Q2 and Half Year Results -10-


accepting CBaySystems Holdings' offer. Based on these allegations, plaintiff 
sought declaratory, injunctive, and monetary relief from all defendants. 
Plaintiff claimed that MedQuist was only named as a party to the litigation for 
purposes of injunctive relief. 
 
On July 14, 2008, MedQuist moved to dismiss plaintiff's amended class action 
complaint, arguing (1) that plaintiff's amended class action complaint did not 
allege that MedQuist engaged in any wrongdoing which supported a breach of 
fiduciary duty claim and (2) that a breach of fiduciary duty claim is not 
legally cognizable against a corporation. Plaintiff filed an opposition to 
MedQuist's motion to dismiss on July 21, 2008. 
 
On November 21, 2008, the Court granted MedQuist's motion and the motions filed 
by the other defendants and dismissed plaintiff's amended class action complaint 
with prejudice. On December 31, 2008, plaintiff filed an appeal of the trial 
court's dismissal order with the New Jersey Appellate Division. Thereafter, the 
parties briefed all the issues raised in plaintiff's appeal. In MedQuist's 
opposition brief, it opposed all the arguments plaintiff raised with respect to 
the dismissal of the claims against it. 
 
On September 24, 2009, the Appellate Division held oral argument on plaintiff's 
appeal. On July 1, 2010, the Appellate Division entered an Order and Opinion 
that affirmed the dismissal of the claims against MedQuist and two of the 
MedQuist director defendants, Mr. Edward Siegel and Warren E. Pinckert II.  The 
Appellate Division reversed the dismissal of the claims against the remaining 
defendants Philips and certain of our former directors and remanded those claims 
back to the Chancery Division.  As a result of the Appellate Division's July 1, 
2010 Order and Opinion, MedQuist is no longer a defendant in this matter. 
 
Reseller Arbitration Demand 
 
On October 1, 2007, MedQuist received from counsel to nine current and former 
resellers of its products (Claimants), a copy of an arbitration demand filed by 
the Claimants, initiating an arbitration proceeding styled Diskriter, Inc., 
Electronic Office Systems, Inc., Milner Voice & Data, Inc., Nelson Systems, 
Inc., NEO Voice and Communications, Inc., Office Business Systems, Inc., 
Roach-Reid Office Systems, Inc., Stiles Office Systems, Inc., and Travis Voice 
and Data, Inc. v. MedQuist Inc. and MedQuist Transcriptions, Ltd. (collectively 
MedQuist) (filed on September 27, 2007, AAA, 30-118-Y-00839-07). The arbitration 
demand purports to set forth claims for breach of contract; breach of covenant 
of good faith and fair dealing; promissory estoppel; misrepresentation; and 
tortious interference with contractual relations. The Claimants allege that 
MedQuist breached its written agreements with the Claimants by: (i) failing to 
provide reasonable training, technical support, and other services; (ii) using 
the Claimants' confidential information to compete against the Claimants; (iii) 
directly competing with the Claimants' territories; and (iv) failing to make new 
products available to the Claimants. In addition, the Claimants allege that 
MedQuist made false oral representations that it: (i) would provide new product, 
opportunities and support to the Claimants; (ii) were committed to continuing to 
use Claimants; (iii) did not intend to create its own sales force with respect 
to the Claimants' territory; and (iv) would stay out of Claimants' territories 
and would not attempt to take over the Claimants business and relationships with 
the Claimants' customers and end-users. The Claimants assert that they are 
seeking damages in excess of $24.3 million. MedQuist also moved to dismiss 
MedQuist Inc. as a party to the arbitration since MedQuist Inc. is not a party 
to the Claimants' agreements, and accordingly, has never agreed to arbitration. 
The AAA initially agreed to rule on these matters, but then decided to defer a 
ruling to the panel of arbitrators selected pursuant to the parties' agreements 
(Panel). In response, MedQuist informed the Panel that a court, not the Panel, 
should rule on these issues. When it appeared that the Panel would rule on these 
issues, MedQuist initiated a lawsuit in the Superior Court of DeKalb County (the 
Court) and requested an injunction enjoining the Panel from deciding these 
issues. The Court denied the request, and indicated that a new motion could be 
filed if the Panel's ruling was adverse to MedQuist Inc. or MedQuist 
Transcriptions, Ltd. On May 6, 2008, the Panel dismissed MedQuist Inc. as a 
party, but ruled against MedQuist opposition to a consolidated arbitration. 
MedQuist asked the Court to stay the arbitration in order to review that 
decision. The Court initially granted the stay, but later lifted the stay. The 
Court did not make any substantive rulings regarding consolidation, and in fact, 
left that decision and others to the assigned judge, who was unable to hear 
those motions. Accordingly, until further order of the Court, the arbitration 
will proceed forward. 
 
MedQuist filed an answer and counterclaim in the arbitration, which generally 
denied liability. In the lawsuit, the defendants filed a motion to dismiss 
alleging that it's complaint failed to state an actionable claim for relief. On 
July 25, 2008, MedQuist filed its response which opposed the motion to dismiss 
in all respects. On September 10, 2008, the Court heard argument on defendants' 
motion to dismiss. The Court did not issue a decision, but rather, took the 
matter under advisement. 
 
During discovery in the arbitration, Claimants repeatedly modified the 
individual damage claims and asserted two alternative damage theories. Claimants 
did not specify what the two alternative damage theories were, but stated that 
they were seeking alternative damage amounts for each Claimant. The Panel issued 
a Revised Scheduling Order, which tentatively scheduled the arbitration to begin 
in February 2010. 
 
On March 31, 2010, the parties entered into a Settlement Agreement and Release 
pursuant to which MedQuist paid the Claimants $500 on April 1, 2010 to resolve 
all claims. Under the Settlement Agreement and Release, (i) the parties 
exchanged mutual releases, (ii) the arbitration and related state court 
litigation were dismissed with prejudice and (iii) MedQuist did not admit to any 
liability or wrongdoing. MedQuist accrued the entire amount of this settlement 
as of December 31, 2009. 
SEC Investigations of Former MedQuist Officer 
 
With respect to MedQuist's historical billing practices, the SEC is pursuing 
civil litigation against its former chief financial officer, whose employment 
with MedQuist ended in July 2004. Pursuant to its bylaws, MedQuist has 
indemnification obligations for the legal fees for its former chief financial 
officer. 
 
 
8.  Investment in A-Life Medical, Inc. (A-Life) 
 
The Company has an investment in A-Life of $10,541 and $9,996 as of June 30, 
2010 and December 31, 2009. The Company's investment is accounted for under the 
equity method as it owned approximately 32% of the outstanding ownership as of 
June 30, 2010 and December 31, 2009. During the six months ended June 30, 2010 
A-Life recorded a change in estimate related to its purchase accounting of an 
acquisition. The Company's share of the impact from the change in estimate was 
approximately $440 which is included in the Equity in income of affiliated 
company. The investment in A-Life is included in Other assets in the 
accompanying consolidated balance sheets. 
 
9. Acquisition of Spheris 
 
On April 22, 2010, the Company through its subsidiary MedQuist and CBay Inc (the 
"Purchasers"), completed the acquisition of substantially all of the assets of 
Spheris, Inc. ("Spheris") and certain of its affiliates including Spheris India 
Private Limited ("SIPL") (collectively with Spheris and SIPL, the Sellers), 
pursuant to the terms of the Stock and Asset Purchase Agreement (the "Purchase 
Agreement") entered into between the Purchasers and Sellers on April 15, 2010 
for $112.4 million. Spheris provides medical transcription services in the 
United States. Costs incurred for the Acquisition and direct integration costs 
are included in the line item Acquisition and integration related charges on the 
accompanying statements of operations. The Acquisition was funded from the 
proceeds of new credit facilities. See Note 10 for a description of the 
Acquisition financing. 
 
The acquired business contributed net revenues of $26.4 million and a net loss 
of $4.5 million, inclusive of $6.0 million of Acquisition and integration 
charges and $1.2 million of amortization of acquired intangibles, to the Company 
for the period from April 22, 2010 to June 30, 2010. The following unaudited pro 
forma summary presents the consolidated information of the Company as if the 
business combination had occurred at the beginning of each period. 
 
+-------------------------------------------+----------+---------+-+---------+ 
|                                           |          |  Pro Forma three    | 
|                                           |          |    months ended     | 
|                                           |          |      June 30,       | 
+-------------------------------------------+----------+---------------------+ 
|                                           |          |    2010 | |    2009 | 
+-------------------------------------------+----------+---------+-+---------+ 
| Net revenues                              |        $ | 120,181 |$ | 133,864 | 
+-------------------------------------------+----------+---------+-+---------+ 
| Net income attributable to CBaySystems    |          |   1,021 | |   1,175 | 
| Holdings Limited                          |          |         | |         | 
+-------------------------------------------+----------+---------+-+---------+ 
| Net income per share attributable to      |          |         | |    0.00 | 
| CBaySystems Holdings Limited (Basic)      |          |         | |         | 
|                                           |          |   0.00  | |         |
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