Execution Copy
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of
August 22, 2003 by and between MedQuist Inc., a New Jersey corporation (the
"Company"), and R. Xxxxxxx Xxxxx ("Employee").
BACKGROUND
The Company desires to hire Employee, and Employee desires to accept
such employment on the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, the parties hereto, intending
legally to be bound, hereby agree as follows:
1. Employment. The Company hereby employs Employee as its President and
Chief Executive Officer upon the terms and conditions set forth in this
Agreement. In addition, so long as Employee serves as Chief Executive Officer,
the Board of Directors shall recommend Employee to the shareholders for election
to the Board of Directors at each annual or other meeting of the shareholders at
which directors are elected. Subject to Section 8 hereof, the Agreement shall be
for a five (5) year term commencing on the first day of Employee's employment
and shall automatically renew for successive one (1) year periods.
2. Office and Duties. Employee shall render such services as are
appropriate for a person holding Employee's position and, subject to Section
8.e.ii hereof, such additional or alternative duties as may from time to time be
assigned to Employee by the Board of Directors of the Company ("Duties").
3. Full Time Employment. Employee shall use Employee's best efforts to
carry out his Duties and other obligations hereunder and devote Employee's
entire working time to the business and affairs of the Company, and shall not,
in any advisory or other capacity, work for any other individual, firm or
corporation without the prior written consent of the Company.
4. No Conflicting Agreements. Employee represents and warrants to the
Company that he is not subject or a party to any agreement, non-competition
covenant, non-disclosure agreement or other agreement, covenant, understanding
or restriction which would prohibit Employee from executing this Agreement or
performing fully the Duties and other obligations hereunder, or which would in
any manner, directly or indirectly, limit or affect the Duties or other
obligations hereunder. The Company acknowledges that Employee has disclosed to
it that he is a member of the board of directors (or functional equivalent) of
certain companies and other entities. Employee acknowledges that the Company's
board of directors shall from time to time review if any such memberships (or
future memberships) conflict with any of his Duties or obligations under this
Agreement and Employee will resign from any such position upon request of the
board of directors.
5. Base Salary; Bonus; Options; Restricted Stock.
a. Base Salary. Employee shall be entitled to a total base
salary of $500,000 per year, payable at such times as is consistent with the
Company's pay periods for other executives of the Company. The Compensation
Committee of the Board of Directors may, from time to time, increase but not
decrease Employee's Base Salary (as so adjusted, "Base Salary").
b. Signing Bonus. On the first pay period following the
commencement of his employment, Company shall pay to Employee a $135,000 signing
bonus, which Employee shall repay to the Company if Employee resigns (other than
for "good reason" as defined herein) within one (1) year after the date his
employment commences.
c. 2003 Cash Bonus. For calendar year 2003, Employee's bonus
shall be $187,500 so long as Employee shall not have announced his resignation
(other than for
"good reason" as defined herein) on or prior to the date payment is due.
d. Annual Cash Bonus. After calendar year 2003, Employee shall
be eligible for participation in the Company's annual targeted cash bonus plan
for executive officers in an amount equal to up to 75% of Base Salary. Under the
current targeted cash bonus plan for executive officers, (i) 75% of the bonus
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target will be earned upon achievement of financial objectives such as the
Company's earnings per share ("EPS") as proposed by management and approved by
the Company's compensation committee (the "Compensation Committee"); and (ii)
25% of the bonus target will be earned upon achievement of specific strategic
and tactical initiatives identified by management and approved by the
Compensation Committee. In addition, Employee may earn up to an additional 50%
of the targeted bonus based upon the sole discretion of the Compensation
Committee; provided, however, that Employee's total annual cash bonus (targeted
plus discretionary) may not exceed 100% of Base Salary.
e. Annual Option Bonus. Employee shall be eligible for an
annual stock option grant of the Company's common stock with a target valued at
50% of Base Salary and with an exercise price equal to the closing price of the
Company's common stock as of the date of grant. The option grant target value
shall be determined based upon accepted option pricing methodology such as Black
Scholes. Under the current plan, (i) 75% of the option target will be earned
upon achievement of financial objectives such as the Company's EPS as proposed
by management and approved by the Compensation Committee and (ii) 25% of the
option target will be earned upon achievement of specific strategic and tactical
initiatives identified by management and approved by the Compensation Committee.
This program may be changed to a restricted share program of the Company's
common stock at the option of the Compensation Committee. The value, at date of
grant, of restricted shares awarded will be equal to the value of an option
award. Options shall be awarded subject to the Company's 2002 Stock Option Plan
and options (or restricted shares) shall vest ratably over a five (5) year term.
f. Restricted Shares. The Company shall issue to Employee
35,000 restricted shares of the Company's common stock (the "Restricted
Shares"). Employee's right to sell or otherwise transfer the Restricted Shares
shall, subject to applicable securities laws, rules and regulations, vest in
increments of 20% on the anniversary of Employee's first day of employment and
20% on each such anniversary date thereafter. Employee may not sell, transfer,
pledge or otherwise encumber or vote any Restricted Shares until they have
vested. Employee shall forfeit and return to the Company any Restricted Shares
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that have not vested as of the date Employee ceases to be an employee of the
Company; provided, however, if Employee accepts the severance provided for
herein over an 18 month term and does not otherwise breach the terms of this
Agreement, the Restricted Shares shall continue to vest until the end of such 18
month period.
Upon the vesting of the Restricted Shares, the Company shall deliver to
the Employee a certificate for the common stock of the Company; provided that no
such certificates will be delivered to Employee until appropriate arrangements
have been made with the Company for the withholding of any required federal,
state or local taxes of any kind with respect thereto (which arrangements may
include the settlement of the minimum required withholding obligation with
common stock of the Company, including the common stock of the Company that is
subject to this award, which common stock shall have a per share value equal to
the closing price of the Company's common stock as of the date of such vesting).
The Company shall, to the extent not otherwise satisfied and to the extent
permitted by law, have the right to deduct the amount of any such withholding
obligation from any payment of any kind otherwise due to the Employee.
The Company may condition delivery of certificates for the Company's
common stock upon receipt from Employee of any undertakings which it may
reasonably determine are required to ensure that the certificates are being
issued in compliance with federal and state securities laws. If Employee
determines that it is necessary or desirable, in his sole discretion, to adopt a
plan that is in compliance with Rule 10b5-1 of the Securities Act of 1933, as
amended, with respect to any shares of the Company's common stock received by
Employee in connection with this award, the Company, subject to applicable law,
shall permit and facilitate such adoption.
g. Equitable Treatment. Employee understands that from time to
time the Compensation Committee may modify or replace the Company's incentive
bonus plans (cash, options, restricted shares and others) from time to time as
it may deem to be advisable in its discretion. The Employee shall participate in
and be subject to the terms of such incentive bonus plans in a manner that is at
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least as favorable as are offered from time to time and administered with
respect to the most senior executive officers of the Company.
6. Other Benefits. So long as you are employed by the Company pursuant
to the terms of this Agreement, Employee will be eligible to receive the
following benefits (collectively, "Benefits"):
a. Savings and Retirement Plans. Participation in all savings,
pension and retirement plans and programs of the Company generally available to
other executives of the Company as in effect from time to time;
b. Welfare Plans. Participation in any welfare benefit plans
and programs of the Company as in effect from time to time;
c. Life Insurance. Life insurance maintained by the Company on
the life of Employee (naming the beneficiary of Employee's choice) in an amount
consistent with policy of the Company as in effect from time to time;
d. Vacation. Paid vacation (taken consecutively or in
segments) in accordance with the Company's policies (not less than 4 weeks)
generally applicable to other executives of the Company from time to time, taken
at such times as is reasonably consistent with proper performance by Employee of
Employee's Duties;
e. Car Allowance. A car allowance of $1,000 per month, which
shall be Employee's only reimbursement for any expenses relating to business use
of an automobile; and
f. Legal Fees. Employee's reasonable legal fees and expenses
incurred in connection with negotiating this Agreement; and
g. Relocation Benefits. Relocation benefits related to
relocating Employee's home and family to the Marlton, New Jersey area consistent
with the terms of the "Philips Relocation Policy," dated January 2002 (as
supplemented April 2002) and previously provided to Employee.
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7. Reimbursement for Expenses. The Company shall reimburse Employee in
full for all reasonable and necessary business and travel expenses incurred by
him in connection with the performance of his Duties (collectively, "Expenses").
Notwithstanding any provision herein to the contrary, the Company shall
reimburse Employee only (a) upon presentation by Employee of written vouchers or
expense statements satisfactorily evidencing such expenses as may be reasonably
required by the Company and (b) if such expenses are in accordance with the
Company's policies generally applicable to executives of the Company.
8. Resignation; Termination; and Severance Benefits.
a. Resignation. Subject to Section 8.e. below, Employee may
resign his employment at any time by providing thirty (30) days' prior written
notice of resignation to the Company. The Company may waive the notice
requirement and immediately terminate Employee's employment upon receipt of
notice.
b. Death or Disability. Subject to Section 8.e. below, this
Agreement shall terminate immediately upon Employee's death. Subject to Section
8.e. below, the Company may terminate Employee's employment hereunder in the
event of physical or mental incapacity or disability which renders Employee
unable to perform the Duties for a period of one hundred twenty (120) days or
more during any period of twelve (12) consecutive months ("Disability").
c. Termination Without Cause; Resignation for Good Reason.
Subject to Section 8.e. below, the Company may terminate Employee's employment
at any time without cause immediately upon giving notice to Employee. In
addition, if Employee resigns for "good reason" as defined below, the
termination shall be treated hereunder as if it were without cause.
d. Termination for Cause. Subject to Section 8.e. below, the
Company may terminate Employee's employment hereunder at any time for cause
after providing Employee notice and opportunity to cure pursuant to Section
11.a. hereof. Termination for "cause" shall mean discharge of the Employee by
the Company on any of the following grounds: (i) willful and continued failure
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to substantially perform his Duties after a written demand for substantial
performance is delivered to the Employee identifying the manner in which the
Company believes that the Employee has not substantially performed his Duties,
or (ii) willful misconduct which is materially economically injurious to the
Company or to any entity in control of, controlled by or under common control
with Company (an "Affiliate"), including, but not limited to, any breach of
confidentiality provisions or restrictive covenant provisions to which the
Employee is bound, or (iii) Employee's conviction of, or plea of guilty or nolo
contendere to, a felony or other crime involving moral turpitude, or (iv) drug
or alcohol abuse by the Employee or (v) conduct by Employee that fails to comply
in all material respects with the Company's codes of ethics or other similar
policies as in place from time to time.
e. Company's Obligations Upon Termination.
i. Termination for Cause; Resignation; Death or
Disability. If the Company terminates Employee's employment hereunder for cause,
or if Employee resigns (other than for "good reason" as defined below), or if
Employee dies or suffers a Disability, the Company shall have no further
obligations to Employee hereunder other than for the payment of (a) accrued but
unpaid salary prorated through the date of termination or effective date of
resignation ("Accrued Salary"), (b) any Benefits vested as of such date ("Vested
Benefits") and (c) unreimbursed Expenses incurred prior to such date.
ii. Termination Without Cause; or Resignation for Good
Reason. If (a) the Company terminates Employee's employment hereunder without
cause or (b) if the Employee voluntarily terminates his employment for good
reason, the Company shall have no further obligation to Employee hereunder other
than for the payment or provision, as applicable, of (1) Accrued Salary, (2)
eighteen (18) months (as defined below) severance payable in equal installments
on the Company's regular paydates; (3) any Vested Benefits and continued
provision of Benefits described in Sections 6.a., 6.b. and 6.c. for such
eighteen (18) month period and (4) unreimbursed Expenses incurred prior to the
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date of termination. In addition, any restricted shares or options granted
pursuant to Sections 5.e. and 5.f. hereof shall continue to vest during such
eighteen (18) month period. Notwithstanding the foregoing, Employee may elect to
take the severance pay described in clause (2) above in a lump sum, in which
case the Benefits described in clause (3) above (other than Vested Benefits)
shall terminate and vesting of any restricted shares or options shall cease as
of the date of his termination of employment.
For purposes of this Agreement:
(aa) a "month" of severance shall be equal to (1)
the sum of all cash compensation awarded to the Employee in the fiscal year
immediately prior to termination, or if compensation was higher or would be
higher on an annualized basis, in the fiscal year in which such termination
takes place; divided by (2) 12;
(bb) Resignation for "good reason" shall mean: (1)
required relocation of Employee's principal place of business by more than 50
miles, or (2) failure of the Company to pay any compensation authorized by this
Agreement, provided the Employee has given the Company notice of such breach and
the Company has failed to cure such breach within thirty days after receipt of
such notice, or (3) a material change in the title or a substantial diminution
of Employee's Duties so long as Employee objects to same within thirty (30)
days' after any such change or (4) a "change in control" of the Company in which
Employee is terminated without cause or resigns for good reason (as defined in
subsection 1-3 above) within twelve months after such change-in-control or (5) a
transaction in which, without Employee's prior consent, Koninklijke Philips
Electronics, N.V. and its affiliates acquire all of the issued and outstanding
voting stock of the Company.
(cc) "change in control" shall mean (1) any
liquidation of the Company, (2) the sale of all or substantially all of the
assets of the Company, (3) the acquisition by any person or group of beneficial
ownership of securities representing more than 50% of the combined voting power
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in the election of directors of the Company (after giving effect to the exercise
of any options, warrants or other convertible securities held by such person or
group), (4) approval of a merger, consolidation or other business combination by
the Company's shareholders in which a majority of the Board of the surviving
corporation (or its ultimate parent) are not members of the board of directors
prior to such merger, or (5) commencement of a tender offer to purchase
securities representing more than 50% of the combined voting power in the
election of directors of the Company (after giving effect to the exercise of any
options, warrants or other convertible securities held by such person or group).
f. Employee's Obligations In the Event Severance is Due. In
order to be eligible for severance pursuant to the foregoing, the Employee must
execute an employment release in favor of the Company in form and substance
reasonably satisfactory to the parties and may not be claiming entitlement to
severance or similar compensation from the Company under any other agreement,
plan or program.
9. Restrictive Covenants and Confidentiality; Injunctive elief.
a. As a condition to the performance by the Company of its
obligations hereunder so long as Employee remains an employee of the Company,
and for a period of eighteen (18) months thereafter, Employee shall not, without
the prior written approval of the Board of Directors of the Company, directly or
indirectly through any other person, firm or corporation, whether individually
or in conjunction with any other person, or as an employee, agent,
representative, partner or holder of any interest in any other person, firm,
corporation or other association:
(i) solicit, entice or induce any person, firm or
corporation who or which presently is, within eighteen (18) months prior hereto
was, or at any time during the term of his Employment (the "Term") shall be, a
client or customer of the Company or any of its subsidiaries to either cease
doing business with the Company or to do business with a competitor of the
Company and Employee shall not approach any such person, firm or corporation for
such purpose or authorize or knowingly approve the taking of such actions by any
other person; or
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(ii) solicit, entice, induce or hire any person who
presently is, within eighteen (18) months prior hereto was, or at any time
during the term hereof shall be an employee of the Company or any of its
subsidiaries to become employed by any other person, firm or corporation, and
Employee shall not approach any such employee for such purpose or authorize or
knowingly approve the taking of such actions by any other person; or
(iii) compete with, or encourage or assist others to
compete with, or solicit orders or otherwise participate in business
transactions in the electronic transcription services and other health
information management solutions services businesses in which the Company is
engaged anywhere within the United States or in any area outside of the United
States in which Employee provides services to the Company (each, a "Competing
Business"); or
(iv) lend any credit or money for the purposes of
establishing or operating or assisting any Person to establish or operate a
Competing Business, or otherwise give aid or advice to any other person or
entity engaging in any Competing Business; or
(v) knowingly lend or allow his professional skill,
knowledge or experience to be so used by any person or entity which is engaged
in a Competing Business.
Employee acknowledges that his responsibilities for the Company will
extend to the entire United States and not just be limited to a local geographic
territory.
Nothing in the foregoing shall prohibit Employee from engaging in any
business that is not a Competing Business after termination of Employee's
employment with the Company, or investing in the securities of any corporation
(including a Competing Business) having securities listed on a national security
exchange, provided that such investment does not exceed 5% of any class of
securities of any corporation engaged in business in competition with the
Company, and provided that such ownership represents a passive investment and
that neither Employee nor any group of persons including Employee, in any way,
either directly or indirectly, manages or exercises control of any such
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corporation, guarantees any of its financial obligations, otherwise takes any
part in its business, other than exercising Employee's rights as a shareholder,
or seeks to do any of the foregoing.
b. Employee acknowledges that during the Term, Employee will
have access to confidential and proprietary information of the Company and its
affiliates not available to the public or in the public domain, including,
without limitation, proprietary software, trade secrets, Developments (as
defined below) plans for future developments, information about costs,
customers, potential customers, profits, markets, sales, products, key
personnel, pricing policies, operational methods, technical processes and other
business affairs and methods (collectively, "Confidential Information"). As to
trade secrets, Employee covenants and agrees that Employee will not use or
disclose such trade secrets other than in the Company's business so long as the
Company's trade secrets remain trade secrets, but in no event for less than two
(2) years following termination of employment. With respect to all other
Confidential Information, Employee covenants to keep secret all such
Confidential Information and to not, directly or indirectly, either during the
Term or at any time within two (2) years thereafter, disclose or disseminate to
anyone or make use of, for any purpose whatsoever, any Confidential Information.
Employee acknowledges that all copies of documents which contain Confidential
Information are and shall remain the property of the Company. Upon termination
of Employee's employment, Employee will promptly deliver to the Company all
tangible materials containing Confidential Information (including all copies
thereof, whether prepared by Employee or others) which Employee may possess or
have under Employee's control.
c. Employee represents (i) that Employee's experience and
capabilities are such that the restrictions contained herein will not prevent
Employee from obtaining employment or otherwise earning a living at the same
general economic benefit as reasonably required by Employee and (ii) that
Employee has, prior to the execution of this Agreement, reviewed this Agreement
thoroughly with Employee's legal counsel.
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d. Employee acknowledges that the services to be rendered by
Employee are special, unique and extraordinary, that the restrictions contained
in this Section 8 are reasonable and necessary to protect the legitimate
business interests of the Company and that the Company and Parent would not have
entered into this Employment Agreement in the absence of such restrictions. By
reason of the foregoing, Employee consents and agrees that if Employee violates
any of the provisions of this Section 9, the Company would sustain irreparable
harm and, therefore, irrevocably and unconditionally agrees that in addition to
any other remedies which the Company may have under this Agreement or otherwise,
all of which remedies shall be cumulative, the Company shall be entitled to
apply to any court of competent jurisdiction for preliminary and permanent
injunctive relief and other equitable relief. In the event that any of the
provisions of this Section 8 hereof should ever be adjudicated to exceed the
time, geographic, service, or other limitations permitted by applicable law in
any jurisdiction, then such provisions shall be deemed reformed in such
jurisdiction to the maximum time, geographic, service, or other limitations
permitted by applicable law.
e. Employee agrees that the Company may provide a copy of this
Agreement to any business or enterprise (i) which the Employee may directly or
indirectly own, manage, operate, finance, join, control or participate in the
ownership, management, operation, financing, or control of, or (ii) with which
Employee may be connected with as an officer, director, employee, partner,
principal, agent, representative, consultant or otherwise, or in connection with
which Employee may use or permit Employee's name to be used. Employee will
provide the names and addresses of any of such persons or entities as the
Company may from time to time reasonably request.
f. In the event of any breach or violation of the restriction
contained above, the period therein specified shall xxxxx during the time of any
violation thereof and that portion remaining at the time of commencement of any
violation shall not begin to run until such violation has been fully and finally
cured.
g. Employee acknowledges that the Company shall be the sole
owner of all the results and proceeds of Employee's services hereunder,
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including but not limited to, all inventions, developments, enhancements,
discoveries and other improvements relating to equipment, methods or processes
connected with or useful to the Company's and its subsidiaries' businesses,
(collectively, the "Developments"), which Developments Employee, by himself or
in conjunction with any other person or entity, may conceive, make, acquire,
acquire knowledge of, develop or create in connection with and during the term
of or prior, to Employee's employment hereunder, free and clear of any claims by
Employee (or any successor or assignee of Employee) of any kind or character
whatsoever other than Employee's right to compensation hereunder. Employee
hereby assigns and transfers his right, title and interest in and to all such
Developments, and agrees that he shall, at the request of the Company, execute
such assignments, certificates or other instruments, and do any and all other
acts, as the Company from time to time reasonably deems necessary or desirable
to evidence, establish, maintain, perfect, protect, enforce or defend the
Company's right, title and interest in or to any such Developments. Employee
acknowledges that any Development which may be copyrightable shall be deemed to
be "work for hire."
10. Survival. Any provisions that by their terms are intended to
survive the termination of this Agreement shall so survive, including, without
limitation, Section 9.
11. Miscellaneous.
a. Any notice authorized or required to be given or made by or
pursuant to this Agreement shall be made in writing and either personally
delivered or mailed by overnight express mail to the respective address of the
party to receive such notice, which address is the one designated below the
signature of such party hereto, or to such other address as a party may specify
by notice to the other parties hereto. In the event that the Company desires to
terminate Employee for cause pursuant to Section 7.b. of this Agreement, the
Company shall provide Employee with prompt written notice of such termination
and, if requested by Employee, afford Employee a reasonable opportunity to cure
such default within sixty (60) days after receipt of such notice.
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b. All of the terms and provisions of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
heirs, executors, administrators, legal representatives, successors and assigns
of the parties hereto, except that the duties and responsibilities of Employee
hereunder are of a personal nature and shall not be assignable or delegatable in
whole or in part by Employee.
c. If any provision of this Agreement or application thereof
to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provision or application of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision or application in any
other jurisdiction.
d. No remedy conferred upon any party by this Agreement is
intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to any other remedy given hereunder
or now or hereafter existing at law or in equity. No delay or omission by any
party in exercising any right, remedy or power hereunder or existing at law or
in equity shall be construed as a waiver thereof, and any such right, remedy or
power may be exercised by the party possessing the same from time to time and as
often as may be deemed expedient or necessary by such party in its sole
discretion.
e. This Agreement may be executed in several counterparts,
each of which is an original. It shall not be necessary in marking proof of this
Agreement or any counterpart hereof to produce or account for any of the other
counterparts.
f. In the event of a lawsuit by either party to enforce any
provisions of this Agreement, the prevailing party shall be entitled to recover
reasonable costs, expenses and attorney's fees from the other party.
g. The validity, interpretation, construction, performance and
enforcement of this Agreement shall be governed by the laws of the State of New
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Jersey, without reference to principles of conflicts of laws. The parties fully
agree that the exclusive venue of any action arising out of this Agreement and
the employee's employment or termination thereof shall be in the Superior Court
of Camden or Burlington County, New Jersey, any other court in New Jersey having
jurisdiction over an action arising out of this Agreement, or the United States
District Court for the District of New Jersey. Each party consents to service of
process with respect to any such matter by certified mail.
h. In this Agreement, words of gender may be read as
masculine, feminine, or neuter, as required by context. Words of number may be
read as singular or plural, as required by context.
i. Certain Additional Payments. Anything in this Agreement to
the contrary notwithstanding, in the event it shall be determined that any
payment, award, benefit or distribution (or any acceleration of any payment,
award, benefit or distribution) by the Company (or any of its affiliated
entities) to or for the benefit of Employee (whether pursuant to the terms of
this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 11.i. (the "Payments") would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any interest or penalties are incurred by Employee with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Company shall pay to Employee an additional payment (a "Gross-Up Payment")
in an amount such that after payment by Employee of all taxes (including any
Excise Tax) imposed upon the Gross-Up Payment, Employee retains an amount of the
Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the
Payments and (y) the product of any deductions disallowed because of the
inclusion of the Gross-Up Payment in Employee's adjusted gross income and the
highest applicable marginal rate of federal income taxation for the calendar
year in which the Gross-Up Payment is to be made. For purposes of determining
the amount of the Gross-Up Payment, the Employee shall be deemed to (i) pay
federal income taxes at the highest marginal rates of federal income taxation
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for the calendar year in which the Gross-Up Payment is to be made, (ii) pay
applicable state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-Up Payment is to be made, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes and (iii) have otherwise allowable deductions for
federal income tax purposes at least equal to those which could be disallowed
because of the inclusion of the Gross-Up Payment in the Employee's adjusted
gross income. Notwithstanding the foregoing, this Section 11.i. shall not apply
to any stock option grant if the result of the application of such Section 11.i.
would be to alter the basis on which compensation expense is measured for
purposes of APB Opinion Number 25.
Subject to the provisions of Section 11.i., all determinations
required to be made under this Section 11.i., including whether and when a
Gross-Up Payment is required, the amount of such Gross-Up Payment, and the
assumptions to be utilized in arriving at such determinations, shall be made by
the public accounting firm that is retained by the Company as of the date
immediately prior to the Change in Control (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and Employee within
fifteen (15) business days of the receipt of notice from the Company or the
Employee that there has been a Payment, or such earlier time as is requested by
the Company (collectively, the "Determination"). In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change in Control, Employee may appoint another
nationally recognized public accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company and the Company shall enter into any agreement requested
by the Accounting Firm in connection with the performance of the services
hereunder. The Gross-Up Payment under this Section 11.i. with respect to any
Payments shall be made no later than thirty (30) days following such Payment. If
the Accounting Firm determines that no Excise Tax is payable by Employee, it
shall furnish Employee with a written opinion to such effect, and to the effect
that failure to report the Excise Tax, if any, on Employee's applicable federal
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income tax return will not result in the imposition of a negligence or similar
penalty. The Determination by the Accounting Firm shall be binding upon the
Company and Employee. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the Determination, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment") or Gross-Up Payments are made by the Company which should
not have been made ("Overpayment"), consistent with the calculations required to
be made hereunder. In the event that the Employee thereafter is required to make
payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code) shall be promptly paid by the Company to or for the
benefit of Employee. In the event the amount of the Gross-Up Payment exceeds the
amount necessary to reimburse the Employee for his Excise Tax, the Accounting
Firm shall determine the amount of the Overpayment that has been made and any
such Overpayment (together with interest at the rate provided in Section
1274(b)(2) of the Code) shall be promptly paid by Employee (to the extent he has
received a refund if the applicable Excise Tax has been paid to the Internal
Revenue Service) to or for the benefit of the Company. Employee shall cooperate,
to the extent his expenses are reimbursed by the Company, with any reasonable
requests by the Company in connection with any contests or disputes with the
Internal Revenue Service in connection with the Excise Tax.
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IN WITNESS WHEREOF, Employee has hereunto set Employee's hand and the
Company has caused this instrument to be duly executed as of the day and year
first above written.
EMPLOYEE
/s/ R. Xxxxxxx Xxxxx
----------------------------------
R. Xxxxxxx Xxxxx
MEDQUIST INC.
By: /s/ Xxxx X. Xxxxxxx
----------------------------------
Xxxx X. Xxxxxxx, Executive Vice
President and CLO
Xxxx Xxxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxx, Xxx Xxxxxx 00000
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