future depends in large measure on the acceptance of these technologies in general and our products in particular. The continued development of the market for our current and future speech understanding solutions will also depend on:

 

 

Licensing of our products would be harmed if the market for these technologies does not continue to develop or develops slower than we expect, and, consequently, our business could be harmed.

 

Our business is dependent upon the continued demand for transcription services. If EHR companies produce alternatives to medical transcription that reduce the need for transcription, the demand for our solutions could be reduced.

 

EHR companies’ solutions for the collection of clinical data typically require physicians to directly enter and organize patient information through “point-and-click” templates which attempt to reduce or eliminate the need for transcription. A second alternative to conventional transcription involves a physician dictating a record of patient encounters and receiving a speech-recognized draft of their dictation, which the physician can self-edit. There is significant uncertainty and risk as to the demand for, and market acceptance of, these solutions for the creation of electronic clinical documentation. In the event that these and other solutions are successful and gain wide acceptance, the demand for our solutions could be reduced and our business, financial condition and results of operations could be adversely affected.

 

Our growth is dependent on the willingness of new customers to outsource and adopt our technology platforms.

 

We plan to grow, in part, by capitalizing on perceived market opportunities to provide our services to new customers. These new customers must be willing to outsource functions which may otherwise have been performed within their organizations, adopt new technologies and incur the time and expense needed to integrate those technologies into their existing systems. For example, the up-front cost and time involved in changing medical transcription providers or in converting from an in-house medical transcription department to an outsourced provider may be significant. Many customers may prefer to remain with their current provider or keep their transcription in-house rather than invest the time and resources required for the implementation of a new system. Also, as the maintenance of accurate medical records is a critical element of a healthcare provider’s ability to deliver quality care to its patients and to receive proper and timely reimbursement for the services it renders, potential customers may be reluctant to outsource or change providers of such an important function.

 

Our success will depend on our ability to support existing technologies as well as to adopt and integrate new technology into our workflow platforms.

 

Our ability to remain competitive in the clinical documentation industry is based, in part, on our ability to develop, utilize and support technology in the services and solutions that we provide to our customers. As our customers advance technologically, we must be able to effectively integrate our solutions with their systems and provide advanced data collection technology. We also may need to develop technologies to provide service systems comparable to those of our competitors as they develop new technology. If we are unable to effectively develop and integrate new technologies, we may not be able to compete effectively with our competitors. In addition, if the cost of developing and integrating new technologies is high, we may not realize our expected return on investment.

 

Technology innovations in the markets that we serve may create alternatives to our products and result in reduced sales.

 

Technology innovations to which our current and potential customers might have access could reduce or eliminate their need for our products. A new or other disruptive technology that reduces or eliminates the use of one or more of our products could negatively impact the sale of these products. Our failure to develop, introduce or enhance products able to compete with new technologies in a timely manner could have an adverse effect on our business, results of operation and financial condition.

 

Many of our customer contracts are terminable at will by our customers, and our ability to sustain and grow profitable operations is dependent upon the ability to retain customers.

 

Many of our medical transcription contracts can be terminated at will by our customers. If a significant number of our customers were to cancel or materially change their medical transcription commitments with us, we could

have significantly decreased revenue, which would harm our business, operating results and financial condition. We must, therefore, engage in continual operational support and sales efforts to maintain revenue stability and future growth with these customers. If a significant number of our customers terminate or fail to renew their medical transcription contracts with us, our business could be negatively impacted if additional business is not obtained to replace the business which was lost.

 

Customer retention is largely dependent on providing quality service at competitive prices. Customer retention may be impacted by events outside of our control, such as changes in customer ownership, management, financial condition and competitors’ sales efforts. If we experience a higher than expected rate of customer attrition the resulting loss of business could adversely affect results of operations and financial condition.

 

Our indebtedness could adversely affect our ability to raise additional capital to fund our operations and limit our ability to pursue our growth strategy or to react to changes in the economy or our industry, and our debt obligations include restrictive covenants which may restrict our operations or otherwise adversely affect us.

 

As of June 30, 2011 we had approximately $269.8 million of indebtedness outstanding, consisting of $175.0 million of Term Loan debt under our Senior Secured Credit Facility, $85.0 million of Senior Subordinated Notes and other indebtedness consisting of capital leases and borrowings under other credit facilities, and we may incur additional indebtedness in the future. For the years 2011 through 2014, assuming no change in our indebtedness, we will have average, annual payment obligations of approximately $20.0 million for the principal amount of our indebtedness. Our net interest expense for the year ended December 31, 2010 and the six months ended June 30, 2011 was $19.3 million and $14.0 million, respectively. Our variable rate indebtedness bears interest at LIBOR plus 5.50% with a LIBOR floor of 1.75%. Because the LIBOR floor is currently in effect, a 1.25% increase in LIBOR above current LIBOR levels would not increase our effective interest rate. At June 30, 2011, a 1.0% increase in the interest rate above this floor would impact our interest expense by approximately $1.75 million. This indebtedness could have important negative consequences to our business, including:

 

 

In addition, under our debt financing agreements, we must abide by certain financial and other restrictive covenants that, among other things, require us to maintain a minimum consolidated interest coverage ratio, a maximum total leverage ratio and a maximum consolidated senior leverage ratio. Upon a breach of any of the covenants in our debt financing agreements, the lenders could declare us to be in default and could further require any outstanding borrowings to be immediately due and payable, and terminate all commitments to extend further credit.

 

The deterioration of the credit and capital markets may adversely affect our access to sources of funding.

 

We rely on our credit facilities to fund a portion of our working capital needs and other general corporate purposes. If any of the banks in the syndicates backing these facilities were unable to perform on its commitments, our liquidity could be impacted, which could adversely affect funding of working capital requirements and other general corporate purposes. In the event that we need to access the capital markets or other sources of financing,

there can be no assurance that we will be able to obtain financing on acceptable terms or within an acceptable time, if at all. Our inability to obtain financing on terms and within a time acceptable to us could have an adverse impact on our operations, financial condition, and liquidity.

 

Our ability to expand our business depends on our ability to effectively manage our domestic and offshore production capacity, which we may not be able to do.

 

Our success depends, in part, upon our ability to effectively manage our domestic and offshore production capacity, including our ability to attract and retain qualified MTs and MEs who can provide accurate medical transcription. We must also effectively manage our offshore transcription labor pool, which is currently located in India. If the productivity of our Indian employees does not outpace any increase in wages, our profits could suffer. Because medical transcription is a skilled position in which experience is valuable, we require that our MTs and MEs have substantial experience or receive substantial training before being hired. Competition may force us to increase the compensation and benefits paid to our MTs and MEs, which could reduce our operating margins and profitability.

 

If we fail to comply with contractual obligations and applicable laws and regulations governing the handling of patient identifiable medical information, we could suffer material losses or be adversely affected by exposure to material penalties and liabilities.

 

As part of the operation of our business, our customers provide us with certain patient identifiable medical information. Although many regulatory and governmental requirements do not directly apply to our operations, we and our hospital and other healthcare provider customers must comply with a variety of requirements related to the handling of patient information, including laws and regulations protecting the privacy, confidentiality and security of protected health information, or “PHI.” Most of our customers are covered entities under the Health Insurance Portability and Accountability Act of 1996, or “HIPAA,” and, in many of our relationships, we function as a business associate. The provisions of HIPAA, require our customers to have business associate agreements with us under which we are required to appropriately safeguard the PHI we create or receive on their behalf. Further, we and our customers are required to comply with HIPAA security regulations that require us and them to implement certain administrative, physical and technical safeguards to ensure the confidentiality, integrity and availability of electronic PHI, or “EPHI.” We are required by regulation and contract to protect the security of EPHI that we create, receive, maintain or transmit for our customers consistent with these regulations. To comply with our regulatory and contractual obligations, we may have to reorganize processes and invest in new technologies. We also are required to train personnel regarding HIPAA requirements. If we, or any of our MTs, MEs or subcontractors, are unable to maintain the privacy, confidentiality and security of the PHI that is entrusted to us, we and/or our customers could be subject to civil and criminal fines and sanctions and we could be found to have breached our contracts with our customers.

 

We are bound by business associate agreements with covered entities that require us to use and disclose PHI in a manner consistent with HIPAA in providing services to those covered entities. The HITECH Act, which was enacted into law on February 17, 2009 as part of ARRA, enhances and strengthens the HIPAA privacy and security standards and makes certain provisions applicable to “business associates” of covered entities. As of February 17, 2010, some provisions of HIPAA apply directly to us. In addition, the HITECH Act creates new security breach notification requirements. The direct applicability of the new HIPAA Privacy and Security provisions will require us to incur additional costs and may restrict our business operations. In addition, these new provisions will result in additional regulations and guidance issued by the United States Department of Health and Human Services and will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our customers.

 

Since February 17, 2010, we have been directly subject to HIPAA’s criminal and civil penalties for breaches of our privacy and security obligations.

 

Security and privacy breaches in our systems may damage customer relations and inhibit our growth.

 

The uninterrupted operation of our hosted solutions and the confidentiality and security of third-party information is critical to our business. Any failures or perceived failures in our security and privacy measures could have a

material adverse effect on our financial position and results of operations. If we are unable to protect, or our customers perceive that we are unable to protect, the security and privacy of our electronic information, our growth could be materially adversely affected. A security or privacy breach may:

 

 

While we believe that we use proven applications designed for data security and integrity to process electronic transactions, there can be no assurance that our use of these applications will be sufficient to address changing market conditions or the security and privacy concerns of existing and potential customers.

 

Recent and proposed legislation and possible negative publicity may impede our ability to utilize offshore production capabilities.

 

Certain state laws that have recently been enacted and bills introduced in recent sessions of the U.S. Congress seek to restrict the transmission of personally identifiable information regarding a U.S. resident to any foreign affiliate, subcontractor or unaffiliated third party without adequate privacy protections or without providing notice of the transmission and an opportunity to opt out. Some of the proposals would require patient consent. If enacted, these proposed laws would impose liability on healthcare businesses arising from the improper sharing or other misuse of personally identifiable information. Some proposals would create a private civil cause of action that would allow an injured party to recover damages sustained as a result of a violation of the new law. A number of states have also considered, or are in the process of considering, prohibitions or limitations on the disclosure of medical or other information to individuals or entities located outside of the U.S. Further, as a result of concerns regarding the possible misuse of personally identifiable information, some of our customers have contractually limited our ability to use MTs and MEs located outside of the U.S. The effect of these proposals would be to limit our ability to utilize our lower-cost offshore production facilities for affected customers, which could adversely affect our operating margins.

 

Any change in legislation, regulation or market practices in the United States affecting healthcare or healthcare insurance may materially adversely affect our business and results of operations.

 

Over the past twenty years the U.S. healthcare industry has experienced a variety of regulatory and market driven changes to how it is operated and funded. Further changes, whether by government policy shift, insurance company changes or otherwise, may happen, and any such changes may adversely affect the U.S. healthcare information and services market. As business process outsourcing and “off-shoring” have grown in recent years, concerns have also grown about the impact of these phenomena on jobs in the United States. These concerns could drive government policy in a way which is disadvantageous to us. Further, if government regulation or market practices leads to fewer individuals seeking medical treatment, we could experience a decline in our processed volumes.

 

Our business, financial condition and results of operations could be adversely affected by the political and economic conditions in India.

 

A significant portion of our operations is located in India. Multiple factors relating to our Indian operations could have a material adverse effect on our business, financial condition and results of operations. These factors include:

 

 

In addition, the Indian economy may differ favorably or unfavorably from other economies in several respects, including the growth rate of Gross Domestic Product, or “GDP,” the rate of inflation, resource self-sufficiency and balance of payments position. The Indian government has traditionally exercised and continues to exercise a significant influence over many aspects of the Indian economy. Further actions or changes in policy, including taxation, of the Indian central government or the respective Indian state governments could have a significant effect on the Indian economy, which could adversely affect private sector companies, market conditions and the success of our operations.

 

U.S. and Indian transfer pricing regulations require that any international transactions involving associated enterprises are undertaken at an arm’s length price. Applicable income tax authorities review our tax returns and if they determine that the transfer prices we have applied are not appropriate, we may incur increased tax liabilities, including accrued interest and penalties, which would cause our tax expense to increase, possibly materially, thereby materially reducing our profitability and cash flows. Indian tax authorities reviewed our transfer pricing practices at Spheris India Pvt. Ltd. for tax years ended March 2004 and 2005, prior to our ownership of Spheris, and concluded that the transfer price was not at arms’ length. They assessed additional taxes for these years, which we have paid or fully reserved. However, we continue to dispute this assessment and the matter is currently under appeal.

 

We are exposed to fluctuations of the value of the Indian Rupee against the U.S. dollar, which could adversely affect our operations.

 

Although our accounts are prepared in U.S. dollars, much of our operations are carried out in India with payments to staff and suppliers made in Indian Rupees. The exchange rate between the Indian Rupee and the U.S. dollar has changed substantially and could fluctuate in the future. Movements in the rate of exchange between the Indian Rupee and the U.S. dollar could result in increases or decreases in our costs and earnings, and may also affect the book value of our assets located outside the United States and the amount of our equity.

 

We are highly dependent on certain key personnel and the loss of any or all of these key personnel may have an adverse impact upon future performance.

 

Our operations and future success are dependent upon the existence and expertise in this sector of certain key personnel. The loss of services of any of these individuals for any reason or our inability to attract suitable replacements would have a material adverse effect on the financial condition of our business and operations.

 

We have grown, and may continue to grow, through acquisitions, which could dilute existing stockholders and could involve substantial integration risks.

 

As part of our business strategy, we have in the past acquired, and expect to continue to acquire, other businesses and technologies. We may issue equity securities for future acquisitions, which would dilute existing stockholders, perhaps significantly depending on the terms of the acquisition. We may also incur additional debt in connection with future acquisitions, which may place additional restrictions on the ability to operate the business. Furthermore, prior acquisitions have required substantial integration and management efforts. Acquisitions involve a number of risks, including:

 

 

As a result of these and other risks, we may not realize anticipated benefits from acquisitions. Any failure to achieve these benefits or failure to successfully integrate acquired businesses and technologies could materially and adversely affect our business and results of operations.

 

We are subject to additional regulatory compliance requirements, including section 404 of the Sarbanes-Oxley Act of 2002. If we fail to maintain an effective system of internal controls, our reputation and our business could be harmed.

 

As a U.S. public company, our ongoing compliance with various rules and regulations, including the Sarbanes-Oxley Act of 2002, will increase our legal and finance compliance costs and will make some activities more time-consuming and costly. These rules and requirements may be modified, supplemented or amended from time to time. Implementing these changes may take a significant amount of time and may require specific compliance training of our personnel. For example, Section 404 of the Sarbanes-Oxley Act requires that our management report on, and our independent auditors attest to, the effectiveness of our internal control over financial reporting in our annual reports filed with the SEC. Section 404 compliance may divert internal resources and will take a significant amount of time and effort to complete. We may not be able to successfully complete the procedures and certification and attestation requirements of Section 404 by the time we will be required to do so. If we fail to do so, or if in the future our Chief Executive Officer, Chief Financial Officer or independent registered public accounting firm determines that our internal controls over financial reporting are not effective as defined under Section 404, we could be subject to sanctions or investigations by The NASDAQ Stock Market, the SEC, or other regulatory authorities. As a result, investor perceptions of our company may suffer, and this could cause a decline in the market price of our common stock. Irrespective of compliance with these rules and regulations, including the requirements under the Sarbanes-Oxley Act, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our business and reputation. If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial reporting or financial results and could result in an adverse opinion on internal controls from our independent auditors.

 

The historical and unaudited pro forma financial information included elsewhere in this prospectus may not be representative of our results as a combined company after the Spheris Acquisition, and accordingly, you have limited financial information on which to evaluate the combined company and your investment decision.

 

We and Spheris operated as separate companies prior to the Spheris Acquisition. We have had no prior history as a combined company and our operations have not previously been managed on a combined basis. The pro forma financial information included elsewhere in this prospectus, which was prepared in accordance with Article 11 of the SEC’s Regulation S-X, is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations that would have actually occurred had the Spheris Acquisition been completed at or as of the dates indicated, nor is it indicative of the future operating results or financial position of the combined company. The unaudited pro forma condensed combined consolidated statement of operations does not reflect future events that may occur after the Spheris Acquisition, including the potential realization of operating cost savings (synergies) or restructuring activities or other costs related to the planned integration of Spheris, and do not consider potential impacts of current market conditions on revenues, expense efficiencies or asset dispositions. The pro forma financial information presented in this prospectus is based in part on certain assumptions regarding the Spheris Acquisition that we believe are reasonable under the circumstances. We cannot assure you that our assumptions will prove to be accurate over time.

Our ability to use our net operating loss carryforwards may be limited.

 

As of December 31, 2010, we had approximately $102 million of federal net operating loss, or “NOL,” carryforwards to offset future taxable income, which will begin to expire in 2025 if not utilized, and approximately $286 million of state NOLs. Under the relevant federal and state tax provisions currently in effect, certain substantial cumulative changes in our ownership may further limit the amount of NOL carryforwards that can be utilized annually in the future to offset taxable income. Section 382 of the Internal Revenue Code of 1986, as amended, or the “Code,” imposes limitations on a company’s ability to use NOL carryforwards if such company experiences a more-than-50-percent ownership change, or an ownership shift, over a three-year testing period. We believe that, as a result of our initial public offering or as a result of future issuances of capital stock, it is possible that such an ownership change may occur. If we experience an ownership change, our ability to use our United States federal and state NOL carryforwards in any future periods may be restricted. If we are limited in our ability to use our NOL carryforwards, we will pay more taxes than if we were able to utilize such NOL carryforwards fully. As a result, any inability to use our NOL carryforwards could adversely affect our financial condition and results of operations.

 

Our largest stockholder may exercise significant control over our company.

 

Affiliates of SAC PCG, our largest stockholder, beneficially own in the aggregate shares representing approximately 32% of our outstanding capital stock. Furthermore, we have entered into a Stockholders Agreement with affiliates of SAC PCG pursuant to which they have the right to nominate to our board three, two or one directors for so long as they own at least 20%, 10% or 5% of our voting power, respectively. This concentration of ownership of our shares and the Stockholders Agreement could delay or prevent proxy contests, mergers, tender offers, open-market purchase programs or other purchases of shares of our common stock that might otherwise give you the opportunity to realize a premium over the then-prevailing market price of our common stock. This concentration of ownership may also adversely affect our stock price.

 

Our certificate of incorporation contains a provision renouncing our interest and expectancy in certain corporate opportunities, which could adversely affect our business or prospects.

 

Our certificate of incorporation provides that we will renounce any interest or expectancy in, or in being offered an opportunity to participate in, any business opportunity that may be from time to time presented to (i) members of our board of directors who are not our employees, (ii) their respective employers and (iii) affiliates of the foregoing (other than us and our subsidiaries), other than opportunities expressly presented to such directors solely in their capacity as our director. This provision will apply even if the opportunity is one that we might reasonably have pursued or had the ability or desire to pursue if granted the opportunity to do so. Furthermore, no such person will be liable to us for breach of any fiduciary duty, as a director or otherwise, by reason of the fact that such person pursues or acquires any such business opportunity, directs any such business opportunity to another person or fails to present any such business opportunity, or information regarding any such business opportunity. None of such persons or entities will have any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as us or any of our subsidiaries. See “Description of Capital Stock.”

 

For example, affiliates of our non-employee directors may become aware, from time to time, of certain business opportunities such as acquisition opportunities and may direct such opportunities to other businesses in which they have invested or advise, in which case we may not become aware of or otherwise have the ability to pursue such opportunities. Further, such businesses may choose to compete with us for these opportunities. As a result, our renouncing our interest and expectancy in any business opportunity that may be from time to time presented to such persons or entities could adversely impact our business or prospects if attractive business opportunities are procured by such persons or entities for their own benefit rather than for ours.

Risks related to our intellectual property and technology

 

We are dependent on third party speech recognition software incorporated in certain of our technologies, and the inability to maintain, support or enhance such third party software over time could harm our business.

 

We license certain speech recognition software from a third party, which is a competitor, which we incorporate into several of our key products and solutions. Our ability to continue to sell and support these products and solutions depends on continued support from this licensor. If we were to experience the loss of this license, the portion of our business that relies on this software would be adversely affected while we transitioned it to our speech recognition software. There can be no assurance that such third party licensor will continue to invest the appropriate levels of resources in the software to maintain and enhance the capabilities of the software and if such third party licensor does not continue to develop its products, the development of our solutions to meet the requirements of our customers and potential customers could be adversely affected.

 

Our use of open source and third-party software could impose unanticipated conditions or restrictions on our ability to commercialize our solutions.

 

We incorporate open source software into our speech recognition software workflow solutions platforms and other software solutions. Open source software is accessible, usable and modifiable by anyone, provided that users and modifiers abide by certain licensing requirements. Under certain conditions, the use of some open source code to create derivative code may obligate us to make the resulting derivative code available to others at no cost. The circumstances under which our use of open source code would compel us to offer derivative code at no cost are subject to varying judicial interpretations, and we cannot guarantee that a court would not require certain of our core technology be made available as open source code. The use of such open source code may also ultimately require us to take remedial action, such as replacing certain code used in our products, paying a royalty to use some open source code, making certain proprietary source code available to others or discontinuing certain products, any of which may divert resources away from our development efforts.

 

We may also find that we need to incorporate certain proprietary third-party technologies, including software programs, into our products in the future. Licenses to relevant third-party technologies may not be available to us on commercially reasonable terms, or at all. Therefore, we could face delays in product releases until equivalent technology can be identified, licensed or developed and integrated into our current products. Such delays could materially adversely affect our business, operating results and financial condition.

 

Our business depends on the reliable and secure operation of our computer hardware, software, Internet applications and data centers.

 

A substantial portion of our business involves the transfer of large amounts of data to and from our workflow platforms. These workflow platforms, and their underlying technologies, are designed to operate and to be accessible by our customers 24 hours a day, seven days a week. Network and information systems, the Internet and other technologies are critical to our business activities. We have periodically experienced short term outages with our workflow platforms that have not significantly disrupted our business. However, a long term outage could adversely affect our ability to provide service to our customers.

 

We also perform data center and/or hosting services for certain customers, including the storage of critical patient and administrative data. Failure of public power and backup generators, impairment of telecommunications lines, a “concerted denial of service cyber attack,” damage (environmental, accidental, intentional or pandemic) to the buildings, the equipment inside the buildings housing our data centers, the customer data contained therein and/or the personnel trained to operate such facilities could cause a disruption in operations and negatively impact customers who depend on us for data center and system support services. Any interruption in operations at our data centers and/or customer support facilities could damage our reputation, cause us to lose existing clients, hurt our ability to obtain new customers, result in revenue loss, create potential liabilities for our customers and us and increase insurance and other operating costs.

Speech software products and services are not 100% accurate, and we could be subject to claims related to the performance of our products and services. Any claims, whether successful or unsuccessful, could result in significant costs and could damage our reputation.

 

Speech recognition and natural language understanding technologies, including our own, are not accurate in every instance. Our customers, including hospital systems and medical transcription service organizations, or MTSOs, use our products to provide important clinical documentation services to their customers. Any misrecognition of voice commands in connection with these services could result in claims against our customers or us for losses incurred. Although our contracts usually contain provisions designed to limit our exposure to such liability claims, a claim brought against us based on misrecognition, even if unsuccessful, could be time-consuming, divert management’s attention from our business operations, result in costly litigation and harm our reputation. If any such claim is successful, we could be exposed to an award of substantial damages and our reputation could be harmed greatly. Moreover, existing or future laws or unfavorable judicial decisions could limit the enforceability of limitations of liability, disclaimers of warranty or other protective provisions contained in many, but not all of, our contracts.

 

Third-party intellectual property rights may limit the development and protection of our intellectual property, which could adversely affect our competitive position.

 

Our success is dependent, in large part, on our ability to: obtain patent protection for our products and processes; preserve our trade secrets and propriety technology; and operate without infringing upon the patents or other proprietary rights of third parties. The speech recognition and natural language understanding industry has been characterized by extensive litigation regarding patents and other intellectual property rights. Companies in the speech recognition and natural language understanding industry have employed intellectual property litigation to gain a competitive advantage. Certain competitors and potential competitors of ours may have obtained patents which purport to cover the application of certain technologies that could be used for our products. We have not been a party to any suits asserting patent infringement against us. In addition, international patents may not be interpreted in the same manner as any counterpart United States patent.

 

Costly and protracted litigation may be necessary to protect our intellectual property rights.

 

We may have to engage in time consuming and costly litigation to protect our intellectual property rights or to determine the proprietary rights of third-parties and others. In addition, we may become subject to patent infringement claims or litigation, or interference proceedings declared by the United States Patent and Trademark Office to determine the priority of inventions. Defending and prosecuting intellectual property suits, United States Patent and Trademark Office interference proceedings and related legal and administrative proceedings are both costly and time-consuming. We may be required to litigate further to:

 

 

Any litigation or interference proceedings may result in substantial expense and significant diversion of effort by technical and management personnel. If the results of such litigation or interference proceedings are adverse to us, then the results may:

 

 

Although patent and intellectual property disputes are often settled through licensing and similar arrangements, costs associated with such arrangements may be substantial and could include ongoing royalties. Furthermore, we may not be able to obtain the necessary licenses on satisfactory terms, if at all.

 

Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from further developing and/or selling our products. This could result in substantial harm to our business and our business may not be able to sustain such a loss.

 

Risks related to our common stock

 

Our stock price may fluctuate significantly.

 

The stock market, particularly in recent years, has experienced significant volatility, and the volatility of stocks often does not relate to the operating performance of the companies represented by the stock. The market price of our common stock could be subject to significant fluctuations because of general market conditions and because of factors specifically related to our businesses. Factors that could cause volatility in the market price of our common stock include:

 

 

These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management.

 

Provisions of Delaware law and our charter documents could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders, and could make it more difficult for you to change management

 

Provisions of Delaware law and our certificate of incorporation and by-laws may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions may also prevent or delay attempts by stockholders to replace or remove our current management or members of our board of directors. These provisions include:

 

 

In addition, we are subject to Section 203 of the Delaware General Corporation Law, which limits business combination transactions with stockholders of 15% or more of our outstanding voting stock that our board of

directors has not approved. These provisions and other similar provisions make it more difficult for stockholders or potential acquirers to acquire us without negotiation. These provisions may apply even if some stockholders may consider the transaction beneficial to them.

 

As a result, these provisions could limit the price that investors are willing to pay in the future for shares of our common stock. These provisions might also discourage a potential acquisition proposal or tender offer, even if the acquisition proposal or tender offer is at a premium over the then current market price for our common stock.

 

If equity research analysts do not publish research or reports about our business, or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.

 

The trading market for our common stock will rely in part on the research and reports that equity research analysts publish about us and our business. The price of our common stock could decline if one or more securities analysts downgrade our common stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.

 

We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

 

We do not intend to pay any cash dividends on our common stock for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth, including growth through acquisitions. The payment of any future dividends will be determined by the board of directors in light of conditions then existing, including our earnings, financial condition and capital requirements, business conditions, corporate law requirements and other factors. See “Dividend Policy.”

 

This prospectus contains “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical facts included in this prospectus, including statements regarding our future financial position, economic performance and results of operations, as well as our business strategy, and projected costs and plans and objectives of management for future operations, and the information referred to under “Management’s Discussion and Analysis of Financial Condition and Results of Operations of MedQuist Holdings Inc.,” are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” or similar terminology.

 

Such forward-looking statements include but are not limited to statements regarding:

 

 

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. Forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, you are cautioned that any forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although we believe that the expectations reflected in our forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. Unless otherwise required by law, and except for any material updates or revisions to the forward-looking statements made in this prospectus occurring during the pendency of the Exchange Offer and Merger, we disclaim any obligation to update our view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this prospectus.

 

All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.

 

Recapitalization Transactions

 

On October 1, 2010, MedQuist Inc., as borrower, and our subsidiaries, MedQuist Transcriptions, Ltd. and CBay Inc., as co-borrowers and guarantors, and we and certain of our other subsidiaries, as guarantors, entered into the Senior Secured Credit Facility with General Electric Capital Corporation, as administrative agent, and the lenders party thereto, providing for (i) a $200.0 million Term Loan and (ii) a $25.0 million revolving credit facility, or “Revolving Credit Facility.” On September 30, 2010, MedQuist Inc., as issuer, and our subsidiaries, MedQuist Transcriptions, Ltd. and CBay Inc., as co-issuers and guarantors, and we and certain of our other subsidiaries, as guarantors, entered into a Note Purchase Agreement with BlackRock Kelso Capital Corporation, PennantPark Investment Corporation, Citibank, N.A., and THL Credit, Inc. providing for the issuance of $85.0 million aggregate principal amount of 13% Senior Subordinated Notes due 2016. Interest on the Senior Subordinated Notes is payable in quarterly installments at the issuers’ option at either (i) 13% in cash or (ii) 12% in cash plus 2% in the form of additional Senior Subordinated Notes. See “Description of Indebtedness” for a more detailed description of the Senior Secured Credit Facility and the Senior Subordinated Notes.

 

The closing and funding of the Term Loan and the Senior Subordinated Notes occurred on October 14, 2010. MedQuist Inc. used the proceeds to repay $80.0 million of indebtedness under its Acquisition Credit Facility, to repay $13.6 million of indebtedness under the Acquisition Subordinated Promissory Note it issued in connection with the Spheris Acquisition and to pay a $176.5 million special dividend to its shareholders. We received $122.6 million of this special dividend and used $104.1 million to redeem our 6% Convertible Notes, and $3.7 million to extinguish certain other lines of credit.

 

Private Exchange

 

On September 30, 2010, we entered into an exchange agreement with certain of MedQuist Inc.’s noncontrolling shareholders that held in the aggregate approximately 12.7% of MedQuist Inc.’s outstanding shares. Pursuant to the exchange agreement, those MedQuist Inc. shareholders received one share of our common stock for each MedQuist Inc. share and entered into a stockholders agreement with us that, among other things, provides them with registration rights and contains provisions regarding their voting in the election of our directors. The closing under the exchange agreement occurred on February 11, 2011 and increased our ownership in MedQuist Inc. from 69.5% to 82.2%.

 

Initial Registered Exchange Offer

 

In addition to the Private Exchange referred to above, in February 2011, we commenced our Initial Registered Exchange Offer to those noncontrolling MedQuist Inc. shareholders who did not participate in the Private Exchange to exchange shares of our common stock for shares of MedQuist Inc. common stock. The Initial Registered Exchange Offer expired on March 11, 2011. We accepted and consummated the exchange of MedQuist Inc. shares of common stock that were validly tendered in the Initial Registered Exchange Offer. As a result of the Initial Registered Exchange Offer, we increased our ownership in MedQuist Inc. from 82.2% to approximately 97%.

 

Our U.S. Initial Public Offering

 

The U.S. initial public offering of our common stock closed on February 9, 2011. Our common stock is listed on The NASDAQ Global Market under the symbol “MEDH.”

 

Redomiciliation and Share Conversion

 

On January 27, 2011, we changed our name from CBaySystems Holdings Limited to MedQuist Holdings Inc. and redomiciled from a British Virgin Islands company to a Delaware corporation. In connection with our redomiciliation, we adjusted the number of our shares outstanding through a reverse share split, pursuant to which every 4.5 shares of our common stock outstanding prior to our redomiciliation was converted into one share of our common stock upon our redomiciliation. Our redomiciliation and the reverse share split resulted in no change to our stockholders’ relative ownership interests in us. Unless otherwise noted, all information regarding our shares of common stock and all per share information presented herein give effect to the reverse share split.

 

We currently expect to retain future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Payments of future dividends, if any, will be at the sole discretion of our board of directors after taking into account various factors, including our business, operating results and financial condition, current and anticipated cash needs, plans for expansion and any legal or contractual limitations on our ability to pay dividends. Our ability to pay dividends on our common stock is limited by the covenants of the agreements governing our indebtedness and may be further restricted by any future debt or preferred securities. See “Description of Indebtedness.”

 

The following table sets forth our capitalization as of June 30, 2011:

 

 

You should read this table together with the information contained in this prospectus, including “Corporate Reorganization,” “Use of Proceeds,” “Unaudited Pro Forma Condensed Combined Financial Information of MedQuist Holdings Inc.,” “Selected Consolidated Financial and Other Data of MedQuist Holdings Inc.” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of MedQuist Holdings Inc.” and the consolidated financial statements and the related notes thereto included elsewhere in this prospectus.