UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
 

FORM 8-K

Current Report

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 2, 2010

MEDQUIST INC.

(Exact Name of Registrant as Specified in Charter) 
 

1000 Bishops Gate Boulevard, Suite 300

Mount Laurel, New Jersey 08054-4632

(Address of Principal Executive Offices and Zip Code)

Registrant’s telephone number, including area code: (856) 206-4000
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Item 1.01.  Entry into a Material Definitive Agreement.

On February 2, 2010, MedQuist Inc. (the “Company”) and its majority shareholder, CBay Inc. (“CBay” and, together with the Company, “Purchasers”), entered into a “stalking horse” Stock and Asset Purchase Agreement (the “Agreement”) with Spheris, Inc. and certain of its affiliates (collectively, the “Sellers”), under which the Company has agreed to purchase substantially all of the domestic business of Sellers, and CBay has agreed to purchase all of the outstanding shares of Spheris India Private Limited (together, the “Assets”), subject to the terms and conditions therein.  Each of the Sellers is a debtor in a Chapter 11 case before the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). 

The effectiveness of the Agreement is subject to the approval of the Bankruptcy Court.  If the Agreement is approved, Purchasers will be designated as the “stalking horse” bidders in an auction of the Assets under Section 363 of the U.S. Bankruptcy Code.  As the stalking horse bidders, Purchasers’ offer to purchase the Assets, as set forth in the Agreement, would be the standard by which any other bids to purchase the Assets would be evaluated.  Other interested bidders who submit qualifying offers would be permitted to participate in the auction of the Assets. 

Under the terms of the Agreement, Purchasers have agreed, absent any higher or otherwise better bid, to acquire the Assets from the Sellers for approximately $75.2 million in cash plus the assumption of specified liabilities of the domestic business of Spheris and the liabilities of Spheris India Private Limited.   The Company has deposited $7.5 million into escrow which will be credited to the purchase price on the completion of the acquisition of the Assets.  If the Agreement is terminated, the deposit will be returned to the Company unless the purchaser termination fee described below is payable, in which event the deposit will be retained by the Sellers and credited to the purchaser termination fee.  If the Bankruptcy Court approves the Agreement and the Agreement is later terminated for certain reasons, including because the Sellers enter into a competing transaction, the Sellers may be required to pay the Purchasers a termination fee equal to $2.1 million, plus Purchasers’ reasonable transaction expenses.  In addition, if the Agreement is terminated by Sellers for certain reasons, including because the Purchasers refuse to complete the acquisition in breach of the Agreement, the Company is required to pay the Sellers a termination fee equal to the difference between $15 million and the amount of the deposit and interest thereon. 

The completion of the acquisition is subject to a number of conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the performance by each party of its obligations under the Agreement, and the absence of a material adverse change in the Sellers’ business since the date of the Agreement, among other conditions which are set forth in the Agreement.  

The foregoing description of the Agreement is qualified in its entirety by reference to the full text of the Agreement, which is filed as Exhibit 10.1 to this report and is incorporated into this report by reference.  The Agreement has been included to provide investors and security holders with information regarding its terms.  It is not intended to provide any other factual information about the Sellers. The Agreement contains representations and warranties by the Sellers, on the one hand, and by Purchasers, on the other hand, made solely for the benefit of the other. These representations and warranties were made as of specific dates, may be subject to important qualifications and limitations agreed to by Purchasers and the Sellers in connection with negotiating the terms of the Agreement, and may have been included in the Agreement for the purpose of allocating risk between Purchasers and the Sellers rather than to establish matters as facts.

A copy of the press release issued by the Company announcing the Agreement is attached as Exhibit 99.1. 

Forward-looking Statements

This Form 8-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements include, without limitation, any statement that is not a statement of historical fact.  Actual results and events may vary materially from expectations.  These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from expectations including, but not limited to, rulings of the Bankruptcy Court.  Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the Company’s SEC filings, including but not limited to the Company’s annual report on Form 10-K for the year ended December 31, 2008, or as supplemented in the Company’s subsequently filed periodic reports.  The Company does not intend to update publicly any forward-looking statements except as required by law.

Item 9.01.  Financial Statements and Exhibits. 

(d) Exhibits. The following exhibits are filed herewith:

# Pursuant to Item 601(b)(2) of Regulation S-K, the registrant agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. 

           MEDQUIST INC.

Dated:  February 3, 2010             By:  /s/ Mark R. Sullivan                                                  

    Name:  Mark R. Sullivan

    Title: General Counsel, Chief Compliance Officer and Secretary 

EXHIBIT INDEX