Document:

Exhibit 10.25

GOVERNANCE AGREEMENT

Among

MEDQUIST INC.

and

KONINKLIJKE PHILIPS ELECTRONICS N.V.

Dated as of May 22, 2000

 

TABLE
OF CONTENTS

	
  

  	
   

  	
  Page

  
	
  ARTICLE I DEFINITIONS

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.1.
  Definitions

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE II PURCHASES AND SALES OF EQUITY SECURITIES

  	
   

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 2.1.
  Purchases of Equity Securities.

  	
   

  	
  2

  
	
  Section 2.2.
  Transfer of Common Stock.

  	
   

  	
  3

  
	
  Section 2.3.
  Co-Sale Right.

  	
   

  	
  4

  
	
   

  	
   

  	
   

  
	
  ARTICLE III CORPORATE GOVERNANCE

  	
   

  	
  4

  
	
   

  	
   

  	
   

  
	
  Section 3.1.
  Composition of the Board of Directors.

  	
   

  	
  4

  
	
  Section 3.2.
  Election and Removal of Directors

  	
   

  	
  6

  
	
  Section 3.3.
  Solicitation and Voting of Shares.

  	
   

  	
  6

  
	
  Section 3.4.
  Committees.

  	
   

  	
  6

  
	
  Section 3.5.
  Certificate of Incorporation and By-Laws.

  	
   

  	
  7

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV REPRESENTATIONS AND WARRANTIES

  	
   

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 4.1.
  Representations of Purchaser and the Company

  	
   

  	
  8

  
	
  Section 4.2.
  Required Filings and Consents

  	
   

  	
  8

  
	
   

  	
   

  	
   

  
	
  ARTICLE V DIRECTORS AND OFFICERS LIABILITY INSURANCE

  	
   

  	
  9

  
	
   

  	
   

  	
   

  
	
  Section 5.1.
  Insurance

  	
   

  	
  9

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI MISCELLANEOUS

  	
   

  	
  9

  
	
   

  	
   

  	
   

  
	
  Section 6.1.
  Notices

  	
   

  	
  9

  
	
  Section 6.2.
  Amendments; No Waivers.

  	
   

  	
  10

  
	
  Section 6.3.
  Severability

  	
   

  	
  10

  
	
  Section 6.4.
  Entire Agreement; Assignment

  	
   

  	
  10

  
	
  Section 6.5.
  Parties in Interest

  	
   

  	
  10

  
	
  Section 6.6.
  Governing Law and Venue; Waiver of Jury Trial; Specific Performance.

  	
   

  	
  10

  
	
  Section 6.7.
  Headings

  	
   

  	
  11

  
	
  Section 6.8.
  Counterparts; Facsimile

  	
   

  	
  11

  
	
  Section 6.9.
  Effective Time; Termination

  	
   

  	
  11

  
	
  Section 6.10.
  Combinations or Divisions of Equity Securities

  	
   

  	
  12

  

 

 i

 

 

GOVERNANCE AGREEMENT

GOVERNANCE AGREEMENT (this “Agreement”), dated as of
May 22, 2000, between Koninklijke Philips Electronics N.V., a corporation
organized under the laws of The Netherlands (“Purchaser”), and MedQuist Inc., a
New Jersey corporation (the “Company”).

WHEREAS, Purchaser and the Company have entered into a
Tender Offer Agreement dated as of May 22, 2000 (the “Tender Offer Agreement”)
pursuant to which Purchaser will commence a tender offer for 22,250,327 shares
of the Company’s common stock, no par value (the “Common Stock”), at a price of
$51.00 per share in cash net to the Seller, subject to the terms and conditions
set forth in the Tender Offer Agreement (the “Tender Offer”); and

WHEREAS, Purchaser and the Company desire to establish
in this Agreement certain terms and conditions concerning the corporate
governance of the Company and certain terms and conditions concerning the
acquisition and disposition of securities of the Company by Purchaser and its
Affiliates and Associates (each as defined in Section 1.01 below); and

WHEREAS, to induce the Company to enter into the
Tender Offer Agreement, the Company has requested that Purchaser enter into
this Agreement; and

NOW, THEREFORE, in consideration of the premises and
the mutual promises and agreements contained herein, Purchaser and the Company
hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1. 
Definitions.  As used in this
Agreement, the following terms have the following meanings:

(a)           “Affiliate”
has the same meaning as in Rule 12b-2 promulgated under the Exchange Act.

(b)           “Associate”
has the same meaning as in Rule 12b-2 promulgated under the Exchange Act.

(c)           “Beneficial
owner” and to “beneficially own” has the same meaning as in Rule 13d-3
promulgated under the Exchange Act.

(d)           “Board
of Directors” means the entire Board of Directors of the Company, as
constituted from time to time.

(e)           “Director”
means a member of the Board of Directors.

(f)            “Equity
Security” means any (i) Voting Stock, (ii) securities of the Company convertible
into or exchangeable for Voting Stock, and (iii) options, rights, warrants and
similar securities issued by the Company to purchase Voting Stock.

 

 

(g)           “Exchange
Act” means the Securities Exchange Act of 1934, and the rules and regulations
promulgated thereunder, as amended.

(h)           “Independent
Director” means a director of the Company (i) who is not and has never been an
officer or employee of the Company, any Affiliate or Associate of the Company,
or an entity that derived 5% or more of its revenues or earnings in its most
recent fiscal year from transactions involving the Company or any Affiliate or
Associate of the Company, (ii) who is not and has never been an officer,
employee or director of Purchaser, any Affiliate or Associate of Purchaser, or
an entity that derived more than 5% of its revenues or earnings in its most
recent fiscal year from transactions involving Purchaser or any Affiliate or
Associate of Purchaser and (iii) who was nominated for such position by the
Nominating Committee in accordance with Section 3.04(a)(i). The initial
Independent Directors shall be John H. Underwood, Richard H. Stowe and A. Fred
Ruttenberg.

(i)            “Officer”
has the same meaning as in Rule 16a-1(f) promulgated under the Exchange Act.

(j)            “SEC”
means the United States Securities and Exchange Commission.

(k)           “Securities
Act” means the Securities Act of 1933, and the rules and regulations
promulgated thereunder, as amended.

(l)            “Subsidiary”
has the same meaning as in Rule 12b-2 promulgated under the Exchange Act.

(m)          “Voting
Stock” means shares of capital stock of the Company (including the Common
Stock) having the right to vote generally in any election of Directors.

ARTICLE
II

PURCHASES AND SALES OF EQUITY SECURITIES

Section 2.1. 
Purchases of Equity Securities.

(a)           Until
the third anniversary of the Effective Time, Purchaser shall not, directly or
indirectly through one or more of its Affiliates or Associates, purchase or
otherwise acquire, or propose or offer to purchase or acquire, or otherwise
become the beneficial owner, individually or as a member of a “group” (as
defined for purposes of Section 13d of the Exchange Act), of any Equity
Securities, whether by merger, consolidation, recapitalization, tender or
exchange offer, market purchase, privately negotiated purchase, or otherwise,
if, immediately after such transaction, Purchaser and its Affiliates or
Associates would, directly or indirectly, beneficially own in excess of 75% of
the then outstanding shares of Voting Stock; provided, however, that after the
first anniversary of the Effective Time, subject to the receipt of the approval
of the Supervisory Committee (as defined below), Purchaser or any of its
Affiliates or Associates may acquire, in one transaction or in a series of
related transactions, all, but not less than all, of the Equity Securities of
the Company which are not then, directly or indirectly, beneficially owned by
Purchaser or one or more of its Affiliates or Associates.

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(b)           Notwithstanding
the foregoing, Purchaser shall not be deemed to be in violation of this Section
2.01 if Purchaser, or its Affiliates or Associates in the aggregate,
inadvertently becomes the direct or indirect beneficial owner of more than 75%
of the then outstanding shares of Voting Stock and, as soon as commercially
practicable, divests itself or themselves of a sufficient amount of the Equity
Securities so that it or they are no longer the beneficial owner of more than
75% of the then outstanding shares of Voting Stock.

Section 2.2. 
Transfer of Common Stock.

(a)           Until
the first anniversary of the Effective Time, Purchaser will not, and will not
permit any of its Subsidiaries to, directly or indirectly, sell, transfer or
otherwise dispose of any Equity Securities beneficially owned, directly or
indirectly, by Purchaser or its Subsidiaries except to Purchaser or to any
Subsidiary of Purchaser. Until the first anniversary of the Effective Time,
Purchaser will not sell, transfer or otherwise dispose of any of the capital
stock (or any options or warrants to purchase capital stock or securities
convertible or exchangeable for capital stock (collectively, “Derivative Equity
Securities”)) of any Subsidiary of Purchaser that owns Equity Securities if, as
a result of such sale, transfer or other disposition, such Subsidiary would no
longer be a Subsidiary, unless Purchaser shall have first caused any such
Equity Securities to be transferred to another Subsidiary of Purchaser.
Notwithstanding anything to the contrary contained in Section 2.02(a),
Purchaser may sell, transfer or assign Equity Securities, or the capital stock
or Derivative Equity Securities of its Subsidiaries, or permit any of its
Subsidiaries which beneficially own Equity Securities to sell, transfer or
assign such Equity Securities, so long as after giving affect to any such
sales, transfers or assignments of Equity Securities, Purchaser and its
Subsidiaries, beneficially own at least 60% of the then outstanding shares of
Voting Stock.

(b)           Subject
to the provisions of Section 2.03, after the first anniversary of the Effective
Time, Purchaser and its Subsidiaries may sell, transfer or otherwise dispose of
any of the Equity Securities beneficially owned to any person or entity.

(c)           Until
the third anniversary of the Effective Time, each certificate evidencing
outstanding Equity Securities that is beneficially owned by Purchaser or its
Affiliates or Associates shall be stamped or otherwise imprinted with a legend
substantially in the following form:

“THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCKHOLDERS
AGREEMENT DATED AS OF MAY 22, 2000, A COPY OF WHICH IS AVAILABLE AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. NO REGISTRATION OF TRANSFER OF SUCH
SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH
RESTRICTIONS HAVE BEEN COMPLIED WITH.”

(d)           Any
Affiliate or Associate of Purchaser that is a purported purchaser, transferee
or other recipient of Equity Securities permitted pursuant to this Article II

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(other than in open-market purchases) shall, as a condition precedent
to its receipt and ownership of any such Equity Securities, execute an
agreement pursuant to which it becomes legally bound by this Agreement and the
restrictions contained herein.

(e)           Proposed
transfers of Equity Securities that are not in compliance with this Article II
shall be of no force or effect and the Company shall not be required to
recognize any such transfer or purported transfer.

Section 2.3. 
Co-Sale Right.

(a)           During
the period beginning on the first anniversary of the Effective Time and ending
on the third anniversary of the Effective Time, Purchaser shall not enter into
or consummate any transaction (or series of related transactions) involving the
sale or transfer of Equity Securities (or the sale or transfer of capital stock
or Derivative Equity Securities of any Subsidiary which beneficially owns
Equity Securities) that would result in (i) any person other than the Purchaser
or any Affiliate or Associate of Purchaser beneficially owning in excess of 10%
of the outstanding Voting Stock (a “Third Party Purchaser”) and (ii) Purchaser
and its Affiliates and Associates beneficially owning less than a majority of
the then outstanding Voting Stock, unless:

(i)            the
Third-Party Purchaser contemporaneously therewith offers to acquire, or
acquires, on the same terms and conditions as are applicable to Purchaser, its
Affiliates or Associates, 100% of the Voting Stock beneficially owned by
persons or entities other than Purchaser, its Affiliates or Associates, or

(ii)           the
Third-Party Purchaser offers to purchase, on the same terms and conditions as
are applicable to the Purchaser, its Affiliates or Associates, pursuant to a
tender or exchange offer made in accordance with applicable law, including
Section 14(d)(1) and Regulation 14D of the Exchange Act, all or a specified
percentage of the outstanding shares of Voting Stock; it being understood that
in such event, Purchaser agrees that neither it, nor any of its Affiliates or
Associates will sell to the Third Party Purchaser, its Affiliates or
Associates, any shares of Voting Stock beneficially owned by it other than
pursuant to such contemplated tender or exchange offer.

ARTICLE
III

CORPORATE GOVERNANCE

Section 3.1. 
Composition of the Board of Directors.

(a)           The
Company shall take any and all action necessary (including by securing the
resignation of persons who were Directors prior to the Effective Time) so that
promptly following the Effective Time, the Board of Directors shall consist of
eleven Directors, of which (i) one Director shall be the Chief Executive
Officer of the Company and one Director shall be another Officer of the Company
designated by the Chief Executive Officer of the Company (together, the “Management
Directors”), (ii)  six Directors shall be
designated by Purchaser, all of whom may be directors, officers, employees,
Affiliates or Associates of Purchaser (the “Purchaser Directors”), and (iii)
three Directors shall be Independent Directors. 
From and after the time the Board of Directors has been reconstituted in
accordance with the

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preceding sentence, the Board of Directors shall consist of eleven
Directors, of which (i) two Directors shall be Management Directors, (ii) in
accordance with subsection (b) below, six or fewer Directors shall be Purchaser
Directors, and (iii) in accordance with subsection (c) below, three or more
shall be Independent Directors; provided, however, the Board of Directors shall
be empowered in its discretion to increase or decrease, from time to time, the
number of Directors so long as (x) there shall be at least two Management
Directors and three Independent Directors, and (y) the relative percentage of
Management Directors, Independent Directors and Purchaser Directors shall be
maintained, in all material respects, as in effect immediately prior to any
such increase or decrease; and, provided, further, that if the Board of
Directors changes the number of Directors constituting the entire Board of
Directors, then the number of Directors and the percentages set forth in
subsection (b) below shall be appropriately adjusted, subject to the
immediately preceding provisions.

(b)           Subject
to subsection (a) above and subsection (c) below, the parties agree that:

(i)            until
the first date that Purchaser and its Subsidiaries shall not beneficially own,
in the aggregate, at least a majority of the outstanding Voting Stock,
Purchaser shall have the right to designate six Purchaser Directors;

(ii)           after
the first date that Purchaser and its Subsidiaries shall beneficially own, in
the aggregate, less than a majority but at least 36% of the outstanding Voting
Stock, Purchaser shall have the right to nominate four, but not more than four,
Purchaser Directors;

(iii)          after
the first date that Purchaser and its Subsidiaries shall beneficially own, in the
aggregate, less than 36% but at least 27% of the outstanding Voting Stock,
Purchaser shall have the right to nominate three, but not more than three,
Purchaser Directors;

(iv)          after
the first date that Purchaser and its Subsidiaries shall beneficially own, in
the aggregate, less than 27% but at least 18% of the outstanding Voting Stock,
Purchaser shall have the right to nominate two, but not more than two,
Purchaser Directors;

(v)           after
the first date that Purchaser and its Subsidiaries shall beneficially own, in
the aggregate, less than 18% but at least 5% of the outstanding Voting Stock,
Purchaser shall have the right to nominate one, but not more than one,
Purchaser Director; and

(vi)          After
the first date that Purchaser and its Subsidiaries shall beneficially own, in
the aggregate, less than 5% of the outstanding Voting Stock, Purchaser shall
have no right to nominate any Directors.

(c)           In
the event that Purchaser shall have the right to designate less than six
Directors pursuant to subsection 3.01(b) above, the Nominating Committee shall
nominate that number of additional Independent Directors as is necessary to
constitute the entire Board of Directors (as constituted at such time) and
Purchaser shall cause such Purchaser

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Directors to resign promptly so as to permit the additional Independent
Directors to be appointed or elected.

(d)           Purchaser
shall have the right to designate any replacement for a Purchaser Director at
the termination of such Director’s term or upon such  Director’s death, resignation, retirement,
disqualification, removal from office or other cause, and the Chief Executive
Officer of the Company shall have the right to designate any replacement for a
Management Director at the termination of such Director’s term or upon such
Director’s death, resignation, retirement, disqualification, removal from
office or other cause.

(e)           No
individual who is an officer, director, partner or principal stockholder of any
competitor of the Company or any of its Subsidiaries shall serve as a Director;
provided, however, the foregoing shall not apply to officers, directors,
partners or principal stockholders of Purchaser, its Affiliates or Associates.

(f)            The
parties hereto acknowledge that no director of the Company shall be deemed to
be the deputy of, or otherwise be required to discharge his or her duties as a
member of the Board of Directors under the direction of, or with special
attention to the interests of, any shareholder of the Company, and each
director shall be required to discharge his or her duties to all shareholders
of the Company.

Section 3.2.  Election and Removal of Directors.  In connection with the filling of any vacancy
on the Board of Directors, however such vacancy shall have resulted, Purchaser
shall cause each Purchaser Director to vote in favor of those Directors
nominated or designated in accordance with this Article III.  Purchaser shall not take any action or permit
any Purchaser Director to take any action to remove any Director, other than a
Purchaser Director, without cause.

Section 3.3. 
Solicitation and Voting of Shares.

(a)           The
Company shall use commercially reasonable efforts to solicit from the
stockholders of the Company eligible to vote for the election of Directors
proxies in favor of the nominees designated or nominated in accordance with
this Article III.

(b)           Purchaser
shall vote or cause to be voted all of its shares of Voting Stock beneficially
owned by it or by any of its Affiliates or Associates (other than shares of
Voting Stock obtained by its Affiliates (other than its Subsidiaries) or
Associates in open-market purchases) in favor of nominees designated or
nominated in accordance with this Article III.

(c)           Purchaser
shall vote or cause to be voted, whether at a meeting or by execution of a
written consent, all of the shares of Voting Stock beneficially owned by it or
by any of its Affiliates or Associates in favor of the approval of an increase
in the maximum number of shares of the Common Stock which may be issued under
the Company’s Incentive Stock Option Plan for Officers and Key Employees to
7,130,000 shares.

 6
 

 

 

Section 3.4. 
Committees.

(a)           Subject
to the general oversight and authority of the full Board of Directors, the
Board of Directors shall establish and, during the term of this Agreement,
empower and maintain the committees of the Board of Directors contemplated by
this Section 3.04:

(i)            a
Nominating Committee, responsible, among other things, for the nomination,
subject to Section 3.01, of the Independent Directors and consisting solely of
two Independent Directors, one Purchaser Director and one Management Director
as selected by the Board of Directors from time to time;

(ii)           a
Compensation Committee, responsible, among other things, for the adoption,
amendment and administration of all employee benefit plans and arrangements and
the compensation of all Officers of the Company, and consisting of two
Independent Directors and two Purchaser Directors as selected by the Nominating
Committee and the Purchaser, respectively, from time to time;

(iii)          a
Supervisory Committee, responsible, among other things, for (A) the general
oversight, administration, amendment and enforcement, on behalf of the Company,
of (1) those provisions of the Tender Offer Agreement that survive Purchaser’s
purchase of shares pursuant to the Tender Offer, (2) this Agreement, and (3)
that certain License Agreement dated today’s date between an Affiliate of
Purchaser and the Company, and (B) the entry into, general oversight,
administration, amendment and enforcement, on behalf of the  Company, of any other agreements or
arrangements between the Company or any of its Subsidiaries, on the one hand,
and the Purchaser and any of its Subsidiaries on the other hand, which would be
required pursuant to Regulation S-K promulgated by the SEC to be disclosed in a
registration statement filed under the Securities Act or in a proxy statement
or other report filed under the Exchange Act; and consisting of at least three
Independent Directors selected by a majority of the Independent Directors; and

(iv)          such
other committees as the Board of Directors deems necessary or desirable;
provided that such committees shall not conflict with, supersede or duplicate
the duties or responsibilities of the Committees established pursuant to this
Section 3.04.

(b)           Each
Committee established pursuant to this Agreement shall act by the affirmative
vote of a majority of its members or by unanimous written consent.

Section 3.5. 
Certificate of Incorporation and By-Laws.

(a)           The
Company and Purchaser shall take or cause to be taken all lawful action
necessary to ensure at all times that the Company’s Certificate of
Incorporation and By-Laws are not, at any time, inconsistent with the
provisions of this Agreement.

(b)           The
Certificate of Incorporation and By-laws of the Company shall contain
provisions no less favorable with respect to indemnification than are set forth
in Article X of the By-laws of the Company as in effect on the date hereof,
which provisions shall not be amended, repealed or otherwise modified in any
manner that would affect adversely the rights

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thereunder of the directors, officers, employees, fiduciaries or agents
of the Company, unless such modification shall be required by law.

ARTICLE
IV

REPRESENTATIONS AND WARRANTIES

Section 4.1.  Representations of Purchaser and the
Company.  Purchaser and the Company
represent and warrant, to each other as follows:

(a)           Authority
Relative to This Agreement.  It has all
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby.  The execution and delivery of
this Agreement by it and the consummation by it of this Agreement have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on its part are necessary to authorize this
Agreement.  This Agreement has been duly
and validly executed and delivered by it and constitutes its legal, valid and
binding obligation, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors’
rights and to general equity principles.

(b)           No
Conflict.  The execution and delivery by
it of this Agreement do not, and its performance of its obligations under this
Agreement will not, conflict with or violate the Certificate of Incorporation
or By-Laws (or similar constitutive documents) of it or any of its
Subsidiaries, (ii) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to it or to any of its Subsidiaries, or by which
any of its property or assets or any of the property or assets of its
Subsidiaries is bound or affected, or result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrances on any of its property or assets or on any of the property or
assets of its Subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which it or any of its Subsidiaries is a party or by which it or
any of its Subsidiaries or any of its property or assets or any of the property
or assets of its Subsidiaries is bound or affected, except for any such
conflicts, violations, breaches, defaults or other occurrences which could not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on its ability to perform its obligations under this Agreement
(a “Material Adverse Effect”).

Section 4.2.  Required Filings and Consents.  This execution and delivery by it of this
Agreement does not, and the performance of this Agreement by it will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
except (i) for applicable requirements, if any, of the Securities Act, the
Exchange Act, state blue sky and takeover laws, and (ii) where failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on it.

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ARTICLE
V

DIRECTORS AND OFFICERS LIABILITY INSURANCE

Section 5.1.  Insurance. 
The Company hereby agrees that it shall maintain the same directors and
officers liability (“D&O Insurance”) for the benefit of each Director and
officer of the Company, provided, however, that in the event that Purchaser
determines that it can provide such D&O Insurance more cost effectively
than the Company, Purchaser may do so.

ARTICLE
VI

MISCELLANEOUS

Section 6.1.  Notices. 
All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by facsimile transmission,
overnight courier guaranteeing next business day delivery, or by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section):

if to Purchaser, to:

Koninklijke Philips Electronics N.V.

Rembrandt Tower

Amstelplein 1

1096 HA Amsterdam,

The Netherlands

Attention:  General Secretary

Facsimile:  (011) 31-20-597-7150

with a copy to:

Sullivan & Cromwell

125 Broad Street

New York, NY  10004

Attention:  Stephen M. Kotran

Facsimile:  212-558-3588

if to the Company, to:

MedQuist Inc.

Five Greentree Centre, Suite 311

Marlton, New Jersey 08053

Attention:                     Chief Executive Officer; and

Senior Vice President and
General Counsel

Facsimile: 
856-596-3351

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with a copy to:

Pepper Hamilton LLP

3000 Two Logan Square

Eighteenth and Arch Streets

Philadelphia, PA  19103-2799

Attention: James D. Epstein

Facsimile: 215.981.4750

Section 6.2. 
Amendments; No Waivers.

(a)           Any
provision of this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed, in the case of any amendment, by
Purchaser and the Company, or in the case of a waiver, by the party against
whom the waiver is to be effective; provided that no such amendment or waiver
by the Company shall be effective without the approval of the Supervisory
Committee.

(b)           No
failure or delay by any party in exercising any right, power or privilege
hereunder, shall operate as waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by
law.

Section 6.3.  Severability. 
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other conditions
and provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the matters contemplated
hereby are not affected in any manner adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner.

Section 6.4.  Entire Agreement; Assignment.  This Agreement constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof.  This Agreement shall not be assigned by
operation of law or otherwise without the written consent of the other parties
hereto.

Section 6.5.  Parties in Interest.  This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
assigns, and nothing in this Agreement, express or implied, is intended to or
shall confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.

Section 6.6. 
Governing Law and Venue; Waiver of Jury Trial; Specific Performance.

(a)           THIS
AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE
INTERPRETED, CONSTRUED AND GOVERNED

 10
 

 

 

BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW JERSEY WITHOUT REGARD
TO THE CONFLICT OF LAW PRINCIPLES THEREOF. The parties hereby irrevocably
submit to the jurisdiction of the Federal courts of the United States of
America located in the State of New Jersey solely in respect of the
interpretation and enforcement of the provisions of this Agreement, and of the
documents referred to in this Agreement, and in respect of the transactions
contemplated hereby, and hereby waive, and agree not to assert, as a defense in
any action, suit or proceeding for the interpretation or enforcement hereof or
of any such document, that it is not subject thereto or that such action, suit
or proceeding may not be brought or is not maintainable in said courts or that
the venue thereof may not be appropriate or that this Agreement or any such document
may not be enforced in or by such courts, and the parties hereto irrevocably
agree that all claims with respect to such action or proceeding shall be heard
and determined in such a Federal court. The parties hereby consent to and grant
any such court jurisdiction over the person of such parties and over the
subject matter of such dispute and agree that mailing of process or other
papers in connection with any such action or proceeding in the manner provided
in Section 6.01 or in such other manner as may be permitted by law shall be
valid and sufficient service thereof.

(b)           EACH
PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS
AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE
EACH SUCH PARTY HEREBY (i) IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT
SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT, AND (ii) AGREES THAT THE PARTIES SHALL BE
ENTITLED TO SPECIFIC PERFORMANCE OF THE TERMS HEREOF WITHOUT THE REQUIREMENT
THAT A BOND BE POSTED. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED
THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER
VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION
6.06.

Section 6.7.  Headings. 
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.

Section 6.8.  Counterparts; Facsimile.  This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.

Section 6.9.  Effective Time; Termination.  This Agreement shall automatically become
effective, without any action on the part of any party hereto, upon payment by
Purchaser

 11
 

 

 

for all shares of Common Stock validly tendered and
not withdrawn (subject to the terms and conditions of the Offer (as defined in the
Tender Offer Agreement)) pursuant to the Tender Offer Agreement (the “Effective
Time”), and shall terminate upon the earlier of (i) the mutual agreement of the
parties hereto and (ii) the first date on which Purchaser no longer, directly
or indirectly, beneficially owns at least 5% of the Voting Stock; provided,
however, the provisions of Section 3.04 shall terminate and be of no further
force or effect as of the first date when Purchaser Directors do not constitute
a majority of the Board of Directors.

Section 6.10.  Combinations or Divisions of Equity
Securities.  In the event that any of the
outstanding Equity Securities shall be subdivided into a greater or combined
into a lesser number of such securities, whether by stock dividend, stock
split, reverse stock split, recapitalization, combination of shares or any
similar action, any references to numbers, percentages or calculations thereof
in this Agreement shall be proportionately adjusted wherever applicable.

IN WITNESS WHEREOF, this
Agreement has been duly executed and delivered by the duly authorized officers
of the parties hereto on the date first hereinabove written.

	
   

  	
  KONINKLIJKE PHILIPS
  ELECTRONICS NV

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ A. Baan

  	
   

  
	
   

  	
   

  	
  Name: A. Baan

  
	
   

  	
   

  	
  Title: 

  	
  Executive Vice
  President

  
	
   

  	
   

  	
   

  	
  Philips Electronics

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J.H.M.
  Hommen

  	
   

  
	
   

  	
   

  	
  Name: J.H.M.
  Hommen

  
	
   

  	
   

  	
  Title: 

  	
  Executive Vice
  President

  
	
   

  	
   

  	
   

  	
  Philips
  Electronics

  
	
   

  	
   

  
	
   

  	
  MEDQUIST INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David A.
  Cohen

  	
   

  
	
   

  	
   

  	
  Name: David A.
  Cohen

  
	
   

  	
   

  	
  Title: Chairman
  & CEO

  
					

 

 12Exhibit 10.26

CONFIDENTIAL

LICENSING AGREEMENT

This Agreement (the “Agreement”) is made as of the
22nd day of May, 2000 by and between MedQuist Inc. (“MedQuist”), a New Jersey
corporation, with its principal place of business at Five Greentree Centre, Suite
311, Marlton, NJ 08053, acting on its own behalf and on behalf of its wholly
owned subsidiaries (direct and indirect) and Philips Speech Processing GmbH (“Philips”),
an Austrian corporation, with its registered place of business at
Computerstrasse 6, 1101 Vienna, Austria (MedQuist and Philips, each a “Party”
and, collectively, the “Parties”).

W I T N E S S E T H

WHEREAS, the parties hereto have executed a Tender
Offer Agreement of this even date, and this Agreement shall have effect from
and after the date the tender contemplated by the Tender Offer Agreement is
completed (the “Effective Date”);

WHEREAS, Philips has developed certain speech
recognition and processing technology and is in the business of licensing and
further developing that technology for integration into speech enabled products
and services; and WHEREAS, MedQuist is in the business of providing the
Services (as defined hereinafter); and WHEREAS, Philips has developed certain
software required for the use and continuous improvement of the Contexts (as
defined below), together with a background lexicon database to enable the
recognition of words included in such database and their automated
speech-to-text transformation and MedQuist wishes to obtain a license to use
such software for MedQuist’s business; and

WHEREAS, MedQuist and Philips desire to enter into a
business relationship, whereby the Parties intend to provide for the
integration and use of certain Philips speech recognition technology into
MedQuist’s business through a cooperative effort governed by this Agreement,
subject to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the mutual
promises contained herein, the Parties agree as follows:

Section 1.

Definitions

1.1.                              Words
shall have their normally accepted meanings as employed in this Agreement.  The terms “herein” and “hereof”, unless
specifically limited, shall have reference to the entire Agreement.  The word “shall” is mandatory, the word “may”
is permissive, the word “or” is not exclusive, the word “includes” and “including”
are not limiting and the singular includes the plural and vice versa.  The following terms shall have the described
meaning.

 

 

1.2.                              “Agreement”
shall mean this present document including, as an integral part, its
appendices, initialed or signed by the Parties and attached hereto, and any
modifications and updates made from time to time in accordance with the
provisions hereof.

1.3.                              “Confidential
Information” shall have the meaning set forth in Section 8 of this Agreement.

1.4.                              “Context”
shall mean a specific speech recognition software module, which can be added to
the Licensed Product, containing a specialized class of Language Resources
optimized for a specific user or application group or customer (e.g.
gynecologists; radiologists; Ear-Nose-Throat specialists; etc.).

1.5.                              “Customer(s)”
shall mean any individual or entity purchasing MedQuist’s Services.

1.6.                              “Derivative
Works” shall have the meaning ascribed thereto in 17 U.S.C. 101 et seq.

1.7.                              “Documentation”
shall mean all visually or electronically readable materials, in English,
developed by Philips for use in connection with the Licensed Product and all
revisions thereto, and new documentation issued to reflect changes made in the
Licensed Products.

1.8.                              “Effective
Date” shall mean the date set forth in the preamble of this Agreement.

1.9.                              “IP
Rights” shall mean any patent, copyright, trade secret, trademark, design, and
mask work, or other intellectual property rights.

1.10.                        “Language
Resources” shall mean the databases of words initially provided by Philips to
MedQuist which also incorporates phonetics and statistics to enable the
recognition and speech-to-text transformation of words included in such
database.

1.11.                        “Level 1
Support” shall mean support which is provided by the internal MedQuist support
unit to the MedQuist operational unit in response to an initial phone call
which identifies and documents a Problem and includes initial responses to such
internal calls, database searches for previously reported problems, installation
of Patches and Maintenance Releases and the hand off of unresolved Problems to
Level 2 Support.  Level 1 Support is
performed by licensees themselves.

1.12.                        “Level 2
Support” shall mean support that includes, to the extent possible, the recreation
and resolution of Problems reported to Philips and for which Philips shall
initiate a resolution within a response time commensurate with the severity
level described in Schedule E..  This
would normally result either in a solution to the licensee by way of Patches or
otherwise, or in a hand off of unresolved problems to Level 3 Support.

1.13.                        “Level 3
Support” shall mean support that includes, to the extent possible, the
resolution of Problems and the provision of Patches by Philips, all in
accordance with good engineering practices and for which Philips shall initiate
a resolution within a response time commensurate with the severity level
described in Schedule E.

 2
 

 

 

1.14.                        “Licensed
Product” shall mean (i) the SpeechMagic 4.0 software, in the format developed
by Philips in conjunction with which the Contexts will operate and (ii) other
software tools, all as are described in Schedule A.  In case a Context is added to the Licensed
Product, then the term “Licensed Product” shall include that Context.

1.15.                        “Maintenance
Release” shall mean any version of the Licensed Product, which includes a
number of Patches (and sometimes minor new functionality), which is recommended
by Philips to be installed by existing licensees and indicated as an increase
after the decimal (e.g. 4.1, 4.2, 4.3).

1.16.                        “Major
Release” shall mean a new version of the Licensed Product subsequent to the
initial delivery in which Philips has incorporated one or more new functions,
features or new technology of the Licensed Product developed by Philips and
which provides a new capacity which the previous releases or versions of the
Licensed Product did not have, together with new or revised Documentation which
properly describes the upgraded Licensed Product and which is identified by a change
in the release designation (e.g. 5.0, 6.0, 7.0).

1.17.                        “Object
Code” shall mean computer programs for the Licensed Product assembled or
compiled in magnetic or electronic binary form on software media, which are
readable and usable by machines, but not generally readable by humans without
reverse-assembly, reverse-compiling, or reverse- engineering the Licensed
Product.

1.18.                        “Patches”
shall mean solutions or workarounds to Problems reported by MedQuist or other
licensees to Philips via the hotline service.

1.19.                        “Problem(s)”
shall mean any error, problem, or defect resulting from (1) incorrect
functioning of the Licensed Product, or (2) an incorrect or incomplete
statement or diagram in Documentation, in the case of each of (1) and (2), only
if such error, problem or defect renders the Licensed Products inoperable,
causes the Licensed Products to fail to meet the product description thereof
(but not related to the success rate of the Licensed Product), or causes the
Documentation to be inaccurate or incomplete in any material respect.

1.20.                        “Services”
shall mean outsourced medical transcription activities provided by MedQuist to
third party customers.

1.21.                        “Work Made
for Hire” shall have the meaning ascribed thereto in 17 U.S.C. @ Sec. 101 et
seq.

Section 2.

Scope of License
Grant, Ownership and Proprietary Rights

2.1.                              Subject
to the terms and conditions set forth in this Agreement, Philips grants to
MedQuist during the term of this Agreement, a personal, non- assignable,
non-transferable, indivisible, non-exclusive (except as provided herein)
license, without the right to sub-license, to use the Licensed Product in
Object Code and Documentation only 

 3
 

 

 

(except as
provided in Section 6) for MedQuist’s internal use at its sites, solely in
connection with MedQuist’s network and in connection with providing Services
MedQuist accepts the grants made by Philips under this Section 2.1.

During the Term, as long as MedQuist is in full
compliance with its obligations hereunder, Philips undertakes not to grant a
license of the Licensed Product and Contexts, or similar products, to a
competitor of MedQuist providing outsourced medical transcription services in
the USA.  However, Philips explicitly
reserves the right to license the Licensed Product, Contexts and similar
products to others, such as, but not limited to distributors and third party
endusers who wish to use such products (including SpeechMagic 3.0 and 3.1) for
non-outsourced medical transcription or other services.  For purposes of this Agreement, the term “outsourced”
means that the healthcare provider utilises medical transcriptionists that are
not engaged or employed by the healthcare provider nor his hospital
organisation (i.e. if a hospital records department or a doctor uses their own
employees or independent contractors or so-called statutory employees for their
own transcriptions and the transcription service is performed with technology
owned by or licensed to the hospital or doctor, the service is not outsourced).

2.2.                              Nothing
herein is intended to, or shall be deemed to, convey to MedQuist any title or
ownership interest in the Licensed Product, the Contexts, the Documentation or
any Derivative Works of any of the foregoing. 
MedQuist acknowledges that, as between MedQuist and Philips, Philips is
and shall continue to be the owner of each of the foregoing, as it exists and
as it may be altered, modified or further developed, whether or not authorized,
and IP Rights associated therewith.  Each
Derivative Work, including portions thereof and all copies thereof, in whatever
medium, fixed or embodied, shall be considered a “Work Made for Hire” and
Philips shall own all right, title and interest therein.  MedQuist hereby assigns, and upon creation of
each Derivative Work automatically and irrevocably assigns, to Philips
ownership of all of MedQuist’s right, title and interest in and to such
Derivative Work insofar as any such Derivative Work, by operation of law, may
not be considered a “Work Made for Hire” and MedQuist hereby agrees to disclose
to Philips all Derivative Works promptly upon creation during the term of this
Agreement.  MedQuist reserves no rights,
whatsoever, in the Derivative Works.

2.3.                              MedQuist
agrees not to exceed the scope of the license granted in Section 2.1 and shall
not copy (except as technically necessary to use the Licensed Product in
accordance with the license granted), alter, decompile, disassemble, reverse
engineer or otherwise attempt to learn any source code, structure, algorithms
or ideas underlying the Licensed Product, nor shall it modify, translate or
create derivative works (other than as expressly permitted herein) based on the
Licensed Product, except that nothing in this Section 2.3 shall preclude
integration of the Licensed Product with MedQuist’s technology infrastructure
as contemplated by Section 3.1.

2.4.                              Without
limiting the generality of Section 2.2 hereof, Philips is being granted full
access to (a) modifications to the Contexts generated automatically in the
information technology infrastructure of MedQuist, (b) medical documents in
MedQuist’s possession and (c) user sound data in MedQuist’s possession.  Philips shall also have the right to copy,
modify and use such data under customary confidentiality obligations in order
for 

 4
 

 

 

Philips to
improve existing Contexts and generate new ones.  MedQuist will receive such Contexts on or
before the date that they are generally made available to other supported
licensees of Philips.  In addition,
MedQuist will receive during the Term on a quarterly basis a royalty of 3.5 %
(three and a half percent) of the license fees received by Philips from other
licensees for each Context developed on the basis of such access to MedQuist’s
specific, Context related information described in the first sentence of this
Section 2.4, provided such Context uses text data from MedQuist

2.5.                              MedQuist
will not delete any Trademarks, trade names or copyright notices present in or
displayed by the Licensed Product. 
Neither party will claim any right to use any of the Trademarks of the
other party except pursuant to this Agreement and its use of each Trademark
will inure to the benefit of the Trademark-owning party.  Neither party (i) will act in any manner that
might reasonably injure the rights or goodwill of the other party with respect
to the other’s Trademarks, (ii) will not challenge the validity or ownership of
the other’s Trademarks, and (iii) will protect the other’s Trademarks as
necessary and appropriate.  MedQuist
expressly acknowledges that all of Philips’ Trademarks with their associated
goodwill, copyrights, trade secrets and proprietary rights falling within the
scope of this Agreement are and shall remain the property of Philips.  Philips similarly acknowledges that all of
the MedQuist Trademarks with their associate goodwill, copyrights, trade
secrets and proprietary rights falling within the scope of this Agreement are
and shall remain the property of MedQuist.

2.6.                              Each
Party reserves all rights in its proprietary information and IP Rights that are
not explicitly granted to the other Party under this Agreement.  Nothing herein is intended to, or shall be
deemed to, convey to Philips any title or ownership interest in or license to
the software MedQuist licenses to its clients (whether owned by or licensed to
MedQuist for sublicensing purposes).

Section 3.

Delivery.

3.1.                              Philips
shall deliver the Licensed Product in Object Code form and related
Documentation to MedQuist in accordance with Schedule A. MedQuist will be
responsible for integrating the Licensed Product into MedQuist’s existing
information technology infrastructure. 
However, Philips will provide consultancy support to MedQuist covering
integration, customization and start up activities in order to ensure the
speedy and efficient introduction of this new technology.  Up to fifteen man-years of such support
activities is included within the initial sign up fee described in Section 4
below, to be consumed no later than December 31, 2001 on the basis of a
timeschedule and workplan to be mutually agreed within 45 days after the
Effective Date.  In addition, as part of
such sign up fee, Philips will provide Licensed Product and Level 1 Support
services training sufficient in order for MedQuist’s employees to become
familiar with the use of the Licensed Products and to be able to execute
internally Level 1 Support services.

 5
 

 

 

3.2.                              Subject
to MedQuist’s compliance with applicable Fee obligations set forth in this
Agreement, Major Releases of the Licensed Product shall be added to this
Agreement and delivered to MedQuist at the time such Major Releases are made
available to other supported licensees of Philips at no additional cost to
MedQuist.

Section 4.

Pricing

4.1.                              The
initial sign up fee payable by MedQuist to Philips shall be US$ 2.25 million
payable in accordance with Schedule D (but not earlier than the Effective
Date).  The minimum annual as well as
ongoing license fees for the Licensed Product payable by MedQuist to Philips
are set forth in Schedule D (the “Fees”). 
The Fees (including the initial sign up fee) do not include sales, use,
excise and similar taxes, nor the cost of shipping or insurance, for which
MedQuist is responsible.

4.2.                              During
the term of this Agreement and any extension thereof, MedQuist shall send a
statement to Philips within ten (10) days following the last day of each
calendar quarter certifying, in summary form, (i) the use of the Licensed
Products and the basis for the Fees calculations set forth in Schedule D hereto
and (ii) the Fees due for such period. 
Appropriate payments for each calendar quarter shall be made within 60
days after the date of such statement, and in no event later than the last day
of the calendar quarter following the quarter covered by such statement.  Upon MedQuist’s request, Philips shall send
an invoice covering the Fees so stated.

4.3.                              MedQuist
shall maintain for at least three (3) years its records, contracts and accounts
relating to Licensed Product and its use thereof, and will permit examination
thereof as well as access to the Licensed Product upon reasonable request and during
normal business hours by authorized representatives of Philips.  In addition, Philips may at its own expense
audit the books of account of MedQuist relating to this Agreement at the place
where such books are kept, in order to investigate compliance with the payment
obligations hereunder; such audits may not take place more than twice a year,
unless an audit has revealed underpayments to Philips.  Any such audit shall be conducted by an
independent professional auditor reasonably acceptable to both parties, on at
least ten (10) working days prior written notice and during normal business
hours.  A copy of the report made by such
auditor shall be provided to both Parties at the same time.  If during the course of such audit, it is
discovered that any payment owed to Philips hereunder was not made or was
miscalculated and the discrepancy in MedQuist’s favor is five percent (5%) or
more in any given period of 3 months or more (a “Payment Default”), the cost of
such audit shall be borne by MedQuist. 
Furthermore, MedQuist shall immediately remedy such Payment Default,
together with interest at the rate of 10% per annum (or such lower rate as may
be the maximum allowable by law) calculated from the date such payment was due
until such payment is actually made.

4.4.                              MedQuist
shall submit to Philips, once per calendar year, a written statement by its
external auditors, who shall be independent certified accountants, confirming
that the quarterly statements submitted by MedQuist to Philips for the
preceding calendar year, 

 6
 

 

 

were true,
complete and accurate in every respect. 
MedQuist shall use all commercially reasonable efforts to cause such
statement to be submitted within 120 days following the end of the fiscal year.

4.5.                              For
Level 2 and Level 3 Support services rendered by Philips in accordance with
Schedule E, MedQuist will pay Philips fees as set forth on Schedule D.

Section 5.

Warranties,
Indemnity and Liability Limitations

5.1.                              Schedule
C sets forth the warranties and indemnification obligations of MedQuist and
Philips in connection with this Agreement.

Section 6.

Further
obligations of the Parties

6.1.                              In
order that the relationship contemplated by this Agreement shall be mutually
advantageous, and in recognition of the particular expertise and commitment
necessary to properly use and support the Licensed Product, MedQuist agrees
during the Term to comply with the following requirements:  MedQuist shall (i) conduct business in a
manner that does not reflect negatively at any time on the good name, goodwill
and reputation of Philips; (ii) avoid deceptive, misleading or unethical
practices that are or might be detrimental to Philips, its product or the
public; (iii) make no false or misleading representations with regard to
Philips or its products; (iv) not purchase, license or use a product competing
with the Licensed Product during the Term; and (v) for any and all of its
present and future speech technology needs, first invite Philips to submit a
competitive offer.  In case MedQuist is
dissatisfied with such offer and subsequently receives a more attractive offer
from a third party, MedQuist will afford Philips a final opportunity to match
such third party offer.

6.2.                              Philips
hereby grants to MedQuist a most favored customer status, meaning that in case
Philips affords a third party/medical outsourcing transcription service
provider outside the USA a license of the Licensed Product on terms and
conditions which, taken as a whole, are more favorable to such third party than
those set forth herein are to MedQuist, Philips will notify MedQuist within
thirty days of agreeing to those better terms and MedQuist will then have a 30
day period to decide whether or not it wishes to replace these terms and
conditions with those contained in the third party agreement.

6.3.                              In
case MedQuist wishes Philips to develop additional enhancements, modifications
or features to the Licensed Product, Philips is willing to negotiate same on
reasonable, commercial terms and conditions and to undertake such activities,
provided the parties hereto can agree on timeschedule, workplan, pricing and
licensing conditions in connection with such possible development
activities.  Philips shall not transfer
ownership on any development work under any circumstances, but is willing to
discuss 

 7
 

 

 

extending the
exclusivity hereunder to such development work or provide up to a 3 month lead
time in such case.

Within twenty (20) days after receiving MedQuist’s
request pursuant to Section 6.3., Philips shall notify MedQuist of Philips’s
proposed prices, timeschedule, licensing conditions and other terms and
conditions for performing such development work (unless Philips has declined,
as set forth hereinafter).  If MedQuist
provides notice (“Acceptance Notice”) accepting Philips’s price and other
performance terms, Philips shall perform such work at the accepted price and on
the accepted performance terms.  If
either (i) Philips declines any work requested pursuant to this Section
6.3, or (ii) MedQuist provides notice that it does not accept Philips’s
price and performance terms, then MedQuist may engage a third party to perform
such work, provided that such third party acknowledges that it has no license
or right to any part of the Licensed Product nor access to the source codes.  Whenever MedQuist shall use such a third
party developer, Philips shall allow such third party such access to the
Licensed Product as shall be reasonably necessary to complete such work and
shall cooperate with such third party, provided that such access and
cooperation shall be subject to such third party (i) executing reasonable and
appropriate security and confidentiality agreements with Philips, (ii) abiding
by Philips’ internal policies applicable to all third party developers, and
(iii) agreeing to reimburse Philips for Philips’ internal and out-of-pocket
expenses incurred in providing such access and cooperation.

6.4.                              If
MedQuist reasonably determines that Philips cannot or chooses not to provide
changes which are required for the Licensed Product to remain in compliance
with all applicable laws by thirty (30) days prior to a deadline imposed by
governmental authority, MedQuist shall have the right to contract with a third
party for such work or to do such work itself. 
The provisions of Section 6.3 relating to contracting with a third party
shall apply to such a contract with a third party under this Section 6.4.

Upon reasonable advance written notice to Philips,
MedQuist may request, and if it so requests Philips shall use its good faith
efforts to accommodate, prioritization of supporting such changes over any
other software development work performed by or on behalf of Philips.

6.5.                              In
case Philips intends to introduce speech technology applications to outsourcing
service companies like MedQuist in other fields (e.g. law; insurance), it will
first discuss such plans with MedQuist in order to jointly investigate whether
or not MedQuist is optimally positioned to exploit such technology in such
other fields as well.

Section 7.

Term and
Termination

7.1.                              Unless
earlier terminated pursuant to this Section 7, this Agreement will have an
initial term of five (5) years from the Effective Date.  After the expiration of the initial term,
this Agreement will thereafter continue for subsequent five year terms, unless
earlier 

 8
 

 

 

terminated as
provided below.  Neither party will be
liable for terminating this Agreement in accordance with its terms.

7.2.                              This
Agreement can be terminated as follows:

7.2.1                        Philips
shall have the right to terminate this Agreement for cause immediately in the
event that (i) MedQuist defaults in any payment due to Philips and such default
continues for a period of thirty (30) business days after written notice to
MedQuist; (ii) MedQuist fails to perform any material obligation, duty or
responsibility or is in default with respect to any material term or condition
undertaken by it under this Agreement and such default continues for a period
of thirty (30) business days after written notice to MedQuist; or (iii) a
receiver is appointed for MedQuist or its property, or it makes an assignment
for the benefit of its creditors, or any proceedings are commenced by, for or
against it under any bankruptcy, insolvency or debtor’s relief law, or it is
liquidated or dissolved.  In case the
tender for MedQuist shares is not consummated in accordance with the terms of
the Tender Offer Agreement, this Agreement shall have no effect, unless
confirmed by both the parties hereto.

7.2.2                        MedQuist
shall have the right to terminate this Agreement immediately in the event that
(i) Philips fails to perform any material obligation, duty or responsibility or
is in default with respect to any material term or condition undertaken by it
under this Agreement and such default continues for a period of thirty (30)
business days after written notice to Philips; or (ii) a receiver is appointed
for Philips or its property, or it makes an assignment for the benefit of its
creditors, or any proceedings are commenced by, for or against it under any
bankruptcy, insolvency or debtor’s relief law, or it is liquidated or dissolved
or (iii) Philips defaults in any payment due to MedQuist and such default
continues for a period of thirty (30) days after written notice to Philips.

7.2.3                        Either
Party shall have the right to terminate this Agreement (both at the end of the
initial term and during or at the end of any subsequent term) at its sole
discretion upon at least a two (2) years prior written notice to the other
Party, the first possibility to issue such notice shall be no sooner than at
the end of the initial term (i.e. the term of the license will be at least 7
years).

7.3.                              Upon
the termination of this Agreement, all fees owed by one Party to the other
Party pursuant to this Agreement shall be paid within ten (10) days after the
date of termination.

7.4.                              Upon
the termination of this Agreement, all licenses granted hereunder shall
terminate.  Each Party shall return to
the other Party, erase, or destroy all copies of the other Party’s Confidential
Information in its possession or reasonably obtainable and shall certify same
has been done.

 9
 

 

 

7.5.                              Sections
5, 7.3, 7.4, 8, 9 and 10 shall survive the termination of this Agreement.

Section 8.

Confidential
Information

8.1.                              The
Parties agree all information and materials received by one Party from the
other Party (“Disclosing Party”), including Licensed Product, Documentation,
Contexts, Language Resources, the terms of this Agreement and any information
and materials about the other Party’s business, product, technologies,
customers, patient information and suppliers identified by the Disclosing Party
as confidential and proprietary to, and trade secrets of, the other Party are
referred to as “Confidential Information”.

8.2.                              Each
Party agrees to hold all Confidential Information of the Disclosing Party in
strict confidence, not to disclose it to others and not to allow any
unauthorized person access to it, either before or after termination of this
Agreement.

8.3.                              Each
Party agrees to restrict dissemination of the Confidential Information of the
other Party to only those persons within its organization who must have access
to such information to enable the Party receiving Confidential Information to
perform its obligations under this Agreement.

8.4.                              A
Party (the “Receiving Party”) shall not be liable for the disclosure or other
use of Confidential Information which (a) is in the public domain at the time
of disclosure through no fault of such Receiving Party, (b) becomes rightfully
known to such Receiving Party from a third party under no obligation to
maintain confidentiality, (c) becomes publicly available through no fault
of or failure to act by such Receiving Party in breach of this Agreement, (d)
was independently developed or already known by such Receiving Party prior to
the Parties having access to one another’s Confidential Information, as proven
with documentary evidence, or (e) is required by court order or by governmental
authority to be disclosed, provided that such Receiving Party promptly notifies
the Disclosing Party that it may be required to make a disclosure and uses
reasonable efforts to make such disclosure subject to a protective order or
confidentiality agreement.

Section 9.

Publicity

9.1.                              The
Parties will jointly draft and approve any press release and other
announcements to the public relating to the Licensed Product and the intended
cooperation set forth herein; neither Party shall issue any other press release
or make any other public announcement relating to this Agreement without the
prior written consent of the other Party.

 10
 

 

 

Section 10.

General Terms

10.1.                        This
Agreement is not transferable or assignable without the prior written consent
of the other Party hereto, except by merger, reorganization, consolidation, or
sale of all or substantially all of the Party’s assets.

10.2.                        This
Agreement shall be governed by and construed in accordance with the domestic
laws of the State of New York, without regard to its choice of law rules.

10.3.                        This
Agreement, including the Schedules, contains the complete agreement between the
Parties with respect to the subject matter herein and supersedes all previous
and collateral agreements relating thereto.

10.4.                        This
Agreement may only be amended and obligations under this Agreement may only be
waived by a written instrument signed by both Parties.  No failure or delay by any Party in
exercising any right under this Agreement shall operate as a waiver.

10.5.                        Nothing
contained in this Agreement shall be construed as making either Party the agent
of the other Party, as granting to the other Party the right to enter into any
contract on behalf of the other Party, or as establishing a partnership or a
relationship of principal or agent between the Parties.

10.6.                        If any
term or other provision of this Agreement is invalid, illegal or incapable of
being enforced by any rule of law, or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and
effect.

10.7.                        The
headings of sections, portions or paragraphs of the Agreement are for
convenience only and shall not affect the interpretation of the respective
rights and obligations of the Parties.

10.8.                        Neither
Party shall be liable on account of or lose its rights under this Agreement
because of any delay or failure in performance (other than payment) caused by
governmental restrictions, war, civil commotion, riots, strikes, lock outs and
acts of God such as fire and flood or other similar cases that are beyond the
control of the Parties.

10.9.                        All
notices, consents and approvals given under this Agreement shall be in writing
and shall be delivered in person, by first class or express mail or by
facsimile confirmed by telephone to the address set forth below:

	
  If to Philips: 

  Philips Speech Processing GmbH 

  Computerstrasse 6 

  A-1101 Vienna, Austria 

  Facsimile: + 43.1.602-3359

  	
   

  	
  If to MedQuist: 

  MedQuist Inc. 

  Five Greentree Centre, Suite 311 

  Marlton, NJ 08053 

  Facsimile: (856) 596-3351

  

 

 11

 

	
  with a copy to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Office of the General Counsel 

  Philips Speech Processing 

  64 Perimeter Center East, 

  Atlanta, Georgia 31146-467300 

  Facsimile: (770) 821-2700

  	
   

  	
  Office of the General Counsel 

  MedQuist, inc. 

  Five Greentree Centre, Suite 311 

  Marlton, NJ 08053 

  Facsimile: (856)797-5949

  

 

or at such other address as either Party may from time
to time advise the other Party in accordance herewith.

10.10.                  In no event
shall Philips have any liability under this Agreement including but not limited
to direct or indirect damages of any kind or nature, in the aggregate, in
excess of the payments actually received by Philips under this Agreement,
whether arising by contract, tort, strict liability or otherwise and in no
event shall either party be liable for any indirect damages, including any
consequential (including, but not limited to, loss of profits or revenues, loss
of use of or damage to any associated equipment, cost of capital, cost of
substitute products, facilities or services, downtime cost, or claims of
customer), special, indirect or incidental damages.

10.11.                  This Agreement
may be executed in several counterparts, all of which taken together shall
constitute one single Agreement between the Parties.  The parties agree to accept facsimile
signatures with originals being exchanged afterwards.

Section 11.

Dispute Resolution

11.1.                        General.  Except as otherwise provided in this
Agreement, disputes between Philips and MedQuist relating to the interpretation
or application of this provisions of this Agreement shall be resolved in
accordance with this Section 11.

11.2.                        Informal
Dispute Resolution.  Any dispute
between the parties arising out of or with respect to this Agreement, either
with respect to the interpretation of any provision of this Agreement or with
respect to the performance by Philips or MedQuist, shall be resolved as
provided in this Section 11.2.

Prior to the initiation of formal dispute resolution
procedures, the parties shall first attempt to resolve their dispute
informally, as follows:

(A)                              Representatives
for each party (designated within 30 days after notice of the dispute is given
(the “Representatives”)) shall meet for the purpose of endeavoring to resolve
such dispute.  They shall meet as often
as the parties reasonably deem necessary in order to gather and furnish to the
other all information with respect to the matter in issue which the parties
believe to be appropriate and germane in connection with its resolution.  The Representatives 

 12
 

 

 

shall discuss
the problem and negotiate in good faith in an effort to resolve the dispute
without the necessity of any formal proceeding.

If, within fifteen (15)
days after a matter has been identified for resolution pursuant to this Section
11.2, either of the Representatives concludes in good faith that amicable
resolution through continued negotiation by them does not appear likely, the
matter shall be referred to the Supervisory Committee of the Board of Directors
of MedQuist upon formal written notification to such effect by either
Representative (provided such Supervisory Committee is then in existence), in
an attempt to mediate the dispute; in case such mediation fails, the matter
will be escalated by formal written notification to the respective chief
executive officers of the Parties.  The
parties will use their respective best efforts to cause the MedQuist CEO and
the Philips CEO to meet to attempt to resolve the dispute.

Formal proceedings for
the resolution of a dispute may not be commenced until the earlier of: (i) the
date on which the MedQuist CEO and the Philips CEO conclude in good faith that
amicable resolution through continued negotiation of the matter does not appear
likely; or (ii) thirty (30) days after the dispute has been referred to the
MedQuist CEO and the Philips CEO.

The provisions of this
Section 11 shall not be construed to prevent a party from instituting, and a
party is authorized to institute, formal proceedings earlier to avoid the
expiration of any applicable limitations period.

11.3.                        Arbitration.  If the parties are unable to resolve any
controversy arising  under this Agreement
as contemplated by Section 11.2, then such controversy shall be submitted to
mandatory and binding arbitration at the election of either Party (the “Disputing
Party”) pursuant to the following conditions: 
(i)  The Disputing Party shall
notify the American Arbitration Association (“AAA”) and the other Party in
writing describing in reasonable detail the nature of the dispute (the “Dispute
Notice”).  The parties shall each select
a neutral arbitrator in accordance with the rules of AAA and the two (2)
arbitrators selected shall select a third neutral arbitrator.  The three (3) arbitrators so selected are
herein referred to as the “Panel.” The Panel shall allow reasonable discovery
as permitted by the Federal Rules of Civil Procedure, to the extent consistent
with the purpose of the arbitration.  The
Panel shall have no power or authority to amend or disregard any provision of
this Section 11.  The arbitration hearing
shall be commenced promptly and conducted expeditiously, with each of Philips
and MedQuist being allocated one-half of the time for the presentation of its
case.  Unless otherwise agreed to by the
parties, an arbitration hearing shall be conducted on consecutive days.  Should any arbitrator refuse or be unable to
proceed with arbitration proceedings as called for by this Section, such
arbitrator shall be replaced by an arbitrator selected in accordance with the
rules of the AAA and consistent with this Section 11.  The Panel rendering judgment upon disputes
between parties as provided in this Section 11 shall, after reaching judgment
and award, prepare and distribute to the parties a writing describing the
findings of fact and conclusions of law relevant to such judgment and award and
containing an opinion setting forth the reasons for the giving or denial of any
award.  The award of the 

 13
 

 

 

arbitrator
shall be final and binding on the parties, and judgment thereon may be entered
in a court of competent jurisdiction.

Arbitration hearings hereunder shall be held in New
York, New York or other mutually agreeable location.

The Panel shall be instructed that time is of the
essence in the arbitration proceeding. 
The Panel shall render its judgment or award within fifteen (15) days
following the conclusion of the hearing. 
Recognizing the express desire of the parties for an expeditious means
of dispute resolution, the Panel shall limit or allow the parties to expand the
scope of discovery as may be reasonable under the circumstances.

11.4.                        Litigation.  In the event of a breach of the
confidentiality obligations set forth in this Agreement, or in the event a
party makes a good faith determination that a breach of the terms of this
Agreement by the other party is such that the damages to such party resulting
from the breach will be so immediate, so large or severe, and so incapable of
adequate redress after the fact that a temporary restraining order or other
immediate injunctive relief is a necessary remedy, then such party may file a
pleading with a court seeking immediate injunctive relief.  If a party files a pleading with a court
seeking immediate injunctive relief and this pleading is challenged by the
other party and the injunctive relief sought is not awarded in substantial part
(or in the event of a temporary restraining order is vacated upon challenge by
the other party), the party filing the pleading seeking immediate injunctive
relief shall pay all of the costs and attorneys’ fees of the party successfully
challenging the pleading.  Philips and
MedQuist each consent to venue in New York, New York and to the nonexclusive
jurisdiction of competent New York state courts or federal courts located in
New York, for all litigation which may be brought, subject to the requirement
for arbitration hereunder, with respect to the terms of, and the transactions
and relationships contemplated by, this Agreement.

IN WITNESS WHEREOF, the Parties have caused this
Agreement to be duly executed by their authorized representatives.

	
  PHILIPS SPEECH PROCESSING GmbH

  	
   

  	
  MedQuist Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   By:

  	
  /s/ C. Vohringer

  	
   

  	
   

  	
  By:

  	
  /s/ David A. Cohen

  	
   

  
	
  Name:C. Vohringer

  	
   

  	
  Name:David A. Cohen

  
	
  Title:General Manager

  	
   

  	
  Title:Chief Executive Officer

  
							

 

 14
 

 

 

SCHEDULE “A”

List of Licensed Product, Contexts and Documentation

	
  SpeechMagic 4.0 and future Major Releases

  
	
  All Philips proprietary Contexts

  
	
  The Context Customization Tool

  

 

 15
 

 

 

SCHEDULE “B”

Description of Philips Trademarks

The terms and conditions
under which MedQuist can use the trademarks indicated below in accordance with
Corporate Guidelines will be communicated separately to MedQuist by the Royal
Philips Electronics, Corporate Intellectual Property Dept. within thirty days
of the Effective Date

 16
 

 

 

SCHEDULE “C”

Warranties, Indemnification and Limitation on
Liability Provisions

1.             Warranties
of Both Parties.

1.1                                 As
a material inducement to the other Party to enter into this Agreement, each of
the Parties warrants to the other that:

(i)                                     it
is duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and it is in good standing and qualified to do
business in every jurisdiction where the nature of its business or the lease or
ownership of property requires it to be so qualified or where failure to so
qualify may materially affect its ability to perform its obligations hereunder;

(ii)                                  it
has the full power and authority to execute, deliver and perform this
Agreement;

(iii)                               this
Agreement has been duly authorized, executed and delivered by such Party and is
its legal, valid and binding obligation enforceable against it in accordance
with its terms, except as enforcement may be limited by bankruptcy, moratorium,
insolvency or other similar laws affecting creditors’ rights generally, or by
general principles of equity;

(iv)                              its
obligations hereunder shall be performed by personnel with the requisite skill,
training, experience and abilities to perform such obligations hereunder in a
diligent and professional manner; and

(v)                                 its
performance hereunder shall not violate or be in conflict with (a) its
governing documents, (b) any judgment, decree or order to which it is a party,
(c) any agreement, contract, understanding, indenture or other instrument to
which it is a party, or (d) any applicable law, rule or regulation.

2.             Additional
Philips’ Warranties.

2.1                                 Philips
further warrants that:

(i)                                     as
of the date of this Agreement, it is not involved in any litigation where a
claim of patent, copyright or trade secret infringement has been made against
the Licensed Product; and

(ii)                                  the
Intellectual Property Department of Philips Electronics North America
Corporation is responsible for intellectual property matters of Philips in the
United States and that, as of the date of this Agreement, the Intellectual
Property Department has not received any assertions, threats, 

 17
 

 

 

or claims from any
third party that the Licensed Product infringes any IP Rights of any third
party.

3.             Indemnification.

3.1                                 Philips
Indemnification.

Subject to the provision set forth herein below,
Philips shall defend, at its expense, any action brought against MedQuist based
on a claim that the Licensed Product, when used in accordance with the terms of
this Agreement and for its intended use, infringes a United States copyright or
trademark, trade secrets, patents or other IP Rights, provided Philips is
notified promptly in writing by MedQuist of the claim, is given sole control of
the defense and settlement for so long as it diligently pursues such defense,
and is provided all reasonable assistance by MedQuist in connection
therewith.  Philips shall pay any costs,
settlements and damages finally awarded against MedQuist in connection with the
claims.  If the Licensed Product is
finally adjudged to so infringe, or in Philips’s opinion such a claim is likely
to succeed, Philips will, at its option: (i) procure for MedQuist the right to
continue using the Licensed Product in the USA; (ii) modify or replace the
infringing Licensed Product so there is no infringement (provided the Licensed
Product’s performance is not materially adversely affected thereby); or (iii)
refund the license fees thereof to MedQuist, less a reasonable allowance for
amortization, depreciation and use.

3.2                                 In
the case of a third party claim of infringement asserted against a Philips
trademark, Philips may instruct MedQuist to use a different trademark.

3.3                                 Philips
will have no liability for any claim of infringement of any third party IP
Right that arises as a result of (i) MedQuist’s use of the Licensed Product as
furnished by Philips with other software, product or data if such claim would
have been avoided by exclusive use of the Licensed Product, (ii) modification
of the Licensed Product as furnished by Philips by anyone other than Philips if
such claim would have been avoided by use of the unmodified Licensed Product;
(iii) third party software or (iv) use of other than the most current release
of the Licensed Product as furnished by Philips if the claim could have been
avoided by the use of the most current release. 
Licensing of the Licensed Products by Philips does not convey any
license, by implication, estoppel or otherwise, under patent claims covering
combinations of the Licensed Products with other devices or elements.

3.4                                 THE
FOREGOING STATES PHILIPS’ ENTIRE LIABILITY TO MEDQUIST FOR INFRINGEMENT OF
COPYRIGHTS, PATENTS, OR OTHER INTELLECTUAL PROPERTY RIGHTS.  SUCH LIABILITY EXTENDS ONLY TO THE ACTIVITIES
OF MEDQUIST UNDER THIS AGREEMENT AND NOT TO (i) ANY USE OR OTHER ACTIVITIES OF
END USERS, CUSTOMERS OR OTHER THIRD PARTIES OR (ii) LIABILITIES INCURRED BY
MEDQUIST ARISING FROM ANY OTHER ACTIVITIES OF END USERS, CUSTOMERS OR OTHER
THIRD PARTIES.  IN NO EVENT 

 18
 

 

 

SHALL PHILIPS’ LIABILITY
TO MEDQUIST EXCEED A SUM EQUAL TO THE TOTAL LICENSE FEES PAID BY MEDQUIST TO
PHILIPS HEREUNDER DURING A 12 MONTH PERIOD IMMEDIATELY PROCEEDING THE DATE THAT
PHILIPS IS NOTIFIED IN WRITING BY MEDQUIST OF SUCH CLAIM.  EXCEPT AS SPECIFICALLY PROVIDED HEREIN,
PHILIPS WILL NOT BE LIABLE FOR ANY LOSS OR DAMAGE OF WHATEVER KIND (INCLUDING,
IN PARTICULAR, ANY INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS
OF TURNOVER OR PROFITS) SUFFERED BY MEDQUIST OR ANY OTHER PERSON AS A RESULT OF
THE INFRINGEMENT OF ANY PATENT, COPYRIGHT, OR OTHER INTELLECTUAL PROPERTY
RIGHT.

4.1                                 MedQuist
agrees to indemnify, defend and hold harmless Philips against any suit or
proceeding brought against Philips incident to any infringement or claimed
infringement of any patent, copyright or other intellectual property right
arising out of (i) compliance with any MedQuist furnished specification or
designs; (ii) unauthorized modification of the Licensed Product or any part
thereof by MedQuist; (iii) use of the Licensed Product by MedQuist in
connection or combination with software or hardware not provided by Philips
under this agreement, where the claim arises by the combination with the other
software or hardware with which the Licensed Product is combined; (iv) the use
of the Licensed Product by MedQuist in a manner other than as recommended in
the Documentation; or (v) the use of any non-current release of the Licensed
Product by MedQuist where the current release avoids said infringement, and has
been made available to MedQuist along with written notice that the current
release avoids a potential issue of infringement.  Subject to the limitations contained in
Section 4 of this Schedule C, MedQuist shall pay all settlements and damages
awarded as a final judgment by a court of competent jurisdiction, provided
MedQuist is promptly notified by Philips in writing of any such claim and, at
MedQuist’s expense is given full and exclusive control of said suit, and all
reasonable requested assistance from Philips.

4.2                                 THE
FOREGOING STATES MEDQUIST’S ENTIRE LIABILITY TO PHILIPS FOR INFRINGEMENT OF
COPYRIGHTS, PATENTS OR OTHER PROPRIETARY RIGHTS.  IN NO EVENT WILL MEDQUIST’S LIABILITY TO
PHILIPS EXCEED A SUM EQUAL TO THE LICENSE FEES AND PURCHASE PRICES INVOICED TO
MEDQUIST BY PHILIPS HEREUNDER DURING A 12 MONTH PERIOD IMMEDIATELY PRECEDING
THE DATE MEDQUIST IS NOTIFIED IN WRITING BY PHILIPS OF SUCH A CLAIM .  EXCEPT AS SPECIFICALLY PROVIDED HEREIN,
MEDQUIST WILL NOT BE LIABLE FOR ANY LOSS OR DAMAGE OF WHATEVER KIND (INCLUDING,
IN PARTICULAR, ANY INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS
OF TURNOVER OR PROFIT) SUFFERED BY PHILIPS OR ANY OTHER PERSON AS A RESULT OF
THE INFRINGEMENT OF ANY PATENT, COPYRIGHT, OR OTHER INTELLECTUAL PROPERTY
RIGHT.

 19

 

5.             Limited
Product Warranty.

5.1                                 Philips
represents, undertakes and warrants to MedQuist that the Licensed Product will
perform substantially in conformance with the documentation accompanying such
Licensed Product for a period of ninety (90) days from the date of shipment and
acceptance of the Licensed Product and documentation by MedQuist.  Philips does not, however, warrant that (a)
the operation of such Licensed Product will be uninterrupted or error free; (b)
the Licensed Product meets certain success rates or performance levels; nor (c)
that the Licensed Product will meet the requirements of MedQuist or any third
party.  If the Licensed Product fails to
perform substantially in conformance with the documentation accompanying the
Licensed Product during the warranty period set forth herein, then Philips,
upon receipt of written complaint to that effect, will undertake all commercial
endeavors to correct that non-conformity in accordance with good software
engineering practices, or, if unable to do so, will replace the nonconforming
Licensed Product with a functionally equivalent Licensed Product.

5.2                                 In
order to obtain service under the terms of the warranty provided in Section 5.1
hereof, before the expiration of the appropriate warranty period, MedQuist must
notify Philips in writing of the defective or non-conforming item.  Philips reserves the right to charge MedQuist
for any and all costs incurred by Philips in connection with allegedly
defective warranty claims hereunder that Philips reasonably determines not to
be non-conforming or defective as described above and under such circumstances
MedQuist will pay Philips such costs promptly after its receipt of an invoice
therefor.

5.3                                 The
warranty provided in Section 5.1 hereof shall not apply if failure of the
Licensed Product covered by such warranty to perform substantially in
conformance with the documentation accompanying the Licensed Product has
resulted from accident, abuse, modification, misapplication, improper use or
faulty equipment.

5.4                                 EXCEPT
FOR THE LIMITED WARRANTY SPECIFIED IN 5.1 THROUGH 5.3 HEREOF, THE LICENSED
PRODUCT AND SERVICES ARE PROVIDED “AS IS”. 
FURTHERMORE, THE WARRANTIES AND REMEDIES PROVIDED BY SECTIONS 5.1
THROUGH 5.3 ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES EXPRESS OR
IMPLIED, AND PHILIPS MAKES NO OTHER WARRANTIES OF ANY KIND, EXPRESS, IMPLIED,
ORAL OR WRITTEN.  IN ADDITION PHILIPS
DISCLAIMS ANY IMPLIED WARRANTIES OF INFRINGEMENT, MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE.  PHILIPS SHALL
NOT BE LIABLE FOR ANY INCIDENTAL, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES,
INCLUDING BUT NOT LIMITED TO LOSS OF ANTICIPATED PROFITS OR BENEFITS.  NO PHILIPS AUTHORIZED REPRESENTATIVE, AGENT
OR EMPLOYEE IS AUTHORIZED TO MAKE ANY MODIFICATIONS, EXTENSION OR ADDITION TO
THE 

 20
 

 

 

WARRANTIES PROVIDED IN
SECTIONS 5.1 THROUGH 5.3.  PHILIPS MAKES
NO WARRANTY AS TO (A) DEFECTS IN LICENSED PRODUCT OTHER THAN THOSE WHICH
MATERIALLY AFFECT PERFORMANCE IN ACCORDANCE WITH THE APPLICABLE PRINTED PRODUCT
DOCUMENTATION MENTIONED ABOVE, AND (B) AS TO DEFECTS THAT APPEAR IN THE
LICENSED PRODUCT USED IN VIOLATION OF THE LICENSE GRANTED HEREIN.

 21
 

 

 

SCHEDULE “D”

Pricing and Fees

Initial Sign-up fee (15 man years, as described
hereinafter)

15 x 150k US$ = 2.25 M US$

payable:  500k$ on 20 September 2000

500k$ on 20 December 2000

500k$ on 20 March 2001

250k$ on 20 June 2001

250k$ on 20 September 2001

250k$ on 20 December 2001

2/nd/ and 3/rd/ level Support

2000:  0

2001:  1 person at 200k US$ / year

2002:  2 persons at 400k US$ / year

2003  (and onwards)-3 persons at 600k US$
/ year

Support payable per Quarter, no later than by the
middle of the second month

License Fees

License Fees are based on a per use basis following
the formula below.

Note:

PAYROLL lines are the
lines that serve as basis to pay the transcriptionists 

(Payroll-Line is 65 black/white characters)

 22
 

 

 

	
   

  	
   

  	
  Year 2000

  	
   

  	
  Year 2001

  	
   

  	
  Year 2002

  	
   

  	
  Year 2003

  	
   

  	
  Year 2004

  	
   

  	
  Year 2005 and 

  beyond

  	
   

  
	
  Estimated
  Penetration of SR applied as a percentage of Pay-roll lines (A)

  	
   

  	
  0

  	
  %

  	
  4

  	
  %

  	
  13

  	
  %

  	
  25

  	
  %

  	
  45

  	
  %

  	
   

  	
   

  

 

	
  Cost per Pay-roll line via Speech
  Recognition from MedQuist to PSP (equals revenue to PSP)

  	
   

  	
  * 500 Million Payroll Lines via Speech Recognition
  in a year at 0,012 US$ per Line (a new count starts each year as from Jan.
  1st) and for each Payroll Line via Speech Recognition in such year ** 500
  Million Lines at 0,010 US$ per Line

  	
   

  

 

	
  Guaranteed License fees

  	
   

  	
  0%

  	
   

  	
  75% of Estimated Penetration (A) x Total Volume in
  Pay-roll lines (both via Speech Recognition and directly to trancriptionist)
  in Year 2001 x Cost per line formula (B)

  	
   

  	
  75% of Estimated Penetration (A) x Total Volume in
  Pay-roll lines (both via Speech Recognition and directly to transcriptionist)
  in Year 2002 x Cost per line formula (B)

  	
   

  	
  50% of Estimated Penetration (A) x Total Volume in
  Pay-roll lines (both via Speech Recognition and directly to transcriptionist)
  in Year 2003 x Cost per line formula (B)

  	
   

  	
  25% of Estimated Penetration (A) x Total Volume in
  Pay-roll lines (both via Speech Recognition and directly to transcriptionist)
  in Year 2004 x Cost per line formula (B)

  	
   

  	
  No Guarantee.

  

  License fee is based on ACTUAL Pay-roll LINES via Speech Recognition x Cost
  per line formula (B) 

  	
   

  

 

*   less than

** more than

ALL CHARGES FOR ADDITIONAL SERVICES ( e.g.
development, consultancy, training etc) will be on commercial Terms
&Conditions to be negotiated in good faith

15 Man years of
pre-committed payment at Philips’ internal, fully loaded cost basis.

 23
 

 

 

This payment is for three kind of services:

1)                                      Development
/ Project Management / Consultancy for a MedQuist optimized Correction Editor.

The current Correction Editor of Philips has been
developed for European circumstances and may well need to be adapted to the
speed and customs (habits) of MedQuist transcriptionists who are used to using
short-hand codes. (E.g. 1) if stopped at a mis-recognized word by just typing
over this word, the original word disappears, preventing the correctionist from
first having to delete this word, or 2) if stopped at a certain word and a
period is pressed on the keyboard then this period will follow this word and
the next word will be capitalized; etc.).

Philips will be actively involved in the design and
specification phase, and undertake the development and testing of the
modifications.

The jointly to be agreed specifications will serve as
the input for the jointly to be agreed project plan.  In the project plan also the acceptance
criteria must be defined.

No later than June 2000 Josef Reisinger, product
manager Professional Dictation will come to MedQuist to start the Specification
Process.

Philips will employ new and existing resources to this
Project on a dedicated basis.

2)                                      Consultancy
Development / Project Management / Consultancy for Integration of  SR into MedQuist IT infrastructure.

Although this activity is under responsibility of
MedQuist, a close (technical) co-operation is needed to make sure sound- and
text-files are flowing from one database to the other.  Also some customizations/adaptations are
expected on the Speech Recognition system to accommodate the MedQuist system.

No later than June 2000 , Dieter Hoi, Development
Project Leader SpeechMagic and Josef Reisinger will come to MedQuist to start
planning the integration process.

3)                                      Start-up
services.

In addition to the normal 2/nd/ and 3/rd/ line support
Philips will provide technical expertise on site during start-up time to
minimize down-time risks.

The best person(s) for this will be identified later.

The 15 man-year is a minimum commitment to Philips to
be invoked before December 2001.  The
commitment is on so called fully loaded cost basis.  When resources are needed after or in
addition to the 15 man-years having been spent (a monthly report on spent time
will be provided to MedQuist) or after December 2001, whichever comes first,
the cost for these additional services will be on Commercial Terms and
Conditions to be negotiated.

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Schedule E

SUPPORT

1.                                       Philips
offers to MedQuist Support as described in this Schedule E. Philips agrees to
make available Support for a period of one year from the date of
discontinuation of a certain release of the Licensed Product.  In case Philips opts not to continue offering
such Support services, MedQuist will receive access to the source code for
internal error correction purposes. 
Support shall include the following:

(a)                                  Supply
of routine Patches, Maintenance Releases and Documentation updates and -
corrections;

(b)                                 Problem
diagnosis and resolution including Level 2 and Level 3 Support.

2.                                       MedQuist
can only obtain Support services by payment of a quarterly fee described in
Schedule D.

3.                                       If
MedQuist has paid for Support services pursuant to Schedule D:

(a)                                  Upon
receiving notice from the appointed MedQuist internal Level 1 Support unit of a
Problem, Philips shall verbally acknowledge receipt of such notice, and confirm
the same by fax or e-mail within 24 hours thereafter.  Such acknowledgment shall contain a unique
number identifying the particular problem for tracking purposes.  Philips shall provide MedQuist with a status
of any Patch, bug or error logged for MedQuist provided that MedQuist
identifies the particular Problem by the tracking number assigned to it by
Philips.  Each Problem logged for
MedQuist shall remain open until closure notification is agreed to by MedQuist.

(b)                                 Philips
shall provide prompt written notice to MedQuist of all defects, malfunctions,
Patches, bugs, viruses, and/or other anomalies in the Licensed Products which
become known to Philips, in case Philips believes that such conditions are
likely to result in actual or potential degradation of the functionality or
performance of the Licensed Products.

(c)                                  Philips
shall make all reasonable efforts to provide a Patch for the Licensed
Product(s) according to the following “restoration time” schedule:

(1)                                  Severity
1 - within four (4) normal Business hours of receipt of notice of existence of
a Problem by the appointed MedQuist internal Level 1 Support unit.

(2)                                  Severity
2 - within one (1) business day of receipt of notice of existence of Problem by
the appointed MedQuist internal Level 1 Support unit.

(3)                                  Severity
3 and Severity 4 - if not a Minor Release, within twenty (20) working days of
acknowledging the receipt of the Problem the appointed 

 25
 

 

 

MedQuist internal
Level 1 Support unit and thereafter in all other instances resolved in a Major
Release of the supported Licensed Product.

(d)                                 In
the event Philips does not respond to a verifiable MedQuist reported Problem
within the time schedule and guidelines, as provided for in this Schedule E or
if MedQuist in MedQuist’s good faith determination, believes the progress of
Philips in attempting to resolve the Problem or in responding to the
information request is not being made in accordance with Philips’s Problem
plan, then MedQuist may escalate the Problem to a higher severity level.

5                                          Upon
MedQuist’s request and subject to availability, Philips shall furnish qualified
personnel for on-site assistance to MedQuist to resolve Problems.  In such event, MedQuist shall pay Philips at
its then current time and materials rates, which shall be consistent with customary
and reasonable industry rates therefor, for the time of such personnel and
reimburse Philips for reasonable travel and living expenses of such personnel
incurred in rendering such assistance.

6.             Severity:

(a)                                  “Severity
1” shall mean a Problem which critically impacts MedQuist’s ability to continue
its business in the ordinary course.

(b)                                 “Severity
2” shall mean a Problem where a major function of the supported Licensed
Product is unusable and significantly impacts MedQuist’s ability to do business
but MedQuist’s can continue to perform its business as necessary.

(c)                                  “Severity
3” shall mean a Problem which does not seriously impact MedQuist’s business.

(e)                                  “Severity
4” shall mean a Problem not covered above, including supported Licensed Product
enhancement requests.

MedQuist will ensure that escalation to Level 2
Support is only being received by Philips from the appointed MedQuist internal
Level 1 Support unit.  Level 2 Support
will only communicate to such appointed MedQuist internal Level 1 Support unit.

 26

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