8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): September 19, 2007

MedQuist Inc.

(Exact name of registrant as specified in its charter)

New Jersey	0-19941	22-2531298
(State or other jurisdiction	(Commission	(I.R.S. Employer
of incorporation)	File Number)	Identification No.)
1000 Bishops Gate Blvd., Suite 300, Mt. Laurel, NJ		08054
(address of principal executive offices)		(Zip Code)

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

(Former name or former address, if changed since last report.)

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

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

     On September 21, 2007, MedQuist Inc. (the “Company”, “us” or “our”) entered into that certain Amended and Restated OEM Supply Agreement (the “Amended OEM Agreement”) by and between Philips Speech Recognition Systems GmbH f/k/a Philips Austria GmbH, Philips Speech Processing, a Republic of Austria corporation (“PSP”). The Amended OEM Agreement amends and restates that certain OEM Supply Agreement with PSP dated September 23, 2004, which is attached as an exhibit (with portions omitted and filed separately with the Securities and Exchange Commission (“SEC”) pursuant to a request for confidential treatment) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 filed with the SEC on July 5, 2007 (the “2005 Form 10-K”).

     PSP is an affiliate of the Company’s majority shareholder, Koninklijke Philips Electronics N.V., a corporation organized under the laws of The Netherlands (“Philips”). The Supervisory Committee of the Company’s Board of Directors, responsible for, among other things, the general oversight, administration, amendment and enforcement of all material agreements or arrangements between us and Philips, approved the Company’s execution of the Amended OEM Agreement. The Amended OEM Agreement will be filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, with portions omitted and filed separately with the SEC pursuant to a request for confidential treatment.

     Pursuant to the Amended OEM Agreement, the Company has purchased for an undisclosed amount a co-ownership interest in all right and interest in and to SpeechQ for Radiology together with its components, including object and source code for the SpeechQ for Radiology application and the SpeechQ for Radiology integration SDK (collectively, the “Product”), but excluding the SpeechMagic engine and SpeechMagic SDK which the Company separately licenses from PSP for a fee. Additionally, the Amended OEM Agreement provides that the Company shall receive, in exchange for a fee, the exclusive right in the United States, Canada and certain islands of the Caribbean (collectively, the “Exclusive Territory”) to sell, service and deliver the Product. In addition, PSP has agreed that for the term of the Amended OEM Agreement it will not release a front-end multi-user reporting solution (including one similar to the Product) in the medical market in the Exclusive Territory nor will it directly authorize or assist any of its affiliates to do so either; provided that the restriction does not prevent PSP’s affiliates from integrating SpeechMagic within their general medical application products. The Amended OEM Agreement further provides that the Company shall make payments to PSP for PSP’s development of an interim version of the software included in the Product (the “Interim Version”). Except for the Interim Version which the Company and PSP will co-own, the Amended OEM Agreement provides that any improvements, developments or other enhancements either the Company or PSP makes to the Product (collectively, “Improvements”) shall be owned exclusively by the party that developed such Improvement. Each party has the right to seek patent or other protection of the Improvements it owns independent of the other party.

     The term of the Amended OEM Agreement extends through June 30, 2010 and will automatically renew an additional three year term provided that the Company is in material compliance with the Amended OEM Agreement as of such date. If PSP decides to discontinue all business relating to the Product in the Exclusive Territory on or after June 30, 2010, PSP can effect such discontinuation by terminating the Amended OEM Agreement by providing the Company with six months’ prior written notice of such discontinuation, provided the earliest such notice can be delivered is June 30, 2010. Either party may terminate the Amended OEM Agreement for cause immediately in the event that a material breach by the other party remains uncured for more than 30 days following delivery of written notice or in the event that the other party becomes insolvent or files for bankruptcy.

     In addition to the Amended OEM Agreement, the Company is also party to that certain Licensing Agreement with PSP dated May 22, 2000 (the “Licensing Agreement”), as amended by Amendment No.1 dated January 1, 2002, Amendment No. 2 dated December 10, 2002, Amendment No. 3 dated August 10, 2003, Amendment No. 4 dated September 1, 2004, Amendment No. 5 dated December 30, 2005 and Amendment No. 6 dated February 13, 2007. Under the Licensing Agreement, the Company licenses PSP’s SpeechMagic speech recognition and processing software. The Licensing Agreement and each amendment thereto are attached as exhibits to the 2005 Form 10-K with portions omitted and filed separately with the SEC pursuant to a request for confidential treatment.

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Item 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers; Compensatory Arrangements of Certain Officers.

Item 5.02(e) – Agreements with Certain Officers

Letter Agreement with Nightingale and Associates, LLC (“Nightingale”)

          On September 19, 2007, the Company entered into a Letter Agreement (the “September 2007 Letter Agreement”) with Nightingale, further defining the terms under which Howard S. Hoffmann, the Company’s President and Chief Executive Officer, will continue providing services to the Company. Mr. Hoffmann currently serves as a Managing Partner of Nightingale. The September 2007 Letter Agreement amends the prior Letter Agreements between the Company and Nightingale dated July 29, 2004, December 16, 2004, September 12, 2006 (the “September 2006 Letter Agreement”) and January 8, 2007 (the “January 2007 Letter Agreement”), each of which are attached as exhibits to the 2005 Form 10-K. A copy of the September 2007 Letter Agreement is attached as Exhibit 10.1 to this Form 8-K and is incorporated herein by reference.

     Effective as of July 1, 2007, the September 2007 Letter Agreement extends the term of Mr. Hoffmann’s role as the Company’s President and Chief Executive Officer through February 29, 2008. Following termination of Mr. Hoffmann’s role as the Company’s President and Chief Executive Officer, Mr. Hoffmann will endeavor to make himself available for ongoing consultancy work on an as needed basis. Mr. Hoffmann’s fees for consultancy services following his departure as the Company’s President and Chief Executive Officer will be billed at his current hourly rate of $525 per hour.

     Under the terms of the September 2007 Letter Agreement, Nightingale’s fees for Mr. Hoffmann’s role as the Company’s President and Chief Executive Officer remain fixed at $120,000 per month from July 1, 2007 through February 29, 2008, plus out-of-pocket expenses. In addition to this fixed monthly fee, Nightingale may be entitled to receive certain bonus payments pursuant to the September 2007 Letter Agreement as follows:

• 2006 Discretionary Bonus. The September 2006 Letter Agreement provided that Nightingale may be entitled to an additional discretionary bonus payment of up to $240,000 in connection with Mr. Hoffmann’s service in 2006 as the Company’s interim Chief Executive Officer (the “2006 Discretionary Bonus”). In addition, the September 2006 Letter Agreement and the January 2007 Letter Agreement provided that the amount of the 2006 Discretionary Bonus, if any, that Nightingale could receive would be decided by a special committee of the Company’s Board of Directors (the “Committee”). The Committee has determined that Nightingale is entitled to $120,000 of the 2006 Discretionary Bonus, which shall be paid within 30 days of the date of the September 2007 Letter Agreement. Nightingale shall not be entitled to any additional payments pursuant to the 2006 Discretionary Bonus.

• 2007 Second Half Performance Bonus. Nightingale may be entitled to an additional performance related bonus payment of up to $240,000, which will be paid following the close of the Company’s 2007 fiscal year but no later than January 15, 2008, in connection with Mr. Hoffmann’s service from July 1, 2007 through December 31, 2007 as the Company’s President and Chief Executive Officer (the “2007 Second Half Performance Bonus”). The amount, if any, of the 2007 Second Half Performance Bonus that Nightingale is to receive will be based on the achievement of certain operational objectives that have been established by the Board of Directors of the Company and Nightingale. These operational objectives involve confidential strategic, commercial and financial information which, if disclosed, may result in competitive harm to the Company.

• Engagement Bonus. Nightingale may receive an engagement completion bonus in the amount of $132,500 if Mr. Hoffmann serves as the Company’s President and Chief Executive Officer until

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February 29, 2008 (the “Engagement Completion Bonus”). The Company will pay Nightingale the Engagement Completion Bonus in a lump sum within ten (10) business days following the earliest to occur of:

o the termination of Nightingale’s engagement with the Company, including the retention of Mr. Hoffmann as the President and Chief Executive Officer of the Company (or any successor to its business) following the closing of a Strategic Transaction (as defined below), or

o February 29, 2008, provided that Mr. Hoffmann has continuously served as the Company’s President and Chief Executive Officer through that date.

In the event of the termination of Nightingale’s engagement with the Company, including the retention of Mr. Hoffmann as the President and Chief Executive Officer of the Company, prior to the earlier to occur of the closing of a Strategic Transaction or February 29, 2008, the amount of the Engagement Completion Bonus due to the Nightingale, if any, shall be determined by the Board of Directors of the Company.

•

Strategic Transaction Bonus. Nightingale may receive a bonus (the “Success-Based Bonus”) in the amount of $132,500, if a Strategic Transaction is closed and either:

o Mr. Hoffmann continues to serve as the Company’s President and Chief Executive Officer for the 90 day period immediately following the closing of a Strategic Transaction (the “Post-Closing Period”), or

o Nightingale’s engagement with the Company (or any successor to its business), including the retention of Mr. Hoffmann as the President and Chief Executive Officer of the Company (or any successor to its business), is terminated upon the closing of a Strategic Transaction or at any time during the Post-Closing Period.

A “Strategic Transaction” includes:

o a transaction or series of related transactions whereby the Company, directly or indirectly, acquires control of, or a significant interest in, another entity having an enterprise value of greater than $50,000,000, as determined by the Company’s Board of Directors (an “Acquisition Transaction”); or

o a transaction or series of related transactions whereby, directly or indirectly, control of, or a significant interest in (other than solely a secured interest in us through a debt transaction), the Company or any of its businesses or assets is transferred for consideration, including, without limitation, a sale, acquisition or exchange of stock or assets, a lease or license of assets, or a merger, consolidation or reorganization, tender offer, leveraged buyout, “going private” transaction or other extraordinary corporate transaction or business combination involving the Company, including any such transaction in which our equity securities not held by Philips and its affiliates are acquired by a third-party (a “Sale Transaction”).

Notwithstanding the foregoing, a Strategic Transaction does not include a Sale Transaction or Acquisition Transaction with an affiliate of the Company or an affiliate of any holder of more than 50% of the Company’s capital stock.

The Company will pay the Success-Based Bonus to Nightingale in a lump sum within ten business days following the closing of a Strategic Transaction and the earliest to occur of the completion of the Post-Closing Period or the termination of Nightingale’s engagement with the Company (or any successor to its

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business), including the retention of Mr. Hoffmann as the President and Chief Executive Officer of the Company (or any successor to its business).

     For purposes of both the Engagement Completion Bonus and the Success-Based Bonus, Nightingale’s engagement with the Company, including the retention of Mr. Hoffmann as the President and Chief Executive Officer of the Company, shall not be deemed to have been terminated because Mr. Hoffmann ceases to be the President and Chief Executive Officer of the Company and becomes the President and Chief Executive Officer of any successor to the Company’s business following the completion of a Strategic Transaction on terms and conditions acceptable to such company and Nightingale.

Retention and Strategic Transaction Bonus Agreements with Certain Officers

    On September 20, 2007, the Company entered into individual Retention and Strategic Transaction Bonus Agreements (each a “Retention Agreement” and collectively the “Retention Agreements”) with certain officers of the Company including the following executive officers:

• Kathy Donovan — Senior Vice President and Chief Financial Officer

• Mark Sullivan — General Counsel, Chief Compliance Officer & Secretary

• Mark Ivie — Senior Vice President and Chief Technology Officer

• Michael Clark — Senior Vice President of Operations

• Scott Bennett — Senior Vice President of Sales & Marketing

     The Company is a party to individual employment agreements with each of Ms. Donovan and Messrs. Ivie and Bennett. The Company is a party to individual letter agreements with each of Messrs. Sullivan and Clark establishing certain terms of their employment with the Company. Each of the agreements with Ms. Donovan and Messrs. Sullivan, Clark, Ivie and Bennett are attached as exhibits to the 2005 Form 10-K.

     The form of Retention Agreement entered into by Ms. Donovan and Messrs. Ivie and Bennett is substantially the same for each and is attached to this report as Exhibit 10.2. The form of Retention Agreement entered into by Messrs. Clark and Sullivan is substantially the same for each and is attached to this report as Exhibit 10.3. The form of Retention Agreement entered into by Ms. Donovan and Messrs. Ivie and Bennett includes provisions (described below) regarding their waiver of any right or entitlement that they may or may not have with respect to certain long-term incentive awards (the “Annual LTIP Award”) described in their employment agreement with the Company. With the exception of these provisions, the form of Retention Agreement entered into by Messrs. Clark and Sullivan is substantially the same as the form of Retention Agreement entered into by Ms. Donovan and Messrs. Ivie and Bennett.

     Under the terms of their respective Retention Agreements, Ms. Donovan and Messrs. Sullivan, Clark, Ivie and Bennett will each be entitled to potentially receive an amount equal to 150% of their respective target bonus amounts under the Company’s 2007 Management Incentive Plan (the “Retention Bonus”). 50% of the Retention Bonus (the “Service-Based Payment”) will become payable upon the earlier of February 29, 2008 or the completion of a Strategic Transaction; provided in each case that the officer remains continuously employed with the Company through such time. However, in the event that officer is terminated without “cause” (as defined in their respective employment agreement or letter agreement with us) prior to the date the service-based payment would otherwise be payable, all or a portion of the Service-Based Payment may be paid to that officer if, upon recommendation of the Company’s Chief Executive Officer, the payment is approved by the Company’s Board of Directors.

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     The remaining 50% of the Retention Bonus will become payable if the Company successfully completes a Strategic Transaction and (i) the officer remains continuously employed by the Company (or the successor company as the case may be) for the 90 day period immediately following the closing of the Strategic Transaction; or (ii) the officer experiences an involuntary termination without cause (as defined below) at any time during the 90 day period immediately following the closing of the Strategic Transaction.

     For purposes of each Retention Agreement, an “involuntary termination without cause” means the officer’s (a) involuntary termination of employment by the Company other than for “cause” (as defined in the respective officer’s employment agreement or letter agreement, as applicable, with the Company) or (b) resignation due to relocation of the officer’s principal worksite to a location more than twenty-five (25) miles from his or her existing worksite. Under each Retention Agreement, the officer will not be deemed to have experienced an involuntary termination without cause if, in connection with or following the occurrence of a Strategic Transaction, the successor to the Company (if applicable) makes an offer to employ or retain the officer on terms and conditions acceptable to the officer.

     Payment of any portion of the amounts potentially due under the Retention Bonus Agreements to each of Ms. Donovan and Messrs. Ivie and Bennett are conditioned upon their execution of a waiver and release of claims against the Company expressly relinquishing any right or entitlement to receive the Annual LTIP Award described above.

Item 5.02(f) – Amendments to the Summary Compensation Table

     As described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 filed with the SEC on August 31, 2007 (the “2006 Form 10-K”), the Summary Compensation Table contained in Item 11, Executive Compensation (the “2006 Summary Compensation Table”), did not include Nightingale’s 2006 Discretionary Bonus for Mr. Hoffmann’s service to the Company as our President and Chief Executive Officer, as the amount payable pursuant to such bonus was not calculable as of the filing of the 2006 Form 10-K. As described above, the Committee has determined that $120,000 of the 2006 Discretionary Bonus shall be payable to Nightingale, and such amount will be paid to Nightingale within 30 days of the date of the September 2007 Letter Agreement. Nightingale shall not be entitled to any additional payments pursuant to the 2006 Discretionary Bonus.

     After giving effect to the Committee’s determination to pay Nightingale $120,000 of the 2006 Discretionary Bonus, the amounts reflected in the 2006 Summary Compensation Table for Mr. Hoffmann under the columns “All Other Compensation” and “Total” are each increased by $120,000 to $2,029,273. In addition, footnote (6) to the 2006 Summary Compensation Table is revised:

• to increase the amount under the column “Other Contractual Payments” for Mr. Hoffmann by $120,000 to $2,006,452;

• to update sub-footnote (c) to reference the $120,000 of the 2006 Discretionary Bonus payable to Nightingale; and

• to deleted in its entirety sub-footnote (d).

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Item 9.01 Financial Statements and Exhibits.

The following exhibit is filed with this Form 8-K:

Exhibit No.	Description
10.1	Letter Agreement by and between MedQuist Inc. and Nightingale and Associates, LLC dated September 19, 2007
10.2	Form of Retention and Strategic Transaction Bonus Agreement for Ms. Donovan and Messrs. Ivie and Bennett
10.3	Form of Retention and Strategic Transaction Bonus Agreement for Messrs. Clark and Sullivan

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SIGNATURE

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

	MEDQUIST INC.
Date: September 25, 2007	By:	/s/ Howard S. Hoffmann
		Name:	Howard S. Hoffmann
		Title:	President and Chief Executive Officer

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Exhibit Index

Exhibit No.	Description
10.1	Letter Agreement by and between MedQuist Inc. and Nightingale and Associates, LLC dated September 19, 2007
10.2	Form of Retention and Strategic Transaction Bonus Agreement for Ms. Donovan and Messrs. Ivie and Bennett
10.3	Form of Retention and Strategic Transaction Bonus Agreement for Messrs. Clark and Sullivan

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EX-10.1

Exhibit 10.1

Nightingale & Associates, LLC

Soundview Plaza

1266 East Main Street

Stamford, Connecticut 06902

Tel: 203.359.3855

Fax: 203.359.4551

Email: info@nightingale-associates.org

Principals:

Michael R. D’Appolonia

Howard S. Hoffmann

James D. Neidhart

September 18, 2007

Mr. Stephen Rusckowski, Chairman of the Board of Directors
Mr. John Underwood, Chairman of the Compensation Committee
MedQuist Inc.
1000 Bishops Gate Blvd., Suite 300
Mt. Laurel, NJ 08054-4632

Gentlemen:

     In response to various discussions, Nightingale & Associates, LLC (“Nightingale”) has been asked to submit this proposed Amendment to our Engagement Letter with MedQuist Inc. (“MedQuist” or the “Company”) dated July 29, 2004 as amended on December 16, 2004, September 25, 2006 and on January 8, 2007 (collectively, the “Amended Engagement Letter”). This Amendment (i) provides revisions to the cost structure and term associated with the continued retention of Mr. Howard Hoffmann as the Company’s Interim President and Chief Executive Officer. All other terms and conditions for the retention of Nightingale, as detailed in the Amended Engagement Letter, including but not limited to the Release and Indemnification agreement, will remain in force and effect. It is our understanding that Howard Hoffmann, on behalf of Nightingale, will continue to be engaged by MedQuist as the Company’s Interim President and Chief Executive Officer and will continue to report to the Company’s Board of Directors.

I.

SCOPE OF WORK:

Effective as of July 1, 2007, Nightingale will extend the term of Howard Hoffmann’s role as MedQuist’s Interim President and Chief Executive Officer until February 29, 2008 (the “Extension Period”). Following termination of Mr. Hoffmann’s role as Interim President and Chief Executive Officer, Mr. Hoffmann will endeavor to make himself available for ongoing consultancy work on an as needed basis, subject to negotiation of a mutually agreeable Scope of Work.

Finding Solutions to

Complex Business Situations

Since 1975

Messrs. Rusckowski and Underwood
MedQuist Inc.
September 18, 2007
Page 2

	It should be noted that Mr. Hoffmann expects to be working on other client engagements upon his departure as the full time Interim President and Chief Executive Officer of MedQuist, and thus his availability for work beyond February 29, 2008 cannot be guaranteed.
II.	FEE STRUCTURE:
	Fixed Monthly Fee:
	Effective as of July 1, 2007, Nightingale’s fees for Mr. Hoffmann’s role as Interim President and Chief Executive Officer will be a fixed rate of $120,000 per month payable in arrears. If Mr. Hoffmann’s role is terminated during the course of a month, Nightingale’s fees for the final month will be prorated based on the actual number of calendar days elapsed during the month up to and including Mr. Hoffmann’s final day of work. Mr. Hoffmann’s fees for consultancy services following his departure as the Interim President and Chief Executive Officer of MedQuist will be billed at an hourly rate of $525/hour.
	2006 Discretionary Bonus
	Pursuant to the terms of the Amended Engagement Letter, the Company shall pay to Nightingale the approved 2006 Discretionary Bonus achievement within 30 days following the execution of this Amendment, but in no event later than December 31, 2007.
	2007 Second Half Performance Bonus:
	Nightingale may be entitled to an additional performance related bonus payment of up to $240,000, which will be paid following the close of the Company’s 2007 fiscal year, but in no event later than January 15, 2008 (the “2007 Second Half Performance Bonus”) in connection with Mr. Hoffmann’s service as Interim President and Chief Executive Officer from July 1, 2007 to December 31, 2007. The amount, if any, of the 2007 Second Half Performance Bonus that Nightingale is to receive will be based on the achievement of certain operational objectives that have been established by the Board of Directors of MedQuist and Nightingale, which operational objectives involve confidential strategic, commercial and financial information, the disclosure of which would result in competitive harm to the Company.
	Engagement Bonus:

Messrs. Rusckowski and Underwood
MedQuist Inc.
September 18, 2007
Page 3

Nightingale shall receive an engagement completion bonus in the amount of $132,500 (the “Engagement Completion Bonus”) if Mr. Hoffmann serves as the Company’s President and Chief Executive Officer for the entire Extension Period.

The Company will pay Nightingale the Engagement Completion Bonus in a lump sum within 10 business days following the earliest to occur of (i) the termination of Nightingale’s engagement with the Company, including the retention of Mr. Hoffmann as the President and Chief Executive Officer of the Company (or any successor to its business) following a Strategic Transaction (as defined below), or (ii) February 29, 2008, provided that Mr. Hoffmann has continuously served as the Company’s President and Chief Executive Officer through that date.

Notwithstanding the foregoing, in the event of the termination Nightingale’s engagement with the Company, including the retention of Mr. Hoffmann as the President and Chief Executive Officer of the Company, prior to the earlier to occur of the closing of a Strategic Transaction or February 29, 2008, the amount of the Engagement Completion Bonus due to the Nightingale, if any, shall be at the discretion and subject to the approval of the Board of Directors of the Company.

Strategic Transaction Bonus

(a) For purposes of this section, the following terms shall have the meanings set forth below:

• “Acquiree” means any corporation, partnership, limited liability company or similar entity with which the Company engages in an Acquisition Transaction.

• “Acquisition Transaction” means each and every transaction or series of related transactions whereby, directly or indirectly, control of, or a significant interest in, any Acquiree or any of its businesses or assets is transferred to the Company for consideration, including, without limitation, a sale, acquisition or exchange of stock (including shares issuable upon conversion of any securities convertible into stock) or assets, a lease or license of assets (with or without a purchase option), or a merger, consolidation or reorganization, tender offer, leveraged buyout or other extraordinary corporate transaction or business combination involving the Acquiree with an expected enterprise value in excess of $50,000,000, as determined by the Board of Directors of the Company in its reasonable discretion.

• “Majority Shareholder” means Koninklijke Philips Electronics N.V.

Messrs. Rusckowski and Underwood
MedQuist Inc.
September 18, 2007
Page 4

• “Sale Transaction” means each and every transaction or series of related transactions whereby, directly or indirectly, control of, or a significant interest in, the Company or any of its businesses or assets is transferred for consideration, including, without limitation, a sale, acquisition or exchange of stock (including shares issuable upon conversion of any securities convertible into stock) or assets, a lease or license of assets (with or without a purchase option), or a merger, consolidation or reorganization, tender offer, leveraged buyout, “going private” transaction or other extraordinary corporate transaction or business combination involving the Company, including any such transaction in which the outstanding equity securities of the Company not held by the Majority Shareholder and its affiliates are acquired by a third-party; provided, however, that a secured interest in the Company or any of its businesses or assets arising solely from a debt transaction shall not constitute a Sale Transaction.

• “Strategic Transaction” means a Sale Transaction or an Acquisition Transaction, other than a Sale Transaction or Acquisition Transaction with an affiliate of the Company or an affiliate of any holder of more than 50% of the Company’s capital stock. A “merger” will be considered to be an Acquisition Transaction if the Company’s current stockholders own at least a majority of the outstanding common stock of the resulting company and to be a Sale Transaction if the Company’s current stockholders own less than a majority of the outstanding common stock of the resulting company.

(b) Success-Based Bonus Amount and Conditions. The Company will pay to Nightingale a bonus (the “Success-Based Bonus”) in an amount equal to $132,500, if:

(i)

a Strategic Transaction is closed; and

(ii)

either, (1) Mr. Hoffmann continues to serve as the Company’s President and Chief Executive Officer for the 90 day period immediately following the closing of a Strategic Transaction (the “Post-Closing Period”), or (2) Nightingale’s engagement with the Company (or any successor to its business), including the retention of Mr. Hoffmann as the President and Chief Executive Officer of the Company (or any successor to its business), is terminated, upon the closing of a Strategic Transaction or at any time during the Post-Closing Period.

Messrs. Rusckowski and Underwood
MedQuist Inc.
September 18, 2007
Page 5

(c ) Timing and Form of Payment. Subject to paragraphs (a) and (b) of this provision, the Company will pay the Success-Based Bonus to Nightingale in a lump sum within 10 business days following the closing of a Strategic Transaction and the earliest to occur of: (i) the completion of the Post-Closing Period or (ii) the termination of Nightingale’s engagement with the Company (or any successor to its business), including the retention of Mr. Hoffmann as the President and Chief Executive Officer of the Company (or any successor to its business). For the avoidance of doubt, only one Success-Based Retention Bonus is payable under this Agreement.

	For purposes of both the Engagement Completion Bonus and the Success-Based Bonus described above, Nightingale’s engagement with the Company, including the retention of Mr. Hoffmann as the President and Chief Executive Officer of the Company, shall not be deemed to have been terminated merely because Mr. Hoffmann ceases to be the President and Chief Executive Officer of the Company and becomes the President and Chief Executive Officer of any successor to the Company’s business following the completion of a Strategic Transaction on terms and conditions acceptable to such company and Nightingale.
	Additional Nightingale Personnel:
	Nightingale will continue to make available the services of Mr. Michael C. Yeager and Ms. Jeanine Cobonpue to perform selected services in connection with the Company’s billing matter and operations related activities. Mr. Yeager’s professional time fee services have been and will continue to be invoiced to MedQuist at his prevailing hourly rate of $350/hour. Ms. Cobonpue’s professional time fee services have been and will continue to be invoiced to MedQuist at her prevailing hourly rate of $175/hour. Should it become necessary to utilize the services of additional Nightingale personnel on the project, it is agreed that Nightingale will invoice professional time fees for such personnel at their prevailing hourly rates. Nightingale agrees that it will obtain the advance approval of the Board of Directors of the Company, which shall be conveyed by the Board of Directors of the Company to Howard Hoffmann, before adding additional personnel to the project team.
	In addition to professional time fees, out-of-pocket expenses are billed at cost, and generally range from 10% to 20% of professional time fees, depending on the amount of travel involved. Out-of-pocket expenses consist primarily of transportation, meals, lodging, telephone, specifically assignable secretarial and office assistance, and report production.
III.	ADVANCE DEPOSIT

Messrs. Rusckowski and Underwood
MedQuist Inc.
September 18, 2007
Page 6

Nightingale requires an Advance Deposit for all assignments of the type described above. Given this situation, Nightingale will not require an increase of its existing Advance Deposit of $75,000 that has been paid by the Company. At the completion of the project and at the direction of the Company, Nightingale will either apply the Advance Deposit to any outstanding invoices or, if there are no unpaid invoices owing to Nightingale, promptly return the Deposit to the Company.

v v v v v v v v v v v v v v v

Messrs. Rusckowski and Underwood
MedQuist Inc.
September 18, 2007
Page 7

     If this Amendment conforms to your understanding of the terms and conditions of our retention, please have the appropriate party signify agreement by signing and returning the enclosed extra copy of this Amendment.

     We look forward to continue working with you and the Company.

Sincerely,
 

/s/ Howard S. Hoffmann  

Howard S. Hoffmann, 

in the capacity as Principal and
Managing Partner of Nightingale &
Associates, LLC 

READ, UNDERSTOOD AND AGREED TO BY:

MedQuist Inc.

By:	/s/ Stephen Rusckowski
	Stephen Rusckowski
	Chairman of the Board of Directors of MedQuist Inc.

Date: September 19, 2007

By:	/s/ John Underwood
	John Underwood
	Chairman of the Compensation Committee of the Board of Directors of MedQuist Inc.

Date: September 19, 2007

EX-10.2

Exhibit 10.2

MEDQUIST INC.

RETENTION AND STRATEGIC TRANSACTION BONUS AGREEMENT

          This Retention and Strategic Transaction Bonus Agreement (the “Agreement”) is entered into this 19th day of September, 2007 (the “Effective Date”), by and between [see schedule below] (the “Employee”) and MedQuist Inc., a New Jersey corporation (the “Company”).

          WHEREAS, it is expected that the Company from time to time may consider or may be presented with the need to consider the possibility of a Strategic Transaction (as defined herein). The Board of Directors of the Company (the “Board”) recognizes that such considerations can be a distraction to the Employee and can cause the Employee to consider alternative employment opportunities or to be influenced by the impact of a possible change in the ownership of the Company on the Employee’s personal circumstances in evaluating such possibilities. The Board has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Strategic Transaction; and

          WHEREAS, the Employee serves the Company in a position of substantial authority and responsibility; and

          WHEREAS, the Board believes that it is in the best interests of the Company and its shareholders to provide the Employee with an incentive to continue his or her employment and to motivate the Employee to maximize the value of the Company upon a Strategic Transaction for the benefit of its shareholders.

          NOW, THEREFORE, in consideration of these premises and the agreements set forth herein and intending to be legally bound hereby, the parties agree as follows:

ARTICLE I.
DEFINITIONS

     For purposes of the Agreement, the following terms shall have the meanings set forth below:

          1.1. “Acquiree” means any corporation, partnership, limited liability company or similar entity with which the Company engages in an Acquisition Transaction.

          1.2. “Acquisition Transaction” means each and every transaction or series of related transactions whereby, directly or indirectly, control of, or a significant interest in, any Acquiree or any of its businesses or assets is transferred to the Company for consideration, including, without limitation, a sale, acquisition or exchange of stock (including shares issuable upon conversion of any securities convertible into stock) or assets, a lease or license of assets (with or without a purchase option), or a merger, consolidation or reorganization, tender offer, leveraged buyout or other extraordinary corporate transaction or business combination involving the

Acquiree with an expected enterprise value in excess of $50,000,000, as determined by the Board in its reasonable discretion.

          1.3. “Agreement” means this Retention and Strategic Transaction Bonus Agreement.

          1.4. “Cause” shall have the same meaning as set forth in the Employee’s Employment Agreement.

          1.5. “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder, and any successor provisions thereto.

          1.6. “Company” means MedQuist Inc., or any successor in interest thereto.

          1.7. “Employment Agreement” means that certain Employment Agreement by and between the Company and the Employee, dated June 2, 2005, as amended from time to time.

          1.8. “Involuntary Termination Without Cause” means the Employee’s (a) involuntary termination of employment by the Company other than for Cause or (b) resignation of employment with the Company due to a Worksite Relocation.

          1.9. “Majority Shareholder” means Koninklijke Philips Electronics N.V.

          1.10. “Sale Transaction” means each and every transaction or series of related transactions whereby, directly or indirectly, control of, or a significant interest in, the Company or any of its businesses or assets is transferred for consideration, including, without limitation, a sale, acquisition or exchange of stock (including shares issuable upon conversion of any securities convertible into stock) or assets, a lease or license of assets (with or without a purchase option), or a merger, consolidation or reorganization, tender offer, leveraged buyout, “going private” transaction or other extraordinary corporate transaction or business combination involving the Company, including any such transaction in which the outstanding equity securities of the Company not held by the Majority Shareholder and its affiliates are acquired by a third-party; provided, however, that a secured interest in the Company or any of its businesses or assets arising solely from a debt transaction, shall not constitute a Sale Transaction.

          1.11. “Service-Based Retention Bonus” shall have the meaning assigned to it in Section 2.1.

          1.12. “Strategic Transaction” means a Sale Transaction or an Acquisition Transaction, other than a Sale Transaction or Acquisition Transaction with an affiliate of the Company or an affiliate of any holder of more than 50% of the Company’s capital stock. A “merger” will be considered to be an Acquisition Transaction if the Company’s current stockholders own at least a majority of the outstanding common stock of the resulting company and to be a Sale Transaction if the Company’s current stockholders own less than a majority of the outstanding common stock of the resulting company.

          1.13. “Success-Based Bonus” shall have the meaning assigned to it in Section 2.2.

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          1.14. “Target Bonus” means the Employee’s applicable target bonus under the Company’s Management Incentive Plan.

          1.15. “Worksite Relocation” means, without the Employee’s prior written consent, a relocation of the Employee’s principal worksite to a location more than twenty-five (25) miles from his or her existing worksite.

ARTICLE II.
BONUS PAYMENTS

          2.1. Service-Based Retention Bonus.

               (a) Bonus Amount and Conditions. The Company will pay to the Employee a bonus (the “Service-Based Retention Bonus”) in an amount equal to 75% of the Employee’s Target Bonus in effect as of the Effective Date, if the Employee remains continuously employed by the Company through the closing of a Strategic Transaction, or, if sooner, February 29, 2008.

               (b) Timing and Form of Payment. The Company will pay the Service-Based Retention Bonus to the Employee in a lump sum within 10 business days following the earliest to occur of (i) the Employee’s Involuntary Termination Without Cause following a Strategic Transaction, or (ii) February 29, 2008, provided that the Employee has remained continuously employed by the Company through that date. Notwithstanding the foregoing, in the event of the Employee’s Involuntary Termination Without Cause prior to the earlier to occur of the closing of a Strategic Transaction or February 29, 2008, the amount of the Service Based Retention Bonus due to the Employee, if any, shall be recommended by the Chief Executive Officer of the Company and shall be subject to the approval of the Board.

          2.2. Success-Based Retention Bonus

               (a) Bonus Amount and Conditions. The Company will pay to the Employee a bonus (the “Success-Based Retention Bonus”) in an amount equal to 75% of the Employee’s Target Bonus in effect as of the Effective Date, if:

                    (i) a Strategic Transaction occurs; and

                    (ii) either, (1) the Employee remains continuously employed by the Company for the 90 day period immediately following the closing of the Strategic Transaction (the “Retention Period”), or (2) the Employee experiences an Involuntary Termination Without Cause at any time during Retention Period.

               (b) Timing and Form of Payment. Subject to paragraph (a) of this Section 2.2, the Company will pay the Success-Based Retention Bonus to the Employee in a lump sum within 10 business days following the earliest to occur of: (i) the completion of the Retention Period or (ii) the Employee’s Involuntary Termination Without Cause. For the avoidance of doubt, only one Success-Based Retention Bonus is payable under this Agreement.

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          2.3. Compliance with Section 409A of the Code. To the extent compliance with the requirements of Treasury Regulation §1.409A-3(i)(2) (or any successor provision) is necessary to avoid the application of an additional tax under Section 409A of the Code to payments due to the Employee upon or following his or her Involuntary Termination Without Cause, then notwithstanding any other provision of this Agreement, any such payments that are otherwise due within six months following the Employee’s Involuntary Termination Without Cause will be deferred and paid to the Employee in a lump sum immediately following the lapse of such six-month period.

          2.4. For the avoidance of doubt, the Employee will not be deemed to have experienced an Involuntary Termination Without Cause for purposes of this Agreement and the triggering of any payment due hereunder if, in connection with or following the occurrence of a Strategic Transaction, the successor to the Company (if applicable) makes an offer to employ or retain the Employee on terms and conditions acceptable to the Employee.

ARTICLE III.
LIMITATIONS AND CONDITIONS ON BENEFITS

          3.1. Receipt of Benefits Conditioned upon Execution of Release. Upon the occurrence of an Involuntary Termination Without Cause, and prior to the receipt of any benefits under this Agreement on account of the occurrence of an Involuntary Termination Without Cause, the Employee shall, as of the date of such termination, execute a release, in such form as prescribed by the Company. Such release shall specifically relate to all of the Employee’s rights and claims in existence at the time of such execution relating to Employee’s employment with the Company. It is understood that the Employee has twenty-one (21) days to consider whether to execute such release and the Employee may revoke such release within seven (7) business days after execution of such release. In the event the Employee does not execute such release within the twenty-one (21) day period, or if the Employee revokes such release within the seven (7) business day period, no amounts shall be payable under this Agreement and this Agreement shall be null and void. Nothing in this Agreement shall limit the scope or time of applicability of such release once it is executed and not timely revoked.

          3.2. Waiver of Long-Term Incentive Award. In consideration of the right to any amounts under this Agreement, the Employee hereby waives and expressly relinquishes any right or entitlement the Employee may or may not have with respect to certain long-term incentive awards described in Section 2.b.(2) of the Employee’s Employment Agreement.

          3.3. Employee’s Acknowledgement. The duties and obligations of the Company to the Employee under this Agreement shall be in consideration for the Employee’s past services to the Company, the Employee’s continued employment with the Company, and the Employee’s execution of the release described in Section 3.1 and the waiver described in Section 3.2. The Employee acknowledges and agrees that his or her execution of the release described in Section 3.1 is a precondition to the Employee’s entitlement to the receipt of benefits under this Agreement and that these benefits shall not be earned unless all such condition has been satisfied through the scheduled date of payment.

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ARTICLE IV.
AMENDMENT AND TERMINATION

          This Agreement may be changed or terminated only upon the mutual written consent of the Company and the Employee. The written consent of the Company to a change or termination of this Agreement must be signed by an authorized officer of the Company, after such change or termination has been approved by the Board or the Compensation Committee of the Board.

ARTICLE V.
OTHER RIGHTS, OBLIGATIONS AND BENEFITS NOT AFFECTED

          5.1. Nonexclusivity; Coordination with Other Agreements. Except as specifically set forth in Section 3.2 of this Agreement, nothing contained herein shall prevent or limit the Employee’s continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices provided by the Company and for which Employee may otherwise qualify, nor shall anything herein limit or otherwise affect such rights as Employee may have or any obligations owed by the Employee to the Company, under any other agreements between the Company and the Employee, including, but not limited to, the Employee’s Employment Agreement. For the avoidance of doubt, the payments described in ARTICLE II herein, are in addition to, and not in lieu of, any severance payments that the Employee may be entitled to receive under Section 5 of the Employee’s Employment Agreement and/or the Employee’s right to participate in and receive payments under the Company’s Management Incentive Plan.

          5.2. Employment Status. This Agreement does not constitute a contract of employment or impose on the Employee any obligation to remain as an employee, or impose on the Company any obligation (i) to retain Employee as an employee, (ii) to change the status of Employee as an at-will employee, or (iii) to change the Company’s policies regarding termination of employment.

ARTICLE VI.
NON-ALIENATION OF BENEFITS

     No benefit hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge by the Employee, and any attempt to do so shall be void.

ARTICLE VII.
GENERAL PROVISIONS

          7.1. Withholding. The Company will withhold from any payments due to the Employee hereunder, all taxes, FICA or other amounts required to be withheld pursuant to any applicable law.

          7.2. Notices. Any notices provided hereunder must be in writing and such notices or any other written communication shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex or facsimile) or the third day after mailing by first class mail, to the Company at its primary office location and to the Employee at the Employee’s

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address as listed in the Company’s payroll records. Any payments made by the Company to the Employee under the terms of this Agreement shall be delivered to the Employee either in person or at such address as listed in the Company’s payroll records.

          7.3. Severability. It is the intent of the parties to this Agreement that whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.

          7.4. Waiver. If either party should waive any breach of any provisions of this Agreement, that party shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.

          7.5. Complete Agreement. This Agreement contains the entire agreement and understanding of the parties relating to the provision of a retention and/or strategic transaction bonus and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating to that subject. This Agreement is entered into without reliance on any promise or representation other than those expressly contained herein.

          7.6. Counterparts. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.

          7.7. Headings. The headings of the Articles and Sections hereof are inserted for convenience only and shall neither be deemed to constitute a part hereof nor to affect the meaning thereof.

          7.8. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by the Employee and the Company, and their respective successors, assigns, heirs, executors and administrators, except that the Employee may not delegate any of the Employee’s duties hereunder and may not assign any of the Employee’s rights hereunder without the written consent of the Company, which consent shall not be withheld unreasonably. Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the Company’s obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets, whether or not such successor executes and delivers an assumption agreement referred to in the preceding sentence or becomes bound by the terms of this Agreement by operation of law or otherwise.

          7.9. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without regard to the principles of conflicts of laws.

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          7.10. Construction. In the event of a conflict between the text of the Agreement and any summary, description or other information regarding the Agreement, the text of the Agreement shall control.

[this space left intentionally blank; signature page follows]

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          IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year written above.

MEDQUIST INC.	[see schedule below]
By:
Name:	Signature
Title:

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Schedule of Differences

Other than the identification of the Employee, each Agreement executed with the executive officers listed below is substantially the same as this form and as each other.

• Kathy Donovan — Senior Vice President and Chief Financial Officer

• Mark Ivie — Senior Vice President and Chief Technology Officer

• Scott Bennett — Senior Vice President of Sales & Marketing

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EX-10.3

Exhibit 10.3

MEDQUIST INC.
RETENTION AND STRATEGIC TRANSACTION BONUS AGREEMENT

          This Retention and Strategic Transaction Bonus Agreement (the “Agreement”) is entered into this 19th day of September, 2007 (the “Effective Date”), by and between [see schedule below] (the “Employee”) and MedQuist Inc., a New Jersey corporation (the “Company”).

          WHEREAS, it is expected that the Company from time to time may consider or may be presented with the need to consider the possibility of a Strategic Transaction (as defined herein). The Board of Directors of the Company (the “Board”) recognizes that such considerations can be a distraction to the Employee and can cause the Employee to consider alternative employment opportunities or to be influenced by the impact of a possible change in the ownership of the Company on the Employee’s personal circumstances in evaluating such possibilities. The Board has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication and objectivity of the Employee, notwithstanding the possibility, threat or occurrence of a Strategic Transaction; and

          WHEREAS, the Employee serves the Company in a position of substantial authority and responsibility; and

          WHEREAS, the Board believes that it is in the best interests of the Company and its shareholders to provide the Employee with an incentive to continue his or her employment and to motivate the Employee to maximize the value of the Company upon a Strategic Transaction for the benefit of its shareholders.

          NOW, THEREFORE, in consideration of these premises and the agreements set forth herein and intending to be legally bound hereby, the parties agree as follows:

ARTICLE I.
DEFINITIONS

     For purposes of the Agreement, the following terms shall have the meanings set forth below:

          1.1. “Acquiree” means any corporation, partnership, limited liability company or similar entity with which the Company engages in an Acquisition Transaction.

          1.2. “Acquisition Transaction” means each and every transaction or series of related transactions whereby, directly or indirectly, control of, or a significant interest in, any Acquiree or any of its businesses or assets is transferred to the Company for consideration, including, without limitation, a sale, acquisition or exchange of stock (including shares issuable upon conversion of any securities convertible into stock) or assets, a lease or license of assets (with or without a purchase option), or a merger, consolidation or reorganization, tender offer, leveraged buyout or other extraordinary corporate transaction or business combination involving the

Acquiree with an expected enterprise value in excess of $50,000,000, as determined by the Board in its reasonable discretion.

          1.3. “Agreement” means this Retention and Strategic Transaction Bonus Agreement.

          1.4. “Cause” shall have the same meaning as set forth in the Employee’s Severance Letter Agreement.

          1.5. “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder, and any successor provisions thereto.

          1.6. “Company” means MedQuist Inc., or any successor in interest thereto.

          1.7. “Involuntary Termination Without Cause” means the Employee’s (a) involuntary termination of employment by the Company other than for Cause or (b) resignation of employment with the Company due to a Worksite Relocation.

          1.8. “Majority Shareholder” means Koninklijke Philips Electronics N.V.

          1.9. “Sale Transaction” means each and every transaction or series of related transactions whereby, directly or indirectly, control of, or a significant interest in, the Company or any of its businesses or assets is transferred for consideration, including, without limitation, a sale, acquisition or exchange of stock (including shares issuable upon conversion of any securities convertible into stock) or assets, a lease or license of assets (with or without a purchase option), or a merger, consolidation or reorganization, tender offer, leveraged buyout, “going private” transaction or other extraordinary corporate transaction or business combination involving the Company, including any such transaction in which the outstanding equity securities of the Company not held by the Majority Shareholder and its affiliates are acquired by a third-party; provided, however, that a secured interest in the Company or any of its businesses or assets arising solely from a debt transaction, shall not constitute a Sale Transaction.

          1.10. “Service-Based Retention Bonus” shall have the meaning assigned to it in Section 2.1.

          1.11. “Severance Letter Agreement” means that certain Severance Letter Agreement between the Company and the Employee, dated April 21, 2005, as amended from time to time.

          1.12. “Strategic Transaction” means a Sale Transaction or an Acquisition Transaction, other than a Sale Transaction or Acquisition Transaction with an affiliate of the Company or an affiliate of any holder of more than 50% of the Company’s capital stock. A “merger” will be considered to be an Acquisition Transaction if the Company’s current stockholders own at least a majority of the outstanding common stock of the resulting company and to be a Sale Transaction if the Company’s current stockholders own less than a majority of the outstanding common stock of the resulting company.

          1.13. “Success-Based Bonus” shall have the meaning assigned to it in Section 2.2.

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          1.14. “Target Bonus” means the Employee’s applicable target bonus under the Company’s Management Incentive Plan.

          1.15. “Worksite Relocation” means, without the Employee’s prior written consent, a relocation of the Employee’s principal worksite to a location more than twenty-five (25) miles from his or her existing worksite.

ARTICLE II.
BONUS PAYMENTS

          2.1. Service-Based Retention Bonus.

               (a) Bonus Amount and Conditions. The Company will pay to the Employee a bonus (the “Service-Based Retention Bonus”) in an amount equal to 75% of the Employee’s Target Bonus in effect as of the Effective Date, if the Employee remains continuously employed by the Company through the closing of a Strategic Transaction, or, if sooner, February 29, 2008.

               (b) Timing and Form of Payment. The Company will pay the Service-Based Retention Bonus to the Employee in a lump sum within 10 business days following the earliest to occur of (i) the Employee’s Involuntary Termination Without Cause following a Strategic Transaction, or (ii) February 29, 2008, provided that the Employee has remained continuously employed by the Company through that date. Notwithstanding the foregoing, in the event of the Employee’s Involuntary Termination Without Cause prior to the earlier to occur of the closing of a Strategic Transaction or February 29, 2008, the amount of the Service Based Retention Bonus due to the Employee, if any, shall be recommended by the Chief Executive Officer of the Company and shall be subject to the approval of the Board.

          2.2. Success-Based Retention Bonus

               (a) Bonus Amount and Conditions. The Company will pay to the Employee a bonus (the “Success-Based Retention Bonus”) in an amount equal to 75% of the Employee’s Target Bonus in effect as of the Effective Date, if:

                    (i) a Strategic Transaction occurs; and

                    (ii) either, (1) the Employee remains continuously employed by the Company for the 90 day period immediately following the closing of the Strategic Transaction (the “Retention Period”), or (2) the Employee experiences an Involuntary Termination Without Cause at any time during Retention Period.

               (b) Timing and Form of Payment. Subject to paragraph (a) of this Section 2.2, the Company will pay the Success-Based Retention Bonus to the Employee in a lump sum within 10 business days following the earliest to occur of: (i) the completion of the Retention Period or (ii) the Employee’s Involuntary Termination Without Cause. For the avoidance of doubt, only one Success-Based Retention Bonus is payable under this Agreement.

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          2.3. Compliance with Section 409A of the Code. To the extent compliance with the requirements of Treasury Regulation §1.409A-3(i)(2) (or any successor provision) is necessary to avoid the application of an additional tax under Section 409A of the Code to payments due to the Employee upon or following his or her Involuntary Termination Without Cause, then notwithstanding any other provision of this Agreement, any such payments that are otherwise due within six months following the Employee’s Involuntary Termination Without Cause will be deferred and paid to the Employee in a lump sum immediately following the lapse of such six-month period.

          2.4. For the avoidance of doubt, the Employee will not be deemed to have experienced an Involuntary Termination Without Cause for purposes of this Agreement and the triggering of any payment due hereunder if, in connection with or following the occurrence of a Strategic Transaction, the successor to the Company (if applicable) makes an offer to employ or retain the Employee on terms and conditions acceptable to the Employee.

ARTICLE III.
LIMITATIONS AND CONDITIONS ON BENEFITS

          3.1. Receipt of Benefits Conditioned upon Execution of Release. Upon the occurrence of an Involuntary Termination Without Cause, and prior to the receipt of any benefits under this Agreement on account of the occurrence of an Involuntary Termination Without Cause, the Employee shall, as of the date of such termination, execute a release, in such form as prescribed by the Company. Such release shall specifically relate to all of the Employee’s rights and claims in existence at the time of such execution relating to Employee’s employment with the Company. It is understood that the Employee has twenty-one (21) days to consider whether to execute such release and the Employee may revoke such release within seven (7) business days after execution of such release. In the event the Employee does not execute such release within the twenty-one (21) day period, or if the Employee revokes such release within the seven (7) business day period, no amounts shall be payable under this Agreement and this Agreement shall be null and void. Nothing in this Agreement shall limit the scope or time of applicability of such release once it is executed and not timely revoked.

          3.2. Employee’s Acknowledgement. The duties and obligations of the Company to the Employee under this Agreement shall be in consideration for the Employee’s past services to the Company, the Employee’s continued employment with the Company, and the Employee’s execution of the release described in Section 3.1. The Employee acknowledges and agrees that his or her execution of the release described in Section 3.1 is a precondition to the Employee’s entitlement to the receipt of benefits under this Agreement and that these benefits shall not be earned unless all such condition has been satisfied through the scheduled date of payment.

ARTICLE IV.
AMENDMENT AND TERMINATION

     This Agreement may be changed or terminated only upon the mutual written consent of the Company and the Employee. The written consent of the Company to a change or termination of this Agreement must be signed by an authorized officer of the Company, after

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such change or termination has been approved by the Board or the Compensation Committee of the Board.

ARTICLE V.
OTHER RIGHTS, OBLIGATIONS AND BENEFITS NOT AFFECTED

          5.1. Nonexclusivity; Coordination with Other Agreements. Nothing contained herein shall prevent or limit the Employee’s continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices provided by the Company and for which Employee may otherwise qualify, nor shall anything herein limit or otherwise affect such rights as Employee may have or any obligations owed by the Employee to the Company, under any other agreements between the Company and the Employee, including, but not limited to, the Employee’s Severance Letter Agreement. For the avoidance of doubt, the payments described in ARTICLE II herein, are in addition to, and not in lieu of, any severance payments that the Employee may be entitled to receive under Section 2 of the Employee’s Severance Letter Agreement and/or the Employee’s right to participate in and receive payments under the Company’s Management Incentive Plan.

          5.2. Employment Status. This Agreement does not constitute a contract of employment or impose on the Employee any obligation to remain as an employee, or impose on the Company any obligation (i) to retain Employee as an employee, (ii) to change the status of Employee as an at-will employee, or (iii) to change the Company’s policies regarding termination of employment.

ARTICLE VI.
NON-ALIENATION OF BENEFITS

     No benefit hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge by the Employee, and any attempt to do so shall be void.

ARTICLE VII.
GENERAL PROVISIONS

          7.1. Withholding. The Company will withhold from any payments due to the Employee hereunder, all taxes, FICA or other amounts required to be withheld pursuant to any applicable law.

          7.2. Notices. Any notices provided hereunder must be in writing and such notices or any other written communication shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex or facsimile) or the third day after mailing by first class mail, to the Company at its primary office location and to the Employee at the Employee’s address as listed in the Company’s payroll records. Any payments made by the Company to the Employee under the terms of this Agreement shall be delivered to the Employee either in person or at such address as listed in the Company’s payroll records.

          7.3. Severability. It is the intent of the parties to this Agreement that whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid,

5

illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.

          7.4. Waiver. If either party should waive any breach of any provisions of this Agreement, that party shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.

          7.5. Complete Agreement. This Agreement contains the entire agreement and understanding of the parties relating to the provision of a retention and/or strategic transaction bonus and merges and supersedes all prior and contemporaneous discussions, agreements and understandings of every nature relating to that subject. This Agreement is entered into without reliance on any promise or representation other than those expressly contained herein.

          7.6. Counterparts. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement.

          7.7. Headings. The headings of the Articles and Sections hereof are inserted for convenience only and shall neither be deemed to constitute a part hereof nor to affect the meaning thereof.

          7.8. Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by the Employee and the Company, and their respective successors, assigns, heirs, executors and administrators, except that the Employee may not delegate any of the Employee’s duties hereunder and may not assign any of the Employee’s rights hereunder without the written consent of the Company, which consent shall not be withheld unreasonably. Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the Company’s obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets, whether or not such successor executes and delivers an assumption agreement referred to in the preceding sentence or becomes bound by the terms of this Agreement by operation of law or otherwise.

          7.9. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without regard to the principles of conflicts of laws.

          7.10. Construction. In the event of a conflict between the text of the Agreement and any summary, description or other information regarding the Agreement, the text of the Agreement shall control.

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[this space left intentionally blank; signature page follows]

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     IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year written above.

MEDQUIST INC.	[see schedule below]
By:
Name:	Signature
Title:

8

Schedule of Differences

Other than the identification of the Employee, each Agreement executed with the executive officers listed below is substantially the same as this form and as each other.

• Mark Sullivan — General Counsel, Chief Compliance Officer & Secretary

• Michael Clark — Senior Vice President of Operations

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